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Daily Newsletter, Sunday, 10/17/2004

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The Option Investor Newsletter                   Sunday 10-17-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Hunt for Red October 
Futures Wrap: See Note
Index Trader Wrap:  The Bigger Picture
Editor's Plays:  Skids Oiled?
Market Sentiment:  Are You From Missouri? 
Ask the Analyst: An economic update
Coming Events: Earnings, Splits, Economic Events 


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       WE 10-15        WE 10-08        WE 10-01         WE 9-24 
DOW     9933.38 -121.82 10055.2 -137.45 10192.6 +145.41 -237.22 
Nasdaq  1911.50 -  8.47 1919.97 - 22.23 1942.20 + 62.72 - 30.61 
S&P-100  531.80 -  6.67  538.47 -  4.64  543.11 +  8.74 - 11.43 
S&P-500 1108.20 - 13.94 1122.14 -  9.36 1131.50 + 21.39 - 18.47 
W5000  10838.67 -125.85 10964.5 - 94.18 11058.7 +220.40 -155.02 
SOX      381.37 -  8.15  389.52 - 12.39  401.91 + 19.36 -  5.95 
RUT      569.42 -  6.23  575.65 -  9.38  585.03 + 19.06 -  7.20 
TRAN    3352.68 + 16.68 3336.00 + 37.20 3298.80 + 96.69 - 55.28 
VXO       15.89           14.95           12.55           14.14 
VXN       21.80           20.69           18.91           21.10
******************************************************************

Hunt for Red October
by Jim Brown

Last Sunday cracks were beginning to show in the October 
rally and today it would take more than Visine to get the
red out. October has lived up to its reputation for red
numbers for the indexes but good news may lie ahead. 
October is half over and hopefully it was the bad half. 

Dow Chart

Nasdaq Chart

SPX Chart


Economically Friday was a not exciting for the bulls with
conflicting numbers once again. The bad news began with
the NY Empire State Manufacturing Survey. The headline
number fell sharply to 17.4 from 27.3 and almost completely
reversed the September gains. Since topping in July at 35.8
the index has been trending lower and suggests the economic
boom for manufacturers in New York could be coming to an
end. Shipments fell from 32.1 to 19.1, new orders fell from
26.2 to 21.2. Back orders turned negative at -2.7 from 11.7.
Employment fell to 17.6 from 20.3 and prices paid soared to
59.2 from 52.0. A positive headline number still indicates
growth but the internal components paint the real picture. 

The PPI showed rapidly rising inflation is still with us.
The prices for finished goods rose +0.1% in September and
+0.3% for the quarter. However, the headline number does
not give the true picture. Core intermediate goods rose
by +9.0% for the quarter and September was the 14th month
of consecutive gains. Non-durable goods rose +19.4% for
the 3Q. Core crude goods rose +50.3% for the quarter. Any
questions now about why the Fed is not backing off its
rate hike policy? 

Retail Sales soared much higher than expected in September
with a +1.5% headline number but in reality it was not as
good as it appeared. Automakers dumping inventory accounted
for two-thirds of the number leaving all other retailers
struggling at +0.6% and inline with the consensus estimates.
Auto dealers saw sales jump +4.2% for the month in an 
effort to dump 2004 model inventory. Building supply stores
saw a +1.4% gain mostly due to hurricane related buying.
Ironically sales at gas stations only rose +0.1% as angry
consumers cutback on driving to save money. 

Industrial Production rose only a very minor +0.1% and
well under expectations and the August number was revised
down to -0.1%. Production gains have been trending down 
since Nov-2003. Manufacturing fell -0.3% and August was
revised down to only a gain of +0.2% from a previously
reported +0.5% gain. Capacity Utilization fell across the
board with Durable Goods slipping to only 73.2%. This means
more than 25% of capacity is idle due to lack of demand. 
Low utilization means no pricing power as companies fight
for market share just to keep plants running rather than
increase profits. 

Business Inventories rose +0.7% but slowed from their pace
from the prior month. Sales rose to match the inventory
and the balance appears to be holding. The low rate of
inventory build may be beneficial to manufacturers who
are avoiding buildups where possible but it is detrimental
to the GDP. In Q2 the inventory gains added +78 basis 
points to the GDP but for Q3 it could be a negative 
number as the rate of growth slows. 

You may recall I cautioned about the Consumer Sentiment on
Thursday night. Friday's report showed sentiment falling
sharply to 87.5 from last months 94.2. This is the lowest
level since March-2003 and not a good sign for the future.
This was the sharpest one-month decline since February.
Consumer outlook for the future fell from 88.0 to 79.6 and
the first time under 80 since April-2003. The reasons given
for this sudden drop in sentiment were higher gas prices, 
negative economic comments from the Kerry campaign, falling
markets, slow job growth and earnings guidance for 2005. 
This is amazing since the survey was done before the high
profile company specific guidance began to appear. Consumers
are beginning to believe analysts that growth for all of 
2005 could be only +2-3%. 

The markets on Friday opened up slightly but hesitantly
and walked the flat line until the text of the Greenspan
speech on oil hit the wires. The speech went into great
historical depth explaining why current oil prices did not
worry him and there was an immediate spike in equities and
drop in bonds. Clearly an asset allocation program triggered
on the positive comments but the impact was not lasting and
the bonds and equities returned to the prior levels before
the day was out. 

Ten-year yield chart

Dow Chart

Crude Oil Chart

  
The main point of the Greenspan speech was a lack of worry
about oil prices based on historical trends. Oil dipped
slightly as the speech was delivered live but promptly
rebounded to trade at $55 and close at another new high
at $54.93. Why do you think this happened? Mr. financial
himself just said oil was not a problem and not to worry.

After reading the entire text of the Greenspan speech I 
was struck by the complete divergence from present day 
reality that appears to be evident in his thinking. He 
suggests that new technology, cheaper fuels and better 
oil recovery methods will delay the depletion of all oil
reserves until 2050. While that may be true the oil crisis
will reach epic proportions well before the last drop of 
oil is extracted from the ground in 2050. 

Currently emerging economies like India and China only 
use a fraction of the oil consumed by the U.S. The U.S. 
has a population of 290 million and we consume about 22
million barrels of oil per day. China has a population 
of 1.3 billion, four times the size of the U.S. China 
only consumes 6 million barrels per day but that rate 
of consumption is expanding rapidly. It is a well known
fact that emerging economies consume more oil per capita
during their growth phase than fully developed countries.
China is currently exploding from its agrarian society 
and rapidly improving the life style of its population. 
However China is still well behind the industrialization
levels of Korea and Japan. Both Japan and Korea currently
consume 16 bbl per person per year. If China only brought
the coastal 1/3 of its population to the current economic
and technological levels of Japan/Korea it would increase
China's consumption to more than 20 MBpd. That is the 
equivalent of adding the production of two Saudi Arabia's
operating at full capacity to the daily global production.
It is just not going to happen. Add in the explosion in
India and other emerging economies and global demand 
could increase by 30 Mbpd over the next 10 years. 

Greenspan made a big deal about the 100 billion barrel 
increase in reserves over the last decade while at the 
same time 250 billion barrels were consumed. What is 
wrong with this picture? It is a sure bet that the
current decade will NOT add 100 billion barrels to 
known reserves. If that additional consumption of that
30 Mbpd projection above came to pass it would increase
annual consumption by over 11 billion barrels and that
does not include increases in consumption by already 
developed countries. 

In other words reserves increased at only 40% of the 
rate of consumption over the decade of 1990-2000 with 
the advent of deeper drilling, monster offshore wells,
and a vast improvement in recovery technologies. 
Consumption increased over 50% during the same period. 
Current annual consumption is 31 billion barrels. Add
in the 11 billion in expected new consumption from just
the emerging economies and increases in existing economies
and consumption in the current decade could spike to 500
billion barrels. If we only found 100 BB of new reserves
from 1990-2000 with the worldwide race to locate those
reserves then it should be clear to everyone that we
are not going to find another 500 BB between 2000-2010.

The outlook is clear to anyone that wants to take the 
time to think it through. The easy oil has been found 
and the major fields are already drying up. New technology
and additional discoveries will add to known reserves but
at a far smaller pace than current reserves are being 
consumed. If we did find another 100BB over this decade
it would be less than a three year supply at current
demand levels.  

I believe the Greenspan speech was crafted to DOWNPLAY 
the current crisis and attempt to TALK DOWN PRICES. The
Fed is famous for this in multiple markets over the years.
When the Fed finds itself being pushed aside by current
events they will always try to talk the problem away. 
When David confronts problems of Goliath proportions the
first weapon of choice for Greenspan is a word barrage.
By the time the current scenario plays out Greenspan will
be retired and new presidents in power. This attempt to 
talk down oil prices is a stop gap measure to stop the 
bleeding. The U.S. economy is currently experiencing a 
$20 billion per month undeclared tax on consumers from 
the increase in oil over the last six months. $20 billion
of valuable purchasing power evaporating each month. You 
do the math. Greenspan is simply trying to apply a 
tourniquet to the wound to stop the economic bleeding. 
If he could talk down prices, a feat OPEC and Saudi Arabia
have been unable to do, then the pressure would ease on the
administration and on the economy. Unfortunately those who
understand the problem and have no vested interest in 
Greenspan's economic game plan considered his statements
for all of an hour and then pushed prices to another new
high. Greenspan is firing blanks in this battle. Back in
July he called high-energy prices as a "transitory uptick".
Friday he warned that further increases in oil prices
could continue and cause more long term damage to the 
economy and had already subtracted -0.75 off the 2004 
GDP. Of course these negative points were glossed over
by the media. 

Every day we are coming closer to the day when oil 
production peaks forever and begins the downhill slide
to that last drop in 2050. That day is currently expected
in 2007-2008 depending on how fast China grows. Once 
demand exceeds production and that could come over the 
next three years, the price of oil will explode higher.
Once orders exceed capacity the bidding war for available
production will skyrocket. The crisis will not be when 
oil is gone in 2050 but when the demand exceeds production
on a daily basis. $55 oil will quickly become $100 oil or
even higher. Demand and production are balanced very 
precariously today and the prices are at all time highs. 
What if demand only exceeded production by a million 
barrels per day? That is less than a 1% increase in 
demand at current levels. One million bbls per day, 
7 mil per week, 21 mil per month. Get the picture? Oil
sales will become a bidding war and price will become 
less of a concern than actually getting delivery. 
$5 gas by 2010? I would NOT bet against it.

The chief economist for Conoco Phillips told a business
audience on Thursday that oil prices would remain high
due to a "permanent structural change" in the industry. 
The economist said the cost of finding new oil reserves
is over $30 a barrel and rising sharply due to the 
difficulty of prospecting and drilling in remote 
locations. They cited unrest in oil-rich areas, 
constraints on global production capacity and rapidly
increasing worldwide demand. I would assume the chief
economist for Conoco probably knows what they are 
talking about. 

I do believe oil prices will moderate after the election
but it should be considered a long term buying opportunity
for those stocks that have large proven reserves. The
longer that oil stays in the ground the more valuable
it becomes. Five years from now I believe we will look
back at $50 oil just like we look back at 99 cent gas
today. If this scenario comes to pass then a global
recession will eventually appear. When countries can't
get or afford oil their economic expansion will slow. 
I reported last week that Goldman Sachs Commodity Index
had risen +103% over the last 33 months. A recession
has never failed to appear when the index rose over 
+55% in any 30-month period. Bulls will always claim
this time is different until they are run over by 
reality. Need proof? Oil hit an all time high of $55 
today and the Dow transports are nearing a four year high.
Delta is losing $6.78 million per day and will eventually
follow the other carriers into bankruptcy. All airlines
are reportedly losing more than $1 billion per month on
fuel costs. Fuel is the largest expense for the 
transportation sector. Compare these charts and tell
me there is not something drastically wrong with this
picture. 

Transport/Crude comparison charts



The markets struggled all week and the insurance implosion
on Thursday stifled any chance of a recovery. $40 billion
in market cap was wiped out in a matter of minutes. Spitzer
managed in one fell swoop to punish stockholders of those
companies to the tune of a 30% to 40% loss in their
retirement holdings. Millions of investors suffered 
irreparable harm for the sins of the few. Did he really
have to go public in such a visible manner? Could he have
worked with them in private to achieve a settlement that
would have left their market cap relatively intact? 
Absolutely! I believe we have a prosecutor gone wild and
living for that next jolt of adrenaline that the public
limelight brings regardless of how many investors are hurt.
Shame on you Spitzer. Lose the ego and get a conscience.

On Friday the Dow rebounded off its two month lows and
struggled in vain to hold its intraday Greenspan gains.
By the close it retreated back to within 30 points of
the 9900 level and appeared tired from the effort. The
Dow will start off on Monday with two major earnings
hurdles with MMM and IBM both reporting. MMM before the
open and IBM after the close. Those are just two of the
over 500 companies to report next week. 

There is a very heated discussion underway on the 
potential for a retest of the lows for the year at 9783
and the potential for that retest to hold. Should the 
Friday rebound from 9900 hold and we move higher from 
here it would be a higher low and a bullish event. There
is a growing group of technical analysts that think it 
will not hold and a lower low is in the cards. Technicians
feel future events such as the election are already priced
into the market and the potential for a lasting post 
election rebound is slim. The sentiment traders feel 
the current October dip was a normal event as will be
a coming pre/post election rally. Those keeping statistics
point to the election trends for the last 100 years and
suggest the growing Kerry lead predicts an incumbent 
defeat and the potential for the Dow to retest 9000 
rather than 9800. 

The bottom line is the market is very confused. Historical
trends are failing. Oil is at all time highs and showing
no indications of falling. Bulls are in denial of the
earnings deceleration ahead and mutual funds are piling 
up cash while waiting for a sign of normalcy to return. 
Buffett has 38% of his assets in cash and many funds are
adding to cash instead of equities. Bonds are continuing
to rise and long term rates are falling despite an 
aggressive rate hike program by the Fed. Times are 
very confusing and traders do not know where to jump.   

When all else fails we always have to drop back to the
technicals for directional hints baring an external event.
The Dow must hold 9800 or all bullish bets are off and
a new game plan will have to be drawn up. Resistance on
any continued Monday bounce is 10000 with 10100 a close
backup. The Nasdaq returned to support at 1900 on Friday
and managed to rebound to 1925 resistance on the midday
asset allocation program. Overall the Nasdaq is clinging
to the relatively higher ground although still in a long
term downtrend. 1850 would be dip support and 1965 strong
resistance. 

When the Dow/Nasdaq are giving conflicting signals we
need to look at a broader market indicator. The Wilshire
5000 has gravitated around the 10750 level since January
and that is right where it started the year. The Wilshire
has held up remarkably well compared to the Dow and looks
more like the Nasdaq in performance. When determining 
broad market support level the 50dma on the Wilshire has
been both support and resistance on many occasions all
year. The current horizontal support is 10750 and the
50dma is 10785. I believe this 10750-10785 is the crucial
market level to watch next week. As long as we remain 
above it I will remain bullish but a break below would
turn me bearish in a flash. If the Wilshire decided to
return to the downtrend support since January it could
easily project back to 10000 and a -800 point drop. I
do not expect that but it would be the worst case. By
watching the Wilshire ($DWC) it removes the weighting
impact of individual stocks like AIG in the Dow. AIG 
was responsible for nearly two thirds of the Dow loss
on Thursday. 

Wilshire 5000 Chart - Support/Resistance

Wilshire 5000 Chart - overview



Other considerations include the SOX where 380 support
is beginning to look weak and a break there could easily
drop quickly to 350. The Russell is holding above support
at 560 and doing well considering this is small cap shuffle
month. The 100dma is trending up at the 560 level and time
is expiring on the October calendar. 

Russell Chart



Taken together the best picture of the market can best
be seen by watching the Wilshire at 10750, Russell at
560 and the SOX at 380. The weakest being the SOX at
380 with short-term risk to 350. 

Everybody always wants me to boil down the analysis to 
a sentence or two. If it was that simple I would not 
need to write the complete wrap. In my opinion there 
is a huge pile of cash on the sidelines. Indecision is
rampant and over the last nine months we have been moving
in the tightest trading range (SPX) in decades. Hedge
funds are losing money, mutual funds are breaking even
and nobody in the fund management business is making 
any money. Everyone has a vested interest in pushing
the market higher once the election is over regardless
of the winner. With the abundance of cash available the
potential for an end of year jam job is tremendous. I
believe that despite bad earnings and the fear of ever
increasing oil the fund managers will try to produce an
end of year rally in hopes of getting to January with a
profit and then pop the parachutes. Obviously if oil
continues to break new levels it will be difficult but
some of the current speculation in oil is based on
election risk and the potential for a terrorist event.

Once the election is over the speculation will ease and
oil should revert to a lower level. Those analysts not 
on crack expect something in the mid $40 range. This 
will give fund managers something to base their buying
on and the end of year rally becomes a self fulfilling
prophecy. We are already seeing profit taking in the
energy stocks despite new all time highs in oil. Funds
are trying to raise more cash while slipping quietly 
out of the energy door. I also believe there is enough
disbelief in the market that should a rally actually
appear the majority of traders will either wait on the
sidelines or continue to try and short it. Both groups
will end up chasing prices higher and contributing to
its success. 

This is of course just my humble opinion and by printing
this commentary it will make a suitable substitute for 
newspaper on the bottom of your birdcage or as a starter
stuffing for your next fireplace fire.  No one can predict
exactly what will happen over the next twelve trading days
until the election but hopefully the scenario I laid out
above will bear some resemblance to the actual events.
The alternate bearish scenario of a Wilshire retest of 
support at 9300 is more than we want to imagine tonight.
The negative ramifications would be enormous and best
left to my Halloween commentary two Sunday's from now.
Nightmare on Wall Street? Let's hope I don't have to 
write it.    

Enter Very Passively, Exit Very Aggressively!

Jim Brown

Was this commentary helpful to you?
Your comments are always appreciated. 

Click here to email Jim 




************
FUTURES WRAP
************

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


********************
INDEX TRADER SUMMARY
********************

 The Bigger Picture 
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
Sometimes it's instructive to look at the very broadest trends – 
I myself forget where we are in that regard, being mostly 
involved in day-to-day options trading, especially in indexes.  

On the advance since the 2002 low – the strongest index/market is 
the S&P, always represented by the broader S&P 500 index (SPX) – 
To date, the peak on the rebound from the '02 low is half of the 
distance from the 2002 bottom back to the all-time high (2000).    



At this point it's not possible to consider we're in a bull 
market until SPX can at least climb above its halfway marker.  A 
common rule of thumb is that stocks, and by inference, indices, 
often retrace about half of its prior trend and then reverse 
(back) to the direction of the biggest trend. 

If we look at the Composite (Nasdaq: COMP) index on the long-term 
weekly chart, it shows up that COMP has only retraced a bit more 
than a meager 25% of its big fall from 2000.  Not an impressive 
showing to date. Retracements of only a quarter are the lowest 
level on the strength scale -   



What does all this mean to someone interested in the day-to-day, 
week-to-week time frame?  Nothing and everything – it keeps it 
all in perspective at a minimum. 

We seem to be headed into a more volatile period and when that 
means more of the same – continued wide price swings - that's my 
kind of (options) market.    

FRIDAY CLOSING NUMBERS – 
The S&P 500  (SPX) was up 4.90 points (+0.5%) to 1,108, with SPX 
down 1.2% on the week. The Dow 30 (INDU) was up 38.9 points, at 
9,933, but putting it down 1.2% for the week. 

American International Group (AIG) the big Dow decliner, fell 
3.6% on the news of New York Attorney General's probe into its 
commission practices; Pfizer (PFE) was another large loser, 
falling 2% on concern over the safety of a profitable drug for 
the company, used in the treatment of arthritis.  The market 
doesn't like uncertainties! 

The Nasdaq Composite (COMP) was up 8.48 (+0.4%), closing at 
1,911.5. COMP however was also lower on the week, off 0.4%.

FRIDAY'S TRADING ACTIVITY – 

In the afternoon the overall market rallied after Fed chairman 
Alan "the man" Greenspan said in a speech that the economy should 
weather the recent rise in energy prices better than it did in 
the 1970s when OPEC, the oil cartel, raised oil prices sharply 
higher.

Greenspan speculated that the rise in oil prices so far this year 
has perhaps subtracted three-quarters of 1 percent of GDP, but 
(in addition) that much of the increase in energy prices over the 
short-term is also due to specific factors including political 
ones, hurricanes and rapid growth in developing countries (read 
'China'). 

Rumors that France had captured a high level al-Qaida figure 
seemed to fan the bullish mood on Friday afternoon. 

I put a big highlight last week on what crude futures were doing, 
in a sky-shoot bubble type market. I had objectives to at least 
54, so 55 was not surprising.  I predict that oil prices moderate 
some from here, at least based on the technical pattern.  

Crude-oil for November delivery hit a new peak on Friday, 
reaching a top most print at 55.00.  Some climb! This put oil up 
another 3% for the week, half the rate of increase of the week 
before, but hefty indeed.

Oil traders were bidding up the contract as they weighed 
uncertainty about the overall effect of high energy prices on 
demand, against concerns over dwindling heating-oil supplies for 
the winter. November delivery crude oil closed at $54.93 a barrel 
on the New York Merc Exchange, up 17 cents for the day and $1.62 
for the week. 

ECONOMIC DATA – 
The bulls were encouraged by a U.S. retail sales report that was 
up a substantial 1.5% last month (Sept) as auto sales jumped the 
most since October 2001. Excluding the 4.2% auto sales rise, 
retail sales were up 0.6%, double Street expectations.

A bit of damper on the consumer spending side of the ledger, the 
University of Michigan reported its U.S. consumer sentiment 
dropped in October, overshadowing stronger than expected retail 
sales somewhat. The U of M consumer sentiment index fell to 87.5 
from 94.2 in September.

The Labor Department released its wholesale measure of inflation, 
the PPI (price index of U.S. wholesale goods and services) and it 
rose 0.1% in Sept, inline with expectations, while the core 
producer price index rose 0.3%, a bit higher than expectations. 

And the Commerce Department released a report on business 
inventories – they rose 0.7% in August, in line with 
expectations.

Lastly, we saw some media and market attention fall on the New 
York Fed's report on manufacturing activity in the New York area, 
as it showed expansion in October, but at a slower pace than the 
previous month. 

SECTORS – 
Some big names in the Insurance group took a pounding – as 
mentioned already, AIG (American International Group) was off 
sharply.  Insurance stocks are ill favored in the wake of NY 
Attorney General Spitzer's suit against Marsh & McLennan 
(MMC).  Spitzer said several other brokers, including AIG, were 
involved in "contingent commissions" paid to sales people, but 
what the Attorney General also alleges to be a fraudulent scheme.  

Prudential Securities downgraded the property and casualty 
insurance sector to "unfavorable" (from "neutral") based on the 
logic that Spitzer's lawsuit will act as a significant overhang 
in this sector in general for the foreseeable future.

OTHER MARKETS –
Bonds ended a four-day rally on Friday. The 10-year Treasury note 
was down 8/32 to 101 20/32, but up substantially on the week 
(yields lower). 

In the currency markets, the drop in U.S. consumer confidence was 
read bearishly for the dollar, continuing its negative path. In 
Euro terms, the dollar hit at 7-month low.  In Euro currency 
terms, this is a 7-month high, at 124.78.  

Having a delay in collecting a euro debt may be a great blessing! 
I digress in counting my money ahead of the fact, when I go there 
in another week.  In fact, my next Index wrap is on the plane to 
Spain.. 

MY INDEX OUTLOOKS – 

S&P 100 Index (OEX) – Daily chart:

Generally, when the S&P 100 (OEX) gets to about 3% under its 21-
day closing moving average, it has been "oversold", and that 
level is noted at 523 by the green up arrow on the OEX daily 
chart below – 

The lower trading band is of interest, not because it will end up 
defining the low for this current (down) move, but because, at 3% 
under this average, the probabilities go up dramatically for a 
counter-trend move – in case up, or AT LEAST a slowing of the 
decline.  Slowing decline, means lowering of time premiums 
generally. OEX at around 520 makes its optimal to exit any puts 
in this way of risk assessment.  

538.6 is the current 21-day average – only a close over the 538-
540 level favors a retry of the OEX to make it to 550. The Index 
appears to be struggling to maintain itself at 530 support.  
There is more to go on the downside, but short-term, this index 
is oversold so there could be first a rally attempt of 8-10 
points, back up the 538-540 area.  



The other way to measure "room on the downside", is to see 
whether the index in question is yet at an oversold extreme – 
defined above by the 14-day daily RSI (Relative Strength Index). 
OEX is not yet in area where the best rallies have been coming 
from. You can see this on the chart above.

Read more about the overbought/oversold concept at -  
http://www.OptionInvestor.com/traderscorner/tc_101404_1.asp 
which happens to be my last week's Trader's Corner article. 
Imagine that, I wrote about it and now I'm using it to make real-
time analysis! 

Dow 30 (INDU) – Hourly: 

The oil price spike is still keeping the market under pressure, 
but oil has reached an technical objective and should back off or 
even rather sharply fall from Friday's high at $55 in the lead 
November futures contract.  This could allow the Dow to rebound, 
although OEX is the stronger index, as far as the outlook on 
calls.   



1950 is support implied by the low end of the expanded parallel 
trend channel line. 

A parallel (to the upper trendline) or channel line can be  
"assumed" to go through the first low made after the decline from 
the 10300 area. 

This lower channel line wasn't a bad reference as it turned out 
later on to be in the area of the recent hourly lows in the 9900 
region.  This area – 9900 – is a likely near support, but major 
chart support starts around 9800.      

The 10,000 area or what was "key" technical support is now viewed 
as an important resistance by technical traders – support, once 
broken, often "becomes" resistance. 

I figure INDU works a bit lower from here, perhaps reaching 9850, 
before there is a stronger rally attempt back to the 10,000 area.  
Stay tuned!   

Nasdaq 100 (NDX) Index  – Daily chart:

Based on the chart and momentum patterns, the Nas 100 looks 
headed still lower, but I would also note a key juncture here as 
prices are in the area of the 21-day moving average. Look for a 
lower price swing ahead if NDX can't stay above this key average, 
that is useful in how the indexes tend to trade.  

I thought support would be likely to develop around 1420 in the 
Nasdaq 100 (NDX), at the low end the upside gap from late last 
month and this proved to the be the case in late-week trade. So, 
it still looks that 1420 is immediate NDX support; then, under 
1420, at 1395.  Support implied by the prior (down) swing low is  
1380, with major support looking to me like 1460.  

1465 is immediate overhead resistance, then if penetrated, 
1475. The 1495-1500 area is major resistance -



The market got all the way into my overbought zone on the rally 
up toward 1480.  Eventually, the next strong rally ought to come 
AFTER the RSI gets closer to an oversold condition – this starts 
with a reading around 35.  

In a trading range market like this one, there is a market 
tendency for this indicator to go from one extreme to another – 
sound familiar? – at some point I think before the next strong or 
prolonged advance, there will be an RSI indicator reading in or 
close to the oversold zone.

Nasdaq 100 tracking Stock (QQQ) Daily chart:

I think we're looking at an upcoming trading range of 34 to 37.
Support is expected at 35.25, then more significant technical 
support around 34.25-34.00

Key technical resistance is 36.60–36.75.  A close over 36.75 
would suggest some upside potential to the 38 area or even 38.70.  
I don't this is less likely than a rally failure at or shy of 
36.75.  



The "break-down point" was 36.25 – I suggested last week shorting 
the stock on rallies back to 36.25 area and the Q's reached 
36.14, so I suppose officially I'm not short on this 
recommendation. 

Good Trading Success!


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

Skids Oiled?

The price of oil hit $55 on Friday but energy stocks failed
to rebound from their week long drop. Funds who have been
long energy for the last 12 months may be the only funds
with a profit for the year. The sharp spike in September
for oil prices has not faded but with the election ahead
there could be a change in the wind. 

While I personally believe oil will continue higher long
term I also believe it may pull back in November once the
election risk has passed. I believe the pullback will be
brief and funds will move back into energy in January
when tech stocks fall out of favor again. 

This presents a potential for a short term play with the
Energy SPDR, the XLE. The XLE rose to $36.50 last week
but has lost momentum despite oil continuing to rise. The
XLE is a basket of oil stocks in the S&P and represents
7.48% of the S&P as of Friday. 

List of components here:
http://www.spdrindex.com/spdr/index.cfm?story=composition&symbol=XLE 

This is a simple play but with oil still surging it could
be risky. I am basing it on the likelihood of funds taking
profits and oil easing as we near the election. 

I have a problem with entering on Monday after OpEx with
option premiums inflated. I would rather wait until later
in the week but we could see a significant move before 
then. I am going to put a trigger on the entry to keep
us out of the trade unless the XLE begins to fall. 

The XLE closed at $35.15 on Friday and the low for the
week was $34.35. I am going to make the initial entry
trigger $34.25. I want to trail the entry higher after
Monday if the XLE moves higher. 

For Monday the entry is an XLE trade at 34.25. After 
Monday if the XLE moves higher trail the entry at -75
cents from the XLE price. For instance if the XLE moves
to $35.75 then the entry point rises to $35. If it moves
to $36.50 then the entry point rises to $35.75. I want to
follow it higher but only enter on a breakdown. 

Because this is a short-term trade I am using December
options with the Dec-$35 PUT XLE-XI currently $1.20.

Buy DEC $35 Put XLE-XI with an XLE trade at $34.25.
After Monday trail the entry price -75 cents below the
XLE price on any move higher. 
 
If we are triggered then the stop is $1.50 over our
trigger price.

Profit target is $32.00

XLE Chart



************  
Open plays:
************  

MRK Put $30.51         ** Stop $36.00 **

Jan-2006 $25 LEAP Put WMR-ME currently $1.70

http://members.OptionInvestor.com/editorplays/edply_101004_1.asp


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

XMSR Call $29.00   ** Stop $26.50 **

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

http://members.OptionInvestor.com/editorplays/edply_100304_1.asp

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

MSO Put $16.54     ** Stop $17.50 **

March $15 Put MSO-OC @ $2.00 

http://members.OptionInvestor.com/editorplays/edply_092604_1.asp


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

Marathon Call

The Marathon call was stopped out on Monday at $2.50
and a +1.05 gain. Profit taking in energy stocks has
taken hold and we got out just in time. 

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

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

Are You From Missouri?
- J. Brown

The state of Missouri is called the "show me" state.  Looking at 
the markets this weekend I anticipate a lot of investors will 
adopt this Missourian mindset.  October is known for a volatile 
month and a number of pundits and investors have been expecting a 
rebound in the latter half of the month.  With the S&P 500 index 
resting just north of support near 1100 and Industrials slipping 
toward support and its August lows near 9800 it only seems 
natural that traders are going to want the markets to "show" them 
the rebound before they'll believe.  Fortunately, these levels 
offer just such an opportunity for a bounce but on the other side 
of the coin we're that much closer to a bearish breakdown.  

The perpetual issue on everyone's mind these days is oil.  With 
record oil prices at $55 a barrel acting as a huge undeclared tax 
on consumers it should be no surprise to see the economy slowing.  
Surprisingly the September retail sales data came in strong on 
Friday but the rest of the economic data was mixed.  Over the 
last few months most of the major economic reports have been 
showing a slow down in the country's growth so it shouldn't be 
any big surprise.  

The second major issue that is clouding over Wall Street is the 
upcoming election and the terror-risk it represents.  There is 
less than three weeks to go before the Nov. 2nd presidential 
elections.  First of all the markets hate uncertainty and it 
seems we, as a nation, have never been more uncertain about who 
to elect.  Actually, a better way to say that would be that we've 
never been more divided and the outcome is anyone's guess right 
now.  To make matters worse there is a lingering concern that 
terrorists will try and disrupt the election process with some 
sort of attack like the one that occurred in Spain.  If we can 
get past the election without an event then stocks have a good 
chance of moving higher with a huge relief rally and the removal 
of presidential uncertainty.

Investors also have to digest the next week of Q3 earnings and 
it's a big week!  Wall Street will wade through almost 180 
announcements of the S&P 500 components on top of all the smaller 
corporations announcing.  Concerns over the rate of earnings 
growth in the fourth quarter and 2005 will be front and center 
this week.  Look for MMM, IBM and LXK to announce on Monday.  
Tuesday brings EMC, F, MCD and MO.  Wednesday we'll hear AMR, 
COF, CL, CHIR, GLW, EBAY, DAL, GD, HON, JPM, and PFE.  Thursday's 
major announcements are AIG, AMZN, CAT, GOOG, MRK and MSFT.  



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9497
Current     :  9933

Moving Averages:
(Simple)

 10-dma: 10080
 50-dma: 10112 
200-dma: 10287



S&P 500 ($SPX)

52-week High: 1163
52-week Low : 1018
Current     : 1108

Moving Averages:
(Simple)

 10-dma: 1123
 50-dma: 1108
200-dma: 1120



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1430

Moving Averages:
(Simple)

 10-dma: 1444
 50-dma: 1394
200-dma: 1441



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

CBOE Market Volatility Index (VIX) = 15.04 -1.39
CBOE Mkt Volatility old VIX  (VXO) = 15.89 -1.24
Nasdaq Volatility Index (VXN)      = 21.80 -0.50 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.88      1,192,356     1,045,784
Equity Only    0.76        905,837       691,086
OEX            1.32         53,186        70,387
QQQ            4.09         24,094        98,667


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

Bullish Percent Data

           Current   Change   Status
NYSE          64.3    - 0     Bear Correction
NASDAQ-100    44.0    - 1     Bull Alert      
Dow Indust.   53.3    - 0     Bear Confirmed
S&P 500       62.2    - 0     Bear Correction
S&P 100       60.0    - 0     Bear Correction


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

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


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

 5-dma: 1.18
10-dma: 1.15
21-dma: 1.09
55-dma: 1.15


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1945      1760
Decliners     858      1187

New Highs      86        51
New Lows       32        44

Up Volume   1187M      789M
Down Vol.    775M      702M

Total Vol.  2001M     1623M
M = millions


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

Commitments Of Traders Report: 10/12/04

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 continue to hedge their bets on the large
S&P contracts as longs and shorts move closer to parity.  Small
traders didn't move much money either but remain net bullish.


Commercials   Long      Short      Net     % Of OI
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%)
10/12/04      423,472   436,780   (13,308)   (1.5%)

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
09/21/04      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%
10/12/04      139,175   113,903    25,272     9.9%

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

Uh-oh!  This could spell trouble for stocks.  Commecials,
who are normally on the "right" side of the trade are upping
their short positions.  Meanwhile, small traders decreased
their short positions leaving them strongly net bullish.
This alone is a contrarian indicator for a market top.
Just remember that these readings were taken before the 
Wednesday-Thursday sell-off this past week.


Commercials   Long      Short      Net     % Of OI 
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%)
10/12/04      258,457   517,805   (259,348)  (33.4%)

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
09/21/04      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%
10/12/04      309,720     62,502   247,218    66.4%

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


NASDAQ-100

Commercial traders aren't changing their bets.  They remain
net bullish on the NDX.  Small trades have significantly 
reduced positions in both longs and shorts but remain 
strongly net bearish, which of course is bullish for the
NDX if you're a contrarian.


Commercials   Long      Short      Net     % of OI 
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%
10/12/04       52,572     32,775    19,797   23.2%

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
09/21/04        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%)
10/12/04        8,756    24,400   (15,644)  (47.2%)

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

Commercial traders reduced both long and short positions
but remained net bullish.  In contrast small traders
significantly increased both their longs and their shorts on
the Dow Industrials but in essence remain rather neutral.


Commercials   Long      Short      Net     % of OI
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%
10/12/04       24,150    22,849    1,301       2.7%
 
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
09/21/04        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%)
10/12/04        8,814     9,167   (  353)   ( 1.9%)

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




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

An economic update

Back in May you wrote an article that was an update of various 
economic reports.  Could you post an update to that table as 
there have been so many revisions and new reports.  I think it is 
useful to get a look at the different economic reports.  If you 
could share some thoughts, or give your insight on things, that 
would be great.

Response:

I need an update too.  With all that takes place on any given 
day, I tend to loose track of all the economic data that has been 
released, and it doesn't hurt a bit to sit back, look at some of 
the major economic reports, and see if where we stand.

I'm going to use the May 23, 2004 Ask the Analyst column 
"Economics 101" as the backdrop for today's column, and we'll 
walk through the various economic reports in similar order.  This 
gives you and I a chance to try and develop an UNBIASED view of 
things.

One item I did add to the table of economic data is oil prices, 
where the prices shown were taken from the end of the month's 
price, of the then near-term NYMEX Oil futures contract that was 
being traded.

All prices from gold down to the S&P 500 Index (SPX.X) were last 
day of the month values.  October values are closing prices for 
October 15, 2004.

Table of Economic Reports - Mar. 2004 to Oct. 2004



I wish I had more "current forecasts" for upcoming September and 
October figures, so we could either critique what most economists 
are looking for on average.  Usually we don't get the fine tuned 
figures until a week or two prior to the reports.

Let's start with Gross Domestic Product.  While my data source 
doesn't show a current consensus, most of what I've read has the 
economy growing at a low end of 3% and high end of 4% annual rate 
in the recently completed third quarter.

I've placed a 3.4% estimate of Q3 growth.  I'm NOT an economist, 
but I'm deriving part of my estimate (I don't have a polling from 
economists at the time of this writing) from today's (10/15/04) 
comment from Fed Chairman Alan Greenspan saying, "So far this 
year, the rise in the value of imported oil, essentially a tax on 
U.S. residents, has amounted to about three-quarters of one 
percent of GDP."  

I'm taking Mr. Greenspan's comments and deducting that from past 
economic data, where builds in INVENTORY during the second 
quarter had final GDP being revised up to 3.3%, and with July and 
August inventory builds being found at both the business and 
wholesale level, I'm estimating Q3 GDP just a smidge below 3.5%.

With INVENTORY builds present at both the BUSINESS and WHOLESALE 
level, the demand side (SALES) have also been strong, so I would 
have to think that manufacturing activity still show gains.  

The reason I think this is that when we review June-July FACTORY 
ORDERS and DURABLE ORDERS data, which rebounded from an April-May 
lull, the healthy rebound came from very low INVENTORY/SALES 
ratios at both the business/wholesale level.  

I still think it is neat to see how company's adjust their 
PRODUCTION levels, in reaction to INVENTORY and SALES figures.  
And in turn, how the CAPACITY UTILIZATION figures change.

For instance, industrial production rose 0.7% in July, which 
makes so much sense as demand indicators (Sales and Orders) rose.  
In July, CAPACITY UTILIZATION moves up 77.4%, where there is 
still plenty of idle capacity yet to be utilized.  It's this idle 
CAPACITY and PRODUCTIVITY that still creates what I think is the 
continued hurdle to some of the nonfarm payroll figures we've 
seen the past 4-months.

When writing this column, I took a closer look at the September 
AVG. WORKWEEK data.  The AVG. WORKWEEK was 33.8 hours, but a look 
inside the numbers showed the factory workweek was 40.8 hours.  

In May, the factory workweek was 41.1 hours, and has been 
hovering at 40.8 since.  This would continue to suggest that 
while the demand for immediate labor is present, manufacturers 
remain rather hesitant to create more jobs.

If I were to move lower in our table of economic data, I might 
well be able to make a case that that the then rise in oil from 
March's $36.61 to May's $39.88, an 8.9% increase, had factories 
even less willing to hire workers despite demand for goods, thus 
extending the factory workweek to 41.1 hours.

And as many economists are pointing out, the CONSUMER CONFIDENCE 
readings, which are still above those levels found earlier this 
spring, are largely being impacted by weak job growth and energy 
prices.

Now look at oil.  $55 per barrel.  We now long for the day of $40 
per barrel oil don't we?

Inflation at both the consumer (CPI) and producer (PPI) levels 
have really flattened out the past three months.  And as we 
discussed in May, that's what higher rates of productivity can do 
to help try and offset some of the impacts of commodity 
inflation.

But GOLD back above $400, while not $428 as found in March, would 
have the MARKET once again suggesting the Fed might be a little 
too easy with rate, where Fed Funds at 1.75%.

Would it be harmful to the economy if the Fed were to continue to 
tighten?  One of our tests could be M2 Money supply.  One might 
thing the Fed were cutting rates the way M2 has grown.  There's 
plenty of liquidity isn't there?  

On Friday afternoon, the Treasury said it showed a budget surplus 
of $24.4 billion in September.  One can imagine that quarterly 
tax receipts from small business helped offset government 
outlays, where more than likely, the same would have been true in 
June.  What do a lot of us do on April 15th if we're not getting 
a refund?  Hey... maybe there is something to the "household 
survey" that the nonfarm payroll figures don't reflect.  That 
more and more Americans are working for themselves and starting 
small businesses.  

The year-to-date budget deficit currently stands at $413 billion, 
while the deficit has grown an equal $413 billion over the last 
12 months.

Look at that.  The U.S. Dollar Index (dx00y), or the dollar 
against a weighted basket of 6 major foreign currencies is 
trading relatively close to where it was at the end of March.  I 
added up the Treasury Budget surplus and deficit figures from the 
end of March and come up with $111.7 billion deficit.

I've never thought that there was a DIRECT relationship between 
the dollar and U.S. government budget/deficit, nor a direct 
relationship between the dollar and oil, nor a direct 
relationship with the dollar and gold, nor a direct relationship 
with the dollar and Fed policy on interest rates.  

Throw budget/deficit, oil and Fed policy together and that will 
most likely be the market influence for the dollar.

The BEST tie that I see is with dollar and gold divergence.  
Still, I'll read some analysis that it is oil's trade that is 
influencing the dollar.  The above table would have the MARKET 
showing that's simply not the case.

And then there's the S&P 500 (SPX.X) 1,108, which should be an 
accurate depiction of the economy.

Since the end of March, the SPX has traded a high of 1,150.57 
(04/05/04) and a low of 1,060.72 (08/13/04).

Just last week the SPX traded as high as 1,140, and would be a 
fairly good benchmark to the end of June when the SPX closed at 
1,140.

It's interesting now that I look at it.  And I can check my (Jeff 
Bailey's) September GDP estimate of 3.4% growth.

Hey... that's pretty close to June's 3.3% growth.

If I were to total up the April, May and June nonfarm payroll 
data, I can see why the July, August and September nonfarm 
payroll data is a bit concerning, if not weighing a bit on 
consumer confidence.

Look at the April-June BUSINESS INVENTORY and SALES and total 
them to comprise a quarterly (end of June) figure, then do the 
same with the July and August figures we have.

I come up with April-June BUSINESS INVENTORY of +2.5% and SALES 
+0.9% and could derive an INVENTORY/SALES ratio of 2.7.  So far 
for Q3 I come up with BUSINESS INVENTORY +1.7% and SALES +1.6%, 
with a quarterly Q2 INVENTORY/SALES of just 1.06.  While this 
type of INVENTORY/SALES calculation is NOT how the actual monthly 
INVENTORY to SALES data is derived, I (Jeff Bailey) have a 
feeling, based on observation, that September BUSINESS 
INVENTORIES might come in at +0.7%, but sales a little lower at 
+0.5%.

We could go on down the scale, making some comparisons back to a 
June, 2004 benchmark.

I don't know about you, but when I look at all the data above, 
there would probably be one thing that stands out as a bit of a 
constant.  Maybe I shouldn't say a constant, but a prevailing 
trend.

Its oil isn't it?

Gold goes up, gold goes down.

10-year yield goes up, 10-year yield goes down.

CRB Index goes up, CRB Index goes down (oil is a component of the 
CRB Index).

The dollar goes up, the dollar goes down.

The SPX goes up, the SPX goes down.

Now look at all the economic data.  It's relatively steady isn't 
it?

Despite the rise in oil, the economic data has been relatively 
steady.  Sure there has been some volatile-looking spikes up, 
then down, but for the most part, steady.

It just seems like oil's rise, which you, Mr. Greenspan, 
President Bush, Senator Kerry, OPEC, or I can't seem to control, 
may be the "wet blanket" on the SPX.X and perhaps more robust 
economic growth at this point.

Well, it is getting quite late this Friday evening, but that's a 
rather quick update on some of the major economic reports that 
have been released in recent months.

Jeff Bailey

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

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

Symbol  Co               Date           Comment          EPS Est

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

MDC  M.D.C.Holdings       Mon, Oct 11  After the market      2.73

MMM  3M Company           Mon, Oct 18  Before the bell      0.98
ABAX ABAXIS Inc           Mon, Oct 18  Before the bell      0.07
ASD  American Standard    Mon, Oct 18  ------ n/a ------    0.67
BNK  Bank North           Mon, Oct 18  Before the bell      0.59
B    Barnes Group         Mon, Oct 18  Before the bell      0.42
BLK  BlackRock, Inc.      Mon, Oct 18  Before the bell      0.56
BRO  Brown & Brown        Mon, Oct 18  Before the bell      0.43
CATY Cathay General       Mon, Oct 18  After the market     0.45
CEN  Ceridian             Mon, Oct 18  Before the bell      0.23
CHKP Check Point Softwre  Mon, Oct 18  Before the bell      0.25
CKFR CheckFree            Mon, Oct 18  After the market     0.26
CGNX Cognex               Mon, Oct 18  After the market     0.24
DPH  Delphi               Mon, Oct 18  Before the market   -0.12
DSL  Downey Financial     Mon, Oct 18  Before the bell      0.94
ET   E*Trade Financial    Mon, Oct 18  After the market     0.18
EGP  EastGroup Properties Mon, Oct 18  ------ n/a ------    0.63
RE   Everest Re Group     Mon, Oct 18  After the market    -0.07
FRX  Forest Labs          Mon, Oct 18  Before the bell      0.76
HAS  Hasbro, Inc.         Mon, Oct 18  Before the bell      0.51
ICBC Independence Bank    Mon, Oct 18  After the market     0.76
IBM  Intl Business Mach.  Mon, Oct 18  After the market     1.14
JCOM J2 Global Comm.      Mon, Oct 18  ------ n/a ------    0.31
JDAS JDA Software         Mon, Oct 18  After the market     0.03
KFT  Kraft Foods          Mon, Oct 18  After the market     0.45
LXK  Lexmark Intl         Mon, Oct 18  Before the bell      0.98
LNCR Lincare Holdings     Mon, Oct 18  After the market     0.69
MAT  Mattel               Mon, Oct 18  Before the bell      0.60
MVK  Maverick Tube Corp   Mon, Oct 18  After the market     1.36
OMM  OMI Corp             Mon, Oct 18  Before the bell      0.51
PRK  Park National        Mon, Oct 18  ------ n/a ------    1.78
PCH  Potlach              Mon, Oct 18  After the market     1.11
PP   Prentiss Properties  Mon, Oct 18  After the market     0.77
SXT  Sensient Tech.       Mon, Oct 18  ------ n/a ------    0.43
STLD Steel Dynamics       Mon, Oct 18  After the market     1.96
TXN  Texas Instruments    Mon, Oct 18  After the market     0.27
SWK  The Stanley Works    Mon, Oct 18  After the market     0.71
TXCC TranSwitch           Mon, Oct 18  After the market    -0.16
TUP  Tupperware           Mon, Oct 18  Before the bell      0.08
GWW  W.W.Grainger         Mon, Oct 18  Before the bell      0.71


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

AKZOY Akzo Nobel N.V.     Tue, Oct 19  ------ n/a ------    n/a
MO   Altria Group, Inc.   Tue, Oct 19  Before the bell      1.25
AMTD Ameritrade           Tue, Oct 19  ------ n/a ------    0.11
ASO  AmSouth Bancorp      Tue, Oct 19  Before the bell      0.47
AMCC Applied Micro Circ.  Tue, Oct 19  After the market    -0.01
ARB  Arbitron Inc         Tue, Oct 19  Before the bell      0.61
ARMHY ARM Holdings        Tue, Oct 19  During the market    n/a
ASPT Aspect Comm.         Tue, Oct 19  After the market     0.16
AVY  Avery Dennison Corp  Tue, Oct 19  Before the bell      0.76
BCC  Boise Cascade        Tue, Oct 19  Before the bell      0.59
BSX  Boston Scientific    Tue, Oct 19  Before the bell      0.46
CHRW C.H.Robinson Worldw  Tue, Oct 19  After the market     0.37
BCR  C.R.Bard Inc         Tue, Oct 19  After the market     0.58
CACH Cache, Inc.          Tue, Oct 19  ------ n/a ------   -0.04
ELY  Callaway Golf        Tue, Oct 19  After the market    -0.45
CAPX Capital Crossing Bnk Tue, Oct 19  After the market     0.44
CACS Carrier Access       Tue, Oct 19  After the market    -0.03
CASB Cascade Financial    Tue, Oct 19  After the market     0.33
CDWC Computer Centers Inc Tue, Oct 19  Before the bell      0.74
CPS  ChoicePoint Inc      Tue, Oct 19  Before the bell      0.43
CMA  Comerica Inc         Tue, Oct 19  Before the bell      1.05
CMC  Commercial Metals Co Tue, Oct 19  Before the bell      1.73
CAL  Continental Airlines Tue, Oct 19  ------ n/a ------   -0.17
CPO  Corn Products Intl   Tue, Oct 19  Before the bell      0.58
CYMI Cymer Inc            Tue, Oct 19  ------ n/a ------    0.39
DO   Diamond Offshore     Tue, Oct 19  ------ n/a ------    0.05
DPZ  Domino's Inc         Tue, Oct 19  ------ n/a ------    0.22
ELON Echelon Corp         Tue, Oct 19  After the market    -0.03
ERTS Electronic Arts      Tue, Oct 19  After the market     0.35
EMC  E M C Corp           Tue, Oct 19  Before the bell      0.09
ETH  Ethan Allan          Tue, Oct 19  Before the bell      0.50
FBC  Flagstar Bancorp     Tue, Oct 19  After the market     0.64
F    Ford Motor Co        Tue, Oct 19  Before the bell      0.14
FCX  Freeport-McMoran     Tue, Oct 19  ------ n/a ------    0.13
GNTX Gentex               Tue, Oct 19  Before the bell      0.32
GAP  Great Atlantic Tea   Tue, Oct 19  Before the bell     -1.22
ITW  Illinois Tool Works  Tue, Oct 19  Before the bell      1.10
RX   IMS Health           Tue, Oct 19  After the market     0.30
N    Inco                 Tue, Oct 19  ------ n/a ------    0.89
INFA Informatica          Tue, Oct 19  After the market     0.02
INTL Inter-Tel            Tue, Oct 19  ------ n/a ------    0.29
JAKK JAKKS Pacific Inc    Tue, Oct 19  ------ n/a ------    0.67
JEF  Jefferies Group      Tue, Oct 19  Before the bell      0.44
KEA  Keane                Tue, Oct 19  Before the bell      0.16
MAN  Manpower             Tue, Oct 19  Before the bell      0.66
MCD  McDonalds Corp       Tue, Oct 19  Before the bell      0.56
MDCO Medicines Co         Tue, Oct 19  After the market     0.06
MRX  Medicis              Tue, Oct 19  After the market     0.29
MEL  Mellon Financial     Tue, Oct 19  During the market    0.43
MNST Monster Worldwide    Tue, Oct 19  After the market     0.16
MOT  Motorola Inc         Tue, Oct 19  After the market     0.19
ZEUS Olympic Steel        Tue, Oct 19  ------ n/a ------    1.75
PH   Parker Hannifin      Tue, Oct 19  Before the bell      0.83
PLT  Plantronics Inc      Tue, Oct 19  After the market     0.43
PLXT PLX Technology       Tue, Oct 19  After the market     0.01
PPP  Pogo Producing       Tue, Oct 19  Before the bell      1.37
RSH  RadioShack Corp      Tue, Oct 19  ------ n/a ------    0.39
SAFC Safeco Corp          Tue, Oct 19  ------ n/a ------    0.51
SWY  Safeway Inc          Tue, Oct 19  ------ n/a ------    0.37
SAY  Satyam Computer Svcs Tue, Oct 19  After the market     0.25
STX  Seagate Technology   Tue, Oct 19  After the market     0.04
SOV  Sovereign Bancorp    Tue, Oct 19  After the market     0.42
FON  Sprint Corp          Tue, Oct 19  Before the bell      0.21
STN  Station Casinos      Tue, Oct 19  Before the bell      0.44
STK  Storage Technology   Tue, Oct 19  After the market     0.32
TASR Taser Intl, Inc.     Tue, Oct 19  Before the bell      0.15
TMX  Telefonos De Mexico  Tue, Oct 19  After the market     0.81
TER  Teradyne Inc         Tue, Oct 19  After the market     0.23
CAKE The Cheesecake Fact. Tue, Oct 19  After the market     0.30
USB  U.S. Bancorp         Tue, Oct 19  Before the bell      0.56
WFC  Wells Fargo & Co     Tue, Oct 19  Before the bell      1.06


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

NDN  99 Cents Only        Wed, Oct 20  Before the bell      0.08
AFFX Affymetrix           Wed, Oct 20  ------ n/a ------    0.19
ACL  Alcon Inc.           Wed, Oct 20  After the market     0.58
ALTR Altera Corp          Wed, Oct 20  After the market     0.18
ABK  Ambac Financial      Wed, Oct 20  Before the bell      1.56
AMGN Amgen                Wed, Oct 20  ------ n/a ------    0.62
AMR  AMR Corp             Wed, Oct 20  ------ n/a ------   -1.51
BOL  Bausch & Lomb        Wed, Oct 20  Before the bell      0.73
BVSN Broadvision          Wed, Oct 20  After the market    -0.09
BR   Burlington Resources Wed, Oct 20  After the market     0.93
CAI  CACI Intl            Wed, Oct 20  After the market     0.62
COF  Capital One Fincl.   Wed, Oct 20  After the market     1.30
CD   Cendant Corp         Wed, Oct 20  After the market     0.55
CHIR Chiron               Wed, Oct 20  After the market     0.06
CRUS Cirrus Logic         Wed, Oct 20  After the market    -0.04
CL   Colgate-Palmolive    Wed, Oct 20  ------ n/a ------    0.58
CA   Computer Associates  Wed, Oct 20  After the market     0.16
GLW  Corning              Wed, Oct 20  After the market     0.11
CFC  Countrywide Fincl.   Wed, Oct 20  Before the bell      1.01
CMI  Cummins Inc          Wed, Oct 20  Before the bell      1.50
DAL  Delta Airlines       Wed, Oct 20  ------ n/a ------   -3.79
DBD  Diebold              Wed, Oct 20  Before the bell      0.67
DRIV Digital River        Wed, Oct 20  After the market     0.27
EK   Eastman Kodak        Wed, Oct 20  Before the bell      0.72
EBAY eBay                 Wed, Oct 20  After the market     0.27
ELUX Electrolux           Wed, Oct 20  ------ n/a ------    0.97
FLIR FLIR Systems         Wed, Oct 20  Before the bell      0.45
GD   General Dynamics     Wed, Oct 20  Before the bell      1.50
GENZ Genzyme Corp         Wed, Oct 20  ------ n/a ------    0.45
GG   Goldcorp             Wed, Oct 20  After the market     0.08
GLK  Great Lakes Chem.    Wed, Oct 20  After the market     0.22
HET  Harrah's Enter.      Wed, Oct 20  Before the bell      1.04
HON  Honeywell            Wed, Oct 20  Before the bell      0.43
JPM  J.P.Morgan           Wed, Oct 20  Before the bell      0.75
NITE Knight Trading       Wed, Oct 20  Before the bell     -0.03
LRW  Labor Ready          Wed, Oct 20  After the market     0.29
LIN  Linens 'n Things     Wed, Oct 20  Before the bell      0.46
MXO  Maxtor Corp          Wed, Oct 20  After the market    -0.20
MHK  Mohawk Industries    Wed, Oct 20  After the market     1.50
NSC  Norfolk Southern     Wed, Oct 20  Before the bell      0.54
NWAC Northwest Airlines   Wed, Oct 20  Before the bell     -0.81
ODP  Office Depot         Wed, Oct 20  Before the bell      0.27
OSI  Outback Steakhouse   Wed, Oct 20  Before the bell      0.52
PFCB P.F.Chang's          Wed, Oct 20  Before the bell      0.28
PFE  Pfizer               Wed, Oct 20  Before the bell      0.54
PMCS PMC-Sierra Inc       Wed, Oct 20  After the market     0.04
PVN  Providian Financial  Wed, Oct 20  ------ n/a ------    0.28
RBAK Redback Networks     Wed, Oct 20  ------ n/a ------   -0.18
RNWK RealNetworks         Wed, Oct 20  After the market    -0.4
RYL  Ryland Group         Wed, Oct 20  After the market     3.30
SEBL Siebel Systems       Wed, Oct 20  After the market     0.05
STJ  St. Jude Medical     Wed, Oct 20  Before the bell      0.56
SYMC Symantec             Wed, Oct 20  After the market     0.39
ALL  The Allstate Corp    Wed, Oct 20  After the market     0.66
BK   The Bank of New York Wed, Oct 20  Before the bell      0.47
VRSN VeriSign, Inc.       Wed, Oct 20  After the market     0.16
WM   Washington Mutual    Wed, Oct 20  After the market     0.71
WHR  Whirlpool            Wed, Oct 20  Before the bell      1.52
WYE  Wyeth                Wed, Oct 20  Before the bell      0.70


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

FLWS 1-800-Flowers.com    Thr, Oct 21  Before the bell     -0.04
AGI  Alliance Gaming      Thr, Oct 21  Before the bell     -0.11
ALSC Alliance Semicond.   Thr, Oct 21  After the market    -0.10
AT   ALLTEL Corp          Thr, Oct 21  Before the bell      0.86
AMZN Amazon.com           Thr, Oct 21  After the market     0.18
AEP  American Elec Power  Thr, Oct 21  ------ n/a ------    0.74
AIG  American Intl Group  Thr, Oct 21  Before the bell      1.08
AZN  AstraZeneca          Thr, Oct 21  Before the bell      0.53
T    AT&T                 Thr, Oct 21  Before the bell      0.43
BAX  Baxter Intl Inc      Thr, Oct 21  Before the bell      0.42
BEBE Bebe Stores          Thr, Oct 21  Before the bell      0.27
BHE  Benchmark Electronic Thr, Oct 21  Before the bell      0.41
BGG  Briggs & Stratton    Thr, Oct 21  Before the bell      0.25
BRCM Broadcom             Thr, Oct 21  After the market     0.34
CZR  Caesars Entertainmt. Thr, Oct 21  ------ n/a ------    0.20
CAT  Caterpillar          Thr, Oct 21  Before the bell      1.36
CLS  Celestica            Thr, Oct 21  After the market     0.08
CELG Celgene              Thr, Oct 21  Before the bell      0.19
CPWR Compuware Corp       Thr, Oct 21  After the market     0.02
CBE  Cooper Industries    Thr, Oct 21  Before the bell      0.92
COCO Corinthian Colleges  Thr, Oct 21  Before the bell      0.18
CR   Crane                Thr, Oct 21  After the market     0.52
DHR  Danaher              Thr, Oct 21  Before the bell      0.59
DCOM Dime Community Banc  Thr, Oct 21  After the market     0.31
D    Dominion Resources   Thr, Oct 21  Before the bell      1.32
LLY  Eli Lilly & Co       Thr, Oct 21  Before the bell      0.68
ELX  Emulex               Thr, Oct 21  ------ n/a ------    0.10
FDRY Foundry Networks     Thr, Oct 21  After the market     0.11
GILD Gilead Sciences      Thr, Oct 21  After the market     0.21
GDW  Golden West Fincl    Thr, Oct 21  ------ n/a ------    2.06
GOOG Google               Thr, Oct 21  After the market     0.54
GDT  Guidant              Thr, Oct 21  Before the bell      0.60
HSY  Hershey Foods        Thr, Oct 21  Before the bell      0.64
IHP  IHOP                 Thr, Oct 21  Before the bell      0.50
IR   Ingersoll-Rand       Thr, Oct 21  Before the bell      1.16
ITT  ITT Industries       Thr, Oct 21  Before the bell      1.15
LH   Laboratory Corp      Thr, Oct 21  Before the bell      0.66
LEA  Lear Corp            Thr, Oct 21  Before the bell      1.13
LM   Legg Mason           Thr, Oct 21  Before the bell      0.76
MEDI MedImmune            Thr, Oct 21  Before the bell     -0.21
MENT Mentor Graphics      Thr, Oct 21  After the market     0.07
MRK  Merck & Co           Thr, Oct 21  Before the bell      0.73
MCHP Microchip Tech.      Thr, Oct 21  After the market     0.29
MSFT Microsoft            Thr, Oct 21  After the market     0.30
NUE  Nucor                Thr, Oct 21  Before the bell      4.60
OO   Oakley               Thr, Oct 21  After the market     0.22
OXY  Occidental Petrol.   Thr, Oct 21  Before the bell      1.77
ODFL Old Dominion         Thr, Oct 21  Before the bell      0.49
OSTK Overstock.com        Thr, Oct 21  After the market    -0.19
PCAR PACCAR               Thr, Oct 21  ------ n/a ------    1.35
PSFT PeopleSoft           Thr, Oct 21  After the market     0.14
POT  Potash Corp.         Thr, Oct 21  ------ n/a ------    0.72
RBK  Reebok               Thr, Oct 21  Before the bell      1.17
RS   Reliance Steel       Thr, Oct 21  Before the bell      1.31
SBC  SBC Communications   Thr, Oct 21  Before the bell      0.38
SGP  Schering-Plough      Thr, Oct 21  Before the bell     -0.01
SFA  Scientific Atlanta   Thr, Oct 21  After the market     0.36
S    Sears Roebuck        Thr, Oct 21  ------ n/a ------    0.02
SUN  Sunoco               Thr, Oct 21  ------ n/a ------    1.40
TXT  Textron              Thr, Oct 21  ------ n/a ------    0.76
KO   Coca-Cola            Thr, Oct 21  After the market     0.47
MHP  McGraw-Hill Cos.     Thr, Oct 21  Before the bell      1.56
TBL  Timberland Co        Thr, Oct 21  Before the bell      1.77
TQNT Triquint Semi        Thr, Oct 21  After the market    -0.04
UNP  Union Pacific        Thr, Oct 21  Before the bell      0.75
UPS  United Parcel Servc  Thr, Oct 21  Before the bell      0.72
WEN  Wendy's Intl         Thr, Oct 21  ------ n/a ------    0.60
YELL Yellow Roadway Corp  Thr, Oct 21  After the market     1.34


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

FO   Fortune Brands       Fri, Oct 22  Before the bell      1.18
GLGC Gene Logic Inc       Fri, Oct 22  Before the bell     -0.18
IDXX Idexx Labs           Fri, Oct 22  Before the bell      0.49
LSCC Lattice Semicond.    Fri, Oct 22  Before the bell      0.00
NXTL Nextel Comm.         Fri, Oct 22  ----- n/a ------     0.38
SLB  Schlumberger         Fri, Oct 22  Before the bell      0.53
WY   Weyerhauser Co       Fri, Oct 22  Before the bell      1.39



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

Symbol  Company Name              Ratio    Payable     Executable

NUE     Nucor Corp                2:1      Oct 15th    Oct 18th
PCBK    Pacific Continental Bank  5:4      Oct 15th    Oct 18th
RAVN    Raven Industries          2:1      Oct 15th    Oct 18th
CELG    Celgene Corp              2:1      Oct 22nd    Oct 25th
PDCO    Patterson Companies       2:1      Oct 22nd    Oct 25th
BGG     Briggs & Stratton         2:1      pending Oct 20th meeting
PFSB    PennFed Financial         2:1      Oct 29th    Nov 01st
ROCK    Gibraltar                 3:2      Oct 29th    Nov 01st
PNY     Piedmont Natural Gas      2:1      Oct 29th    Nov 01st
ASGR    America Service Group     3:2      Oct 29th    Nov 01st
VIDE    Video Display Corp        2:1      Oct 31st    Nov 01st

-----------------------------------
Economic Reports & Events This Week
-----------------------------------
This will be one of the biggest weeks for Q3 earnings announcements.
The numbers will be flying fast and furious and traders can count
on plenty of stock-specific movement.  We'll also hear a number
of Fed-heads speaking across the country this week.  


==============================================================
                       -For-           
----------------
Monday, 10/18/04
----------------
Semi Book-to-Bill report
NAHB housing market index

-----------------
Tuesday, 10/19/04
-----------------
Consumer Price Index (CPI) for Sep.  Estimate: +0.2%  Last: +0.1%
Core CPI for September               Estimate: +0.2%  Last: +0.1%
Housing Starts for September  Estimate: 1,950K   Last: 2,000K
Building Permits for September  Estimate: 1,948K  Last: 1,969K
FOMC's Governor Poole speaks
FOMC's Chairman Greenspan speaks on mortgage and debt
FOMC's Governor Olson speaks

-------------------
Wednesday, 10/20/04
-------------------


------------------
Thursday, 10/21/04
------------------
Weekly Initial Jobless Claims  - Last: 352K
Philly Fed Index for Oct.   -Estimate: 19.2  Last: 13.4
Leading Indicators for Sep. -Estimate: -0.1% Last: -0.3%
FOMC's Governor Bernanke speaks on OIL and the ECONOMY
FOMC's Governor Yellen speaks on economic outlook


----------------
Friday, 10/22/04
----------------



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




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The Option Investor Newsletter                   Sunday 10-17-04
Sunday                                                      2 of 5


In Section Two:

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


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

Plenty of Bullish Candidates to Watch

___________________________________________________________________

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

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

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

Chart=


---

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

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

Chart=


---

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

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

Chart=


---

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

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

Chart=




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

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

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

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

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

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



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**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^

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

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

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


PUTS
^^^^

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

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

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


---

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

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

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


---

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

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

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



***********
DEFINITIONS
***********


OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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The Option Investor Newsletter                   Sunday 10-17-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: CMI, GDW, OSIP, PGR 
New Calls: SBUX
Current Puts: APOL, FLIR, HSIC, SEPR, WHR
New Puts: None

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

Cummins Inc - CMI - close: 72.29 change: +0.67 stop: 69.99     

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

Why We Like It:
It's decision time.  If you didn't exit when CMI hit our initial 
target back in early October it's time to decide.  Do you look 
for a bounce from the $71-70 levels of support or do you exit now 
with the new two-week downtrend or is that just a two-week 
consolidation in the uptrend?  Most of the technical indicators 
we follow look bearish while the short-term oscillators have a 
small hook higher with Friday's bounce.  It's very possible for 
CMI to rebound from here since it looks like the bottom of a 
rising channel.  However, if the Dow Industrials keep sinking 
then CMI could succumb to the pressure.  A stop loss under $70 
allows for another opportunity to rebound.  The question is are 
you willing to take that chance?  We are not suggesting new plays 
at this time but aggressive traders can watch for a bounce.  
Conservative players may want to put their stop under $71.00. 
Remember that CMI's earnings are expected on October 20th so 
we're going to exit on Tuesday afternoon no matter what.


Suggested Options:
CMI has already achieved our initial profit target. We are not 
suggesting new entries at this time but see the above details 
for alternative entries.

Annotated chart:



Picked on September 19 at $70.99
Change since picked:      + 1.30
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =       724 thousand
Chart =


---

Golden West Financial - GDW - cls: 112.81 chg: +0.96 stop: 111.65     

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

Why We Like It:
For the last two days we've been regretting not taking profits in 
GDW when shares broke out over the $115 level. Fortunately, the 
banking indices and GDW bounced on Friday.  It's too bad that GDW 
didn't hold the majority of its gains and began to fade by 
Friday's close.  The stock is still working on a seven-week trend 
of higher lows, which is bullish, but last week's rally is now a 
lower high, which could be bearish.  Earnings are only four days 
away on Thursday and we're not going to hold over the event.  We 
are preparing to exit on Wednesday afternoon assuming we don't 
get stopped out. No new positions are recommended.  

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

Annotated chart:



Picked on September 30 at $110.95
Change since picked:       + 1.86
Earnings Date            10/21/04 (confirmed)
Average Daily Volume =        512 thousand
Chart =



---

OSI Pharma - OSIP - close: 64.16 change: +0.50 stop: 59.99

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

Why We Like It:
We have good news for bulls in OSIP.  The stock is continuing to 
ignore the two-week decline in the BTK biotech index.  OSIP 
continues to work on its trend of higher lows and we are 
expecting an upside break out soon.  The levels to watch is 
$64.60 and its simple 100-dma near $64.  A move over $64.60 would 
be a new three-week high and a breakout over resistance.  We're 
encouraged that technicals are turning more positve.  The MACD 
looks ready to produce a new buy signal and its RSI and 
stochastics are bullish.  We are still targeting a run to $70.  
More conservative traders may want to consider a stop loss under 
$61.50.

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

BUY CALL NOV 60 GHU-KL OI=  85 current ask $6.40
BUY CALL NOV 65 GHU-KM OI=2781 current ask $3.60
BUY CALL NOV 70 GHU-KN OI=3595 current ask $1.75

Annotated Chart:


Picked on October 03 at $63.45
Change since picked:    + 0.71
Earnings Date         08/10/04 (confirmed)
Average Daily Volume =     1.6 million 
Chart =




---

Progressive - PGR - close: 86.44 chg: +1.19 stop: 82.59

Company Description:
The Progressive group of insurance companies ranks third in the 
nation for auto insurance based on premiums written, offering its 
products by phone at 1-800-PROGRESSIVE, online at progressive.com 
and through more than 30,000 independent agencies and insurance 
brokers.  (source: company press release)

Why We Like It:
Surprise!  PGR was added to the OI play list on Monday, October 
11th.  We suggested a TRIGGER to go long at $85.65 to catch a 
breakout over resistance at $85.60.  We were encouraged by PGR's 
relative strength and its strong trend of higher lows.  The stock 
looked poised to breakout.  Well, PGR initially produced the 
breakout but not as we expected.  Shares traded to $85.99 on 
Wednesday and triggered us at $85.65.  We made note of it in 
Wednesday's newsletter.  However, everyone will be surprised to 
know that PGR reported Q3 earnings on Wednesday evening after the 
closing bell.  As noted in the original play update we had 
checked two different sources and got two different earnings 
dates. It looks like they were both wrong.  Fortunately, this 
surprise earnings announcement didn't bite us.  The company 
reported a 22 percent rise in profits.  Wall Street was looking 
for $1.69 a share and PGR turned $1.77.  Net premiums rose 9 
percent to $3.39 billion. Since then PGR has been drifting higher 
and the stock got a boost on Friday with big volume pushing it 
through the $86 level.  Its MACD looks bullish and PGR is poised 
to run toward the $90 level.  

Suggested Options:
We're going to suggest the November calls.  Our favorites are the 
80s and 85s.  

BUY CALL NOV 80 PGR-KP OI= 977 current ask $7.40 
BUY CALL NOV 85 PGR-KQ OI=1148 current ask $3.30

Annotated Chart:


Picked on October 13 at $85.65 
Change since picked:    + 0.79
Earnings Date         10/13/04 (confirmed)
Average Daily Volume =     700 thousand
Chart =


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

Starbucks - SBUX - close: 49.47 chg: +1.68 stop: 45.99

Company Description:
Starbucks Corporation is the leading retailer, roaster and brand 
of specialty coffee in the world, with more than 8,500 retail 
locations in North America, Latin America, Europe, the Middle 
East and the Pacific Rim. The Company is committed to offering 
the highest quality coffee and the Starbucks Experience while 
conducting its business in ways that produce social, 
environmental and economic benefits for communities in which it 
does business. In addition to its retail operations, the Company 
produces and sells bottled Frappuccino® coffee drinks, Starbucks 
DoubleShot® coffee drink, and a line of superpremium ice creams 
through its joint venture partnerships. The Company's brand 
portfolio provides a wide variety of consumer products. Tazo 
Tea's line of innovative superpremium teas and Hear Music's 
exceptional compact discs enhance the Starbucks Experience 
through best-of-class products. The Seattle's Best Coffee® and 
Torrefazione Italia® Coffee brands enable Starbucks to appeal to 
a broader consumer base by offering an alternative variety of 
coffee flavor profiles. (source: company press release)

Why We Like It:
Wow!  SBUX continues to knock the ball out of the park - at least 
with its share price.  It was only a week ago that SBUX traded 
lower after announcing same-store sales growth of just 7 percent.  
That wasn't enough to meet Wall Street's expectations or so they 
say.  But it didn't take but the next day before the stock was 
trading at another new relative high.  Here we are one news-
filled week later and SBUX is breaking out to new all-time highs.  
Yes, I said news filled.  SBUX announced that its CEO would 
retire next March.  They reaffirmed their full year estimates. 
They raised their long-term store goal from 25,000 stores to 
30,000 stores. Plus, they announced a new premium chocolate drink 
called Chantico that is said to be so good it's addictive.  Oh, 
and let's not forget that SBUX announced it was putting the Hear 
Music media bar where customers can burn music CDs in their 
locations soon.  All told SBUX must be doing something right.  
The stock just broke through resistance in the $48 region with 
volume coming in about 36 percent above the norm.  Yes, the $50 
mark could be/should be round-number resistance but we do not 
expect it to hold.  Readers can choose to wait for a bounce from 
$48.00-48.50 as a potential entry point or go long over $50.00.  
We're going to suggest positions now.  We'll start the play with 
a stop loss at $45.99.  Our initial target will be $54-55 and one 
we hope to reach before SBUX's November 10th earnings report.


Suggested Options:
We are going to suggest the November calls.  Our favorites are
the 45s, 47.50s and 50s.

BUY CALL NOV 45.00 SQX-KI OI= 744 current ask $4.90
BUY CALL NOV 47.50 SQX-KT OI=3221 current ask $2.85
BUY CALL NOV 50.00 SQX-KJ OI=2495 current ask $1.30

Annotated Chart:


Picked on October 17 at $49.47 
Change since picked:    + 0.00
Earnings Date         11/10/04 (confirmed)
Average Daily Volume =     3.3 million 
Chart =




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

Apollo Group - APOL - close: 68.21 chg: +0.20 stop: 73.01     

Company Description:
Apollo Group Inc. has been providing higher education programs to 
working adults for more than 25 years. Apollo Group Inc. operates 
through its subsidiaries The University of Phoenix Inc., 
Institute for Professional Development, The College for Financial 
Planning Institutes Corp., and Western International University 
Inc. The consolidated enrollment in its educational programs 
makes it the largest private institution of higher education in 
the United States. It offers educational programs and services at 
82 campuses and 137 learning centers in 39 states, Puerto Rico 
and Vancouver, British Columbia.
(source: company press release)

Why We Like It:
We should see some movement in APOL this week.  Last Monday saw 
APOL hit new lows for the year and confirm the breakdown under 
the $70.00 mark.  The P&F chart produced a nice spread triple-
bottom breakdown sell signal with a $58 target.  Yet since then 
APOL has consolidated in a neutral pattern of lower highs and 
higher lows. These sort of pennants, where the price coils 
tighter and tighter, normally don't predict direction just that a 
breakout is coming.  We anticipate that the current downward 
trend will prevail.  A drop under $67.50 could be used as a new 
bearish entry point.  Should APOL pop higher then watch for 
resistance at $70 or $71.  A failed rally near these levels could 
be used as a new entry point as well.  We are still targeting the 
$60 region.

Suggested Options:
We are going to suggest the November and January options with a 
preference for Januarys even though Novembers have most of the
open interest.

!Warning - there are ULG- options available but the prices 
don't seem to match up.  They could be the result of APOL's
most recent stock split.  Double-check your symbols with
your broker.

BUY PUT NOV 75 OAQ-WO OI=3420 current ask $7.60
BUY PUT NOV 70 OAQ-WN OI=5664 current ask $4.10
BUY PUT NOV 65 OAQ-WM OI=4312 current ask $1.90

BUY PUT JAN 75 OAQ-MO OI=2116 current ask $9.20
BUY PUT JAN 70 OAQ-MN OI=3264 current ask $6.10
BUY PUT JAN 65 OAQ-MM OI= 787 current ask $3.80
BUY PUT JAN 60 OAQ-ML OI= 962 current ask $2.15

Annotated Chart:


Picked on October 10 at $69.81
Change since picked:    - 1.60
Earnings Date         10/05/04 (confirmed)
Average Daily Volume =     3.3 million 
Chart =



---


FLIR Systems - FLIR - close: 54.50 chg: -0.76 stop: 56.35*new*

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

Why We Like It:
It's time that traders prepare to exit if you haven't already.  
FLIR is due to report earnings on Wednesday morning before the 
opening bell.  Analysts are expecting the company to report 47 
cents a share.  We don't want to hold over the report especially 
with the stock already down several points in our favor.  Our 
plan is to exit on Tuesday afternoon before the closing bell 
assuming FLIR doesn't hit our exit point at $51.50 or our stop 
loss first.  Speaking of stops we're lowering ours to $56.35.  


Suggested Options:
All of the November puts we suggested are up significantly.  FLIR
has surpassed our initial profit target at $55 and we're 
suggesting that short-term traders exit now.  More aggressive 
players can target a drop towards $51-50.

Annotated chart:



Picked on September 29 at $59.35
Change since picked:      - 4.85
Earnings Date           10/20/04 (confirmed)
Average Daily Volume =       577 thousand
Chart =


---

Henry Schein - HSIC - close: 58.34 change: -0.03 stop: 62.01

Company Description:
The Company's four business groups--Dental, Medical, 
International and Technology--serve more than 450,000 customers 
worldwide, including dental practices and laboratories, physician 
practices and veterinary clinics, as well as government and other 
institutions. The Company's sales reached a record $3.4 billion 
in 2003. The Company operates through a centralized and automated 
distribution network, which provides customers in more than 125 
countries with a comprehensive selection of over 90,000 national 
and Henry Schein private-brand products.
(source: company press release)

Why We Like It:
We added HSIC to the play list as a put candidate on Wednesday.  
The brief summary on HSIC is that the stock was already looking 
weak and challenging support at the $50 level before CHIR's flu 
vaccine disaster news hit the market.  HSIC is the major 
distributor for CHIR's fluvirin.  Without any shipments coming 
from CHIR this year HSIC had to lower earnings estimates.  The 
stock broke support and has since slowly consolidated lower.  The 
stock is nearing new one-year lows now that it has broken major 
support and its P&F chart has produced a new sell signal.  
Currently the bulls are still playing tug-of-war with the stock 
but bears appear to be winning.  Traders can use a failed rally 
under $60 as a new entry point if you're not interested in 
opening positions here. 

Suggested Options:
We are going to suggest the November puts even though we do not
plan to hold over the early November earnings report for HSIC.

BUY PUT NOV 65 HQE-WM OI=  4 current ask $7.30
BUY PUT NOV 60 HQE-WL OI=214 current ask $3.40
BUY PUT NOV 55 HQE-WK OI=329 current ask $1.25

Annotated Chart:



Picked on October 14 at $58.35
Change since picked:    - 0.01
Earnings Date         11/02/04 (unconfirmed)
Average Daily Volume =     655 thousand
Chart =


---

Sepracor Inc - SEPR - close: 44.42 chg: -0.36 stop: 48.01   

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

Why We Like It:
This is it.  SEPR has hit the simple 200-dma.  We've been 
targeting this level of technical support from the beginning.  
Yet as of Thursday we decided not to readjust our price target 
and left it at $43.50.  Many traders may want to consider exiting 
for a profit now.  It is conceivable that bulls may try and 
defend SEPR at the $44 level now that this level is underpinned 
by the 200-dma.  We are not suggesting new plays and will close 
SEPR if the stock hits $43.50 on an intraday basis.  

Suggested Options:
SEPR has essentially hit our target but we're holding out for
a dip to $43.50.  We are not suggesting new positions.

Annotated chart:


Picked on September 22 at $48.94
Change since picked:      - 4.52
Earnings Date           07/13/04 (confirmed)
Average Daily Volume =       1.8 million 
Chart =


---

Whirlpool - WHR - close: 57.88 change: +0.02 stop: 60.55    

Company Description:
Whirlpool Corporation is the world's leading manufacturer and 
marketer of major home appliances, with annual sales of over $12 
billion, 68,000 employees, and nearly 50 manufacturing and 
technology research centers around the globe. The company markets 
Whirlpool, KitchenAid, Brastemp, Bauknecht, Consul and other 
major brand names to consumers in more than 170 countries.
(source: company press release)

Why We Like It:
WHR better get busy.  Our time is almost up.  The stock continues 
to consolidate lower in a steady descending channel.  Our 
challenge now is time.  We're running out.  WHR is due to report 
earnings on Wednesday morning before the opening bell.  We don't 
want to hold over the event.  That means we need to exit on 
Tuesday afternoon.  We are not suggesting new positions.

Suggested Options:
WHR is due to report earnings on Oct. 20th.  We are not
suggesting new positions.


Annotated Chart:



Picked on October 07 at $59.03
Change since picked:    - 1.15
Earnings Date         10/20/04 (confirmed)
Average Daily Volume =     854 thousand
Chart =


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

None


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The Option Investor Newsletter                   Sunday 10-17-2004
Sunday                                                      4 of 5

In Section Four:

Leaps:  Pivot Point  
Spreads and Straddles: Options Expire Worthless -- Premiums 
Stay Where They Belong

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



*****
LEAPS
*****

Pivot Point

The normal October volatility arrived with a rush and
was helped along by earnings warnings, misses, lowered
guidance and help from Elliott Spitzer. 

The markets have returned to critical support levels
and we are right at what could be a pivot point for
the rest of October. 

Two Dow components report earnings on Monday, IBM and
MMM, and the results could be drastic. MMM is a current
LEAP play and we are hoping the results are positive
not just for our MMM play but for all the plays in 
our portfolio. 

I am not adding any new plays because we already
have a full boat and a further drop from here could be
painful. A move higher into a normal end of year, post
election rally would be very nice but I have to tell 
you I am nervous. I am always nervous when critical 
levels are reached even though we have expected it 
for weeks. 

Whenever the markets appear destined for doom the
end is near. On Thursday they looked very weak but
Friday's Greenspan bounce rescued them from testing
that critical support. 

I view that critical support as Dow 9800, Nasdaq 1850,
SOX 380, SPX 1095, Wilshire 10750. If these levels
fail I would not hesitate to exit any plays you are
uncomfortable with. 


**** STRONG CAUTION ***

I would strongly caution everyone that a terrorist
event in the U.S. prior to the election could 
drastically change the market outlook. Should an
event occur I would think twice before making an
entry. I believe the market would recover quickly
but it obviously depends on the severity of any
attack. Our time is ticking away with 17 days
between us an the election. The next two weeks
will be the most dangerous.  

 

 

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


NONE TODAY

*******************   
Dropped Plays
*******************   


QLGC - Stopped out

BA - Dropped on news


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


DIA  $100.65 Dow Diamonds Trust **Target 99.00**

The Diamonds play was triggered on Thursday when
the DIA dropped to touch $99.00.
 

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

Position Summary Table




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

XLE - S&P Energy SPDR $35.15  ** Stop 33.90 **

There is a strong possibility of a drop in the energy
stocks over the next four weeks. We have funds taking
profits from their energy gains to offset losers in
other area as their year end draws to a close in October.
The XLE has failed to rise materially for seven days but
is holding above $35.00. We currently have about $1 in
profit on the leaps and we could exit now for a gain.
With oil closing at the high of the day on Friday I
am hesitant to take the exit. Should something happen
over the weekend or prior to the election this could
turn into a rocket again. For that reason alone I am
going to hold this with a breakeven stop until Sunday
Oct-31st then make an exit decision before the election. 

2006 $32 LEAP Call WHA-AF 
2006 $35 LEAP Call WHA-AI 

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

XLE Chart



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

QLGC - Qlogic Corp - $27.78  ** STOPPED OUT at $27.50 **

QLGC was stopped on Thursday at $27.50 after being
downgraded by Merrill Lynch. Qlogic posted great
results and beat the street by +4 cents with margins
in the 69% range. Merrill said price erosion had 
slowed but they feared an acquisition in the near
future and cut the stock to a neutral from buy.

2006 $30 LEAP YIO-AF 4.70 cost 6.10, -1.40 loss
2006 $35 LEAP YIO-AG 3.00 cost 4.10, -1.10 loss

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


QLGC Chart



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

MMM - 3M Company - $77.95, ** Stop $74.00 **

MMM was knocked for a loss to $79 on earnings fears
and the Dow bleed from last Friday. The AIG implosion
on Thursday cut it to $77 when ETF traders dumped the
Dow funds on the AIG news. 

Earnings are Monday and they did not warn. Hopefully
they will say something positive and the Dow will 
benefit. We are right at the pivot point for October
and it is time for a real rebound if it is going to
really appear.    

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

2006 $80 LEAP Call WMU-AP 
2006 $85 LEAP Call WMU-AQ 

1/2 Entry at $82 on 9/15
1/2 Entry at $78 on 9/27
http://members.OptionInvestor.com/leaps/Lp_080804_1.asp

MMM Chart





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


C - Citigroup $43.94        **Stop $42.00**
 
Citigroup had record earnings on Thursday but got 
caught in the insurance implosion. As a Dow stock 
it was sold in the massive ETF dumping and as part
of the same financial indexes with AIG. Tough week
for financials. Friday saw a rebound but if rolled
over at the close with the rest of the market. 

This stock is a high beta stock and we are at the
mercy of the Dow for the next two weeks. 

2006 $50 LEAP Call WRV-AJ 

Entry 1/2 46.00 9/20 
Entry 1/2 45.00 9/22
http://members.OptionInvestor.com/leaps/Lp_080804_1.asp

Citigroup Chart



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

INTC - Intel Corp $20.61  **Stop $18.00**

Intel posted better earnings than most expected and
saw a decent bounce to $21.50 but warnings from seven
other chip stocks over the last three days dragged it
right back down to $20.50 support. 

News that is was pushing its 4.0ghz chip to 4Q-2005
was not received well despite the performance 
improvements expected by the change of direction.  

Current position:
2006 $22 LEAP Call WNL-AX 
2006 $25 LEAP Call WNL-AE 

Entry $20.00 Sept 3rd
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

Intel Chart




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


TYC - Tyco Intl. $30.52  **Stop $28.00**

Tyco refuses to die with the market and continues to 
hold over $30. On Friday one class action suit was
tossed out of court but another was allowed to 
continue with modifications. Tyco rose slightly
on the news. 

Earnings are Nov-1st and Tyco is expected to perform
well. Whenever the Dow bounces Tyco is a market leader
but it has a high beta so Dow moves tend to drag on
the stock. We are just passing time until the next
rally appears in the market and Tyco moves away from
support at $30.   

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

Entry 5/18 $28.32
http://members.OptionInvestor.com/leaps/Lp_051604_1.asp

Tyco Chart


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


JNPR - Juniper Networks $23.75 **Stop $19.00**

Juniper rose into earnings and was pressing resistance
at $25 on Thursday. They beat the street and raised
guidance for the 8th consecutive quarter but dropped
-$2 on comments about an acquisition. Friday saw a
rebound and we are still well above our entry point. 
 
Very few companies have as strong an earnings record
as Juniper and they should find buyers once the market
decides on a direction. 

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

Entry $20.19 (8/16)
http://members.OptionInvestor.com/leaps/Lp_081504_1.asp

JNPR Chart


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


COP - Conoco Phillips $83.99    **Stop 79.00**

This is a really tough call. COP had rallied to $90
on the strong oil prices, their move back into Lybia,
their acquisition in Russia and the huge increase in
their reserves. Every single oil/energy report I read
has COP and OXY as two of their top three picks for
the long term. Both have monster reserves and believe
it or not are still valued at oil in the low $30 range.

Every day that goes by their reserves gain in value.
Unfortunately every day another mutual fund is taking
profits to offset the gains in oil prices. COP has
risen from $55 to $90 in the last 12 months and could
easily go to $150 over the next 12 months if oil
remains high. 

The chief economist for COP told a business audience
on Thursday that oil prices would remain high due
to a permanent structural change in the industry. 
The economist said the cost of finding new oil 
reserves is over $30 a barrel and rising sharply
due to the difficulty of drilling in remote locations.
They cited unrest in oil-rich areas, constraints on
global production capacity and rapidly increasing 
worldwide demand. 

The problem is the profit taking by funds and the 
expected drop in oil after the election. Will it come
or will something happen to push it higher? Nobody
knows. 

I hate to exit on the potential for oil to drop only
to see COP head for $100 next week. I am going to 
lower the stop to $79 and just under that $80-$82
congestion. Hopefully that will contain any selling
and allow us to remain in the play. We are highly 
profitable in COP with a 100% gain and I would strongly
urge readers who are uncomfortable to take profits and
then reenter should oil drop after the election. 

Earnings are Oct-27th.

The stop was lowered to $79. 

Current position:
Jan-2006 $75 LEAP Call YRO-AO at $6.70 currently $13.20

Entry $73.30 August 30th   
http://members.OptionInvestor.com/leaps/Lp_082904_1.asp

COP Chart




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


NWS - News Corp $32.80 **Stop 29.00**

Only four weeks until the expected approval to move
to the NYSE and the stock is beginning to tick up
once again. It refused to remain down on the market
weakness and closed up on Friday.  

The move to the U.S. now seems assured and once the
final approval is gained in November the U.S. price
should begin to climb. NWS will not be put into the
S&P-500 immediately but funds will begin to take
positions to avoid having to shuffle portfolios 
drastically when that inclusion takes place. 
 
Current position: 
2006 $40 LEAP Call WLN-AH at $3.83 

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


NWS Chart



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

UPL - Ultra Petroleum $49.20  **Stop $44.00**

UPL suffered profit taking with the rest of the energy
sector but the fundamentals remain the same.  

Nothing has changed with UPL and all dips will continue
to be bought until oil prices quit rising. Once that
happens the sell cycle could be sharp.   

Earnings are Oct-27th. 

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

Entry $45.50 9/21
http://members.OptionInvestor.com/leaps/Lp_090504_1.asp

UPL Chart


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

EBAY - EBAY $93.76      ** Stop $86.00 **

EBAY is still holding the high ground and very close
to its all time high at $96.78 set last week. The
YHOO earnings gave EBAY a lift as investors look 
forward to their earnings report on the 20th.  

We are nearing stock split territory. Ebay last
announced a 2:1 split in July 2003 at $100.00 and
in April 2000 near $100.

There is decent support between the current level
and our stop at $86. Short of a serious market melt
down we should be safe. 

Earnings are Oct-20th

Stop raised to $86.00

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

Entry $90.00 on 9/22
http://members.OptionInvestor.com/leaps/Lp_072504_1.asp

EBAY Chart



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

MER - Merrill Lynch $51.70   ** Stop $49.00 **
               
Merrill produced decent earnings last week despite the
market weakness over the quarter. The implosion in
financial stocks barely dented the stock price on
Thursday and the trend is still slightly to the 
upside despite the recent market weakness. 

Stop was raised to $49.00

2006 $50 LEAP Call WZM-AJ 
2006 $55 LEAP Call WZM-AK 

Entry $51.00 on 9/20
http://members.OptionInvestor.com/leaps/Lp_071804_1.asp

MER Chart



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

Proctor & Gamble $53.69  ** Stop $51.00 **

PG CEO Lafley told shareholders this week that there
was plenty of room for growth still ahead and the
company had grown more than 30% over the last three
years. They have produced free cash flow of $20 billion
and have increased dividends +33% since 2001. Shareholder
return over the last three years has been +81%. When
you consider this was during a bear market it is pretty
good results. 

Full comments here:
http://biz.yahoo.com/prnews/041013/clw021_1.html

PG jumped +1.50 intraday on Friday but I could not
find any news. 

Earnings are not due until Oct-27th.

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

Entry $54.08 (9/26)
http://members.OptionInvestor.com/leaps/Lp_092604_1.asp

PG Chart: 




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

RIMM - Research in Motion $81.80  ** Stop $74.00 **

RIMM is rocking! RIMM set a new all time high on
both Thursday and Friday and closed at the high of
the day on Friday. 

Piper Jaffray maintained an "outperform" rating on 
Research in Motion on Monday saying the wireless 
communications company has strong near-term trends
and accelerating earnings growth that make it a 
"compelling investment for growth-oriented investors."

Stop was raised to $74.00

RIMM announced earnings on Sept-30th.

2006 $80 LEAP Call WLJ-AP @ $16.50 now $17.40
2006 $90 LEAP Call WLJ-AR @ $13.20 now $14.60
Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 now $44.60

Entry $77.00 (9/28)
http://members.OptionInvestor.com/leaps/Lp_092604_1.asp

RIMM Chart  


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

BA  $50.20  Boeing Aerospace   ** Dropped  **

The loss of the tanker deal and another $1.24 billion
subsidy for Airbus has taken the incentive off for
Boeing to move higher. The government is also widening
the probe on the tanker contract scandal. 

I am cutting the losses and bailing on this position. 

2006 $55 LEAP Call WBO-AK @ $4.70, $3.90, -0.80 loss
2006 $60 LEAP Call WBO-AL @ $3.00, $2.20, -0.80 loss

Entry $52 (9/28)
http://members.OptionInvestor.com/leaps/Lp_092604_1.asp

Boeing Chart



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

OXY - Occidental Petroleum $56.30  ** Stop $54.00 **

We came very close to being stopped at $54 on Wednesday
when oil prices fell to $51.50 a barrel. The return to
$55 at Friday's close has breathed new life back into 
OXY and hopefully the profit taking is over. 

OXY declared a dividend of $.275 on Thursday.     

See the comments on COP for additional oil sentiment.

Earnings are Oct-21st

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

Entry $55.50 (9/28)
http://members.OptionInvestor.com/leaps/Lp_082904_1.asp

OXY Chart



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

SYMC - Symantec - $53.75   ** Stop $50.00 **

After soaring to a new all time high the prior Wednesday
at $57.82 the warning by SonicWall has been a weight on
SYMC. I am sure normal October profit taking is also 
weighing on the price. Earnings are this Wednesday and
they are expected to be strong. 

I am leaving the stop low at $50 to stay under the 
strong support at $51-$52.  

Earnings are Oct-20th 

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

Entry $53.00 on 9/27
http://members.OptionInvestor.com/leaps/Lp_080804_1.asp

SYMC Chart



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

XMSR - XM Satellite Radio $29.00  ** Stop $23.00 **

XMSR weathered the Howard Stern storm on SIRI and 
rebounded off its lows on Wednesday as the new Internet
music business began to be advertised. As long as the
current support at $28 holds until the market recovers
I believe this play will do well. 

Microsoft announced that Media Player 10 now offers
XMSR on your PC and that is a strong marketing partner. 

Earnings are not until November

Current position:
2006 JAN-$30 LEAP Call YLX-AF @ $6.60 
2006 JAN-$32 LEAP Call YLX-AZ @ $5.60
2006 JAN-$35 LEAP Call YLX-AG @ $4.60 

Entry $29.15 on 10/4
http://members.OptionInvestor.com/leaps/Lp_100304_1.asp

XMSR Chart



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

PFE - Pfizer $28.52    ** Stop $27.00 **

Pfizer had a bad week but there was nothing new in the
news. The general depression was due more to the constant
news about VIOXX and the apparent lead Kerry was beginning
to capture. 

On Friday Pfizer repeated a drug warning from a year ago
that studies of Bextra in heart bypass surgery to reduce
inflammation had sometimes resulted in cardiac events.
This was in very high doses and only with injections not
capsules. They also repeated the warning that it could
cause a very rare skin disease called Stevens-Johnson
Syndrome. Pfizer said they reexamined the various trials
of Bextra after the Vioxx news and found no additional
risk for normal use. They repeated the prior warnings 
just to remind doctors they exist as patient transfer
from VIOXX to other COX-2 inhibitors. 

The drug cloud remaining from VIOXX may have been too 
thick to jump into Pfizer for the Celebrex play. Investors
are far too nervous and afraid of all drug companies this
week and unless the trend changes soon we may exit this
play quickly.   

2006 JAN $30 CALL LEAP WPE-AF 
2006 JAN $32 CALL LEAP WPE-AB 

Entry $30.96 10/4 
http://members.OptionInvestor.com/leaps/Lp_100304_1.asp
 
PFE Chart




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


DIA  $100.65 Dow Diamonds Trust **Stop 97.00**

Finally an index entry! The Dow returned to the May
lows at 9900 and just enough to trigger our LEAP
entry. 
 
The key for this week is to hold over 9700 which
is where I placed the stop. If we set a lower low
below the August 9783 low then we want to be flat
again. 

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

For instance a move to Dow 12500 (DIA 125) would
put the $108 leap call 17 points in the money or
$17. That would be five times the current $2.90 
price.

 
2006 $100 LEAP Call YGF-AV @ $6.30
2006 $104 LEAP Call YGF-AZ @ $4.20
2006 $108 LEAP Call YGF-AD @ $2.90
2006 $112 LEAP Call YGF-AH @ $2.00

Entry 10/14 @ $99.00

DIA Chart






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

One Down, Two to Go 

The insurance bomb on Thursday knocked the Dow
back to 9900 and triggered our DIA leap entry.

The QQQ came within 70 cents of the $46.50 entry
on the Tuesday drop and the SMH moved to within
62 cents of our $29.00 entry on Friday. 

The one I wanted the most, the IWM, came within
1.29 of our initial 111 entry. Not quite close
enough. However the options have risen in price
with the October surge and the index has not 
really shown any indications of failure. I am
dropping this watch list entry today as too 
expensive.

I am going to adjust the entry points one more
time in hopes of getting triggered if we do 
retest Dow 9800 next week. Most of our other
portfolio plays are holding up well during this
October madness so there is a good chance we
could get these remaining index entries and not
lose any of our other plays.  


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


IWM $113.68 

Russell has not pulled back as far as the other 
indexes and the options are too expensive. We have
a DIA entry and we will have an SMH entry this week. 



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


No new entries 


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


SMH  $29.76 Semiconductor Holders 
Target $29.00 on breakdown
Target $30.50 on breakout

We are so close I do not want to miss this entry. I
kept the $29 target but put a breakout entry trigger
at $30.50 as well. This way a continued drop will hit
our initial target but a Monday rebound will also put
us in play. 

Chip earnings are mostly over and all the bad news
should be priced in. All we need to worry about now
is general market weakness.   

Buy 2006 $30 LEAP Call YRH-AF 
Buy 2006 $35 LEAP Call YRH-AG 
Sell 2006 $55 LEAP Put YRH-MA 

SMH Chart



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

QQQ  $35.63 Nasdaq 100 Tracking Stock  
Target $34.50

The Nasdaq 100 tracking stock has strong support at $34
but it still managed to break to just below $33 on the
August dip. I would like to get a long entry at $34 but
after last week I have raised it to $34.50. The real
difference in premiums over the next year will be very
slight.  

I do not want to try a breakout entry on the QQQ as the
volatility is too strong. The QQQ has traded as high as
$120 back in 2000 but I doubt we will see that again this
decade.

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

Buy 2006 $35 LEAP Call YWZ-AI currently $4.60
Buy 2006 $37 LEAP Call YWZ-AD currently $3.50

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

QQQ Chart




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

Options Expire Worthless -- Premiums Stay Where They Belong
By Mike Parnos

Get out your shovel, it's time to break ground for the new wing 
on your mansion.  You can break out the champagne while you're at 
it.  You can pay for both with this month's CPTI trading profits.   
Get those calculators ready.  We're going to have some fun -- and 
maybe blow our own horn a little.

As the second year of our CPTI portfolio comes to a close, we 
have reason to celebrate.  The reason?  A 135% return on our risk 
for the entire year -- with very conservative high-probability 
trades. 

Bernie Schaefer, Price Headley, Optionetics, Spread Traders, 
Teach Me To Trade, Options Made Easy -- eat your hearts out!!  
People pay a small fortune for their seminars and products.  Then 
they try to sell them more and more -- AND their customers still 
end up losing money. CPTI students know they have to look no 
further than this column to learn what they need to know and to 
acquire the skills that can feed them for a lifetime.  
____________________________________________________________

October CPTI Portfolio Results 
The October option cycle was the final cycle in the second year 
of tracking our Couch Potato Trading Institute portfolio. With 
our $8,030 of profits, we've now accumulated a total of $60,950 
in only eleven months - on a trading account size of about 
$45,000. 

October Trade Summary
SPX - Iron Condor - Profit: $3,050
RUT - Iron Condor - Profit: $1,200
OEX - Iron Condor - Profit: $$1,200
BBH - Iron Condor - Profit: $$1,150
TOTAL OCTOBER PROFITS: $6,550
(See position summary below)

Happy Returns Of The Day (Month) Report –
Once again, I calculated our hypothetical return on risk for this 
month's closed portfolio trades. The total amount of maintenance 
in the above trades was $58,000. If we subtract the $6,550 of 
premium we originally took in, our real risk was only $51,450. 
When we divide $51,450 into our $6,550 profit, we show a return 
on our risk of 11.3%
___________________________________________________________

NOVEMBER CPTI POSITIONS
November Position #1 - SPX Iron Condor - 1108.20
We sold 12 SPX November 1185 calls and bought 12 SPX November 
1200 calls with a credit of about $1.25 ($1,500).  Then we sold 9 
SPX November 1070 puts and bought 9 SPX November 1050 puts for a 
credit of about $1.65 ($1,485).  Total credit and potential 
profit of about $2,985.  The maximum profit range is from 1070 to 
1185.  Can this 115-point range withstand the market's emotional 
highs and lows?  Let's hope so.  The maintenance is $18,000.  The 
potential return on risk is about 20%.

New November Position #2 - SPX Iron Condor - 1108.20
Considering the downward market movement, I felt it is 
appropriate to initiate a SPX position with different parameters.  
We sold 10 SPX Nov. 1160 calls and bought 10 SPX Nov. 1180 calls 
for a credit of about $1.40 ($1,400).  Then we sold 13 SPX Nov. 
1025 puts and bought 13 SPX Nov. 1005 puts for a credit of about 
$1.20 ($1,560). Maximum profit potential of about $2,960.  Max 
profit range of 1025 - 1160.  Maintenance: $20,000.

November Position #3 - OEX Iron Condor - 529.58
We sold 10 OEX Nov. 500 puts and bought 10 OEX Nov. 490 puts for 
a credit of about $.70 ($700).  Then we sold 10 OEX Nov. 555 
calls and bought 10 OEX Nov. 565 calls for a credit of about $.60 
($600).  Total net credit and maximum profit of $1.30 ($1,300).  
Max profit trading range of 500 to 555.  Maintenance $10,000.


November Position #4 - RUT - Iron Condor - 564.99
We sold 10 RUT Nov. 520 puts and bought 10 RUT Nov. 510 puts for 
a credit of about $.70 ($700).  Then we sold 10 RUT Nov. 610 
calls and bought 10 RUT Nov. 620 calls for a credit of about $.60 
($600).  Total net credit and maximum profit of $1.30 ($1,300).  
Max profit range of 520 to 610.  Maintenance $10,000.
____________________________________________________________

RECAP OF OCTOBER CPTI POSITIONS
October Position #1 - SPX Iron Condor - 1103.29
We sold 10 SPX October 1160 calls and bought 10 SPX October 1175 
calls for a net credit of about $1.75 ($1,750).  Then we sold 10 
SPX October 1075 puts and bought 10 SPX October 1060 puts for a 
credit of about $1.30 ($1,300).  Total net credit of appx. $3.05 
($3,050).  Maximum profit range was 1075 to 1160.  Maintenance 
was $15,000.  Profit:  $3,050
 
Position #2 -- RUT Iron Condor - 564.88
We sold 10 RUT Oct. 610 calls and bought 10 RUT Oct. 620 calls 
for a credit of about $.65 ($650).  Then we sold 10 RUT Oct 530 
puts and bought 10 RUT Oct 520 puts for a credit of about $.55 
($550).  Total net credit of about $1.20 ($1,200).  Maximum 
profit range was 530 to 610.  Maintenance was $10,000.  Profit:  
$1,200.

Position #3 - OEX Iron Condor - 529.58
We sold 10 OEX October 520 puts and bought 10 OEX October 510 
puts for a credit of about $.70 ($700).  Then we sold 10 OEX 
October 565 calls and bought 10 OEX October 575 calls for a 
credit of about $.50 ($500). Total net credit of $1,200.  Maximum 
profit range was 520 to 565.  Maintenance was $10,000.   Profit:  
$1,200.

Position #4 - BBH Iron Condor - $134.10
We sold 10 BBH October $150 calls and bought 10 BBH October $160 
calls for a credit of about $.95 ($950).  Then we sold 10 BBH 
October $135 puts and bought 10 BBH October $125 puts for a 
credit of about $.55 ($550).  Total net credit of about $1.50 ($1,500). 
 Maximum profit range was $135 to $150.  Maintenance was $10,000.  Be 
careful, it's getting close to the bottom of the 
range.  Closed out short $135 put earlier this week at $.35 = 
final profit of $1.15 ($1,150).

NOTE:  As it turned out, BBH finished comfortably above $135.  
Had we held on, we would have gained another $350.  Do I regret 
closing out the position early for $.35?  Not for a minute.  It 
could have just as easily finished at $130.
____________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $35.45
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts 
of the 2005 QQQ $29 calls for a total debit of $14,300.   We make 
money by selling near term puts and calls every month.  Here’s 
what we’ve done so far:  Oct. $33 puts and Oct. $34 calls – 
credit of $1,900. Nov. $34 puts and calls – credit of $1,150. 
Dec. $34 puts and calls – credit of $1,500.  Jan. $34 puts and 
calls – credit of $850.  Feb. $34 calls and $36 puts – credit of 
$750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34 
calls and $37 puts – credit of $750.  May $34 calls and $37 puts 
– credit of $800. June $34 calls and $37 puts -- total net credit 
of $750.  We rolled out to the July $34 calls ($.20 credit) and 
$37 puts ($.60 credit) and took in a credit of $.80 ($800).  We 
rolled to the August $34 calls and $37 puts, taking in a credit 
of $900.  We rolled to the Sept. $34 calls and $37 puts, yielding 
$.45 or $450 for the cycle. For October we were again limited to 
a $.45 ($450) rollout.  We rolled to the Sept. $34 calls and $37 
puts for a total of $.70 ($700). Our new total credit is now 
$12,900. 

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

ZERO-PLUS Strategy.  OEX – 529.58
In my Feb. 8th column, I outlined a strategy based on an initial 
investment of $100,000.  $74,000 was spent on zero coupon bonds 
maturing in seven years at a value of $100,000.  The principal 
$100,000 investment is guaranteed.  We’re trading the remaining 
$26,000 to generate a "risk free" return on the original 
investment.  We own 3 OEX December 2006 540 calls @ $81 (x 300 = 
$24,300).  Our cash position as of August expiration was $8,390.  
In September we added another $975 for a total of $9,365.  In 
October we added $650 for a new total of $10,015.

New Zero-Plus Position For November
November bull put spread 500/490 for credit of $.70 x 5 = $350.  
November bear call spread 555/565 for credit of $.60 x 5 = $300.  
If all goes well, we'll be able to add another $650 to our cash 
position.
__________________________________________________________

SPX "Sure Thing" Strategy - 1103.29
Formerly called the "Credit Spread Boogie."  The market seems to 
be in an uptrend since mid-August.  Let's go with the flow until 
the market tells us otherwise.  We sold 3 SPX 1120 October puts 
and bought 3 SPX 1095 October puts for a net credit of about 
$6.50 ($1,950).  The initial maintenance was $7,500.

When the SPX traded in the low 1100s, it was time for an 
adjustment.  We closed out the original bull put spread for 
$13.20 ($3,960).  We then opened a seven-contract position of a 
1115/1140 bear call spread, taking in $6.35 ($4,445).  That means 
we've taken in some extra premium.  Our new profit potential is 
$2,435 -- if SPX closes below 1115.  

We've been getting whipsawed.  Our most recent position was a 
November 14-contract 1120/1095 bull put spread (coincidentally, 
right back where we started) at $7.00 ($9,800).  The maintenance 
is getting pricey at $35,000.  That's why this strategy is not 
for everyone.  Our potential profit is still $2,435. 

Here we go again.  We had to close the 1120/1095 bull put spread 
and we initiated a new 1115/1140 bear call spread.  We picked up 
another $350 in premium to $2,785, but our maintenance is now 
$70,000. 
____________________________________________________________

America, As We Know It, Is In Trouble
Interstate Bakeries Corp. is in trouble.  To be more specific, 
that tasty product millions of us used to find tucked away in the 
corner of our Superman lunch boxes in grade school is now in 
danger of extinction.  That's right, Twinkies are on the 
Endangered Carbohydrate List (yes, there is such a thing).  

In the good old days, we gobbled down our PB&J sandwiches, 
knowing that we'd soon be freeing two Twinkies from their 
cellophane prison and sending them to their new home -- our 
bellies.  We can't allow Dr. Atkins & fad diets to alter our 
lifestyle and threaten part of Americana.

We have to act.  Join me and my assistants -- Angie O'Plasty and 
Connie Lyngus -- as we organize a "Save The Twinkie" telethon.  
We need volunteers.   If we lose Twinkies, what's next?  3 
Musketeers?  King Dongs?  Combos?  Ladies and gentlemen, America 
is in trouble.  I wonder why Bush or Kerry didn't debate this 
issue.
____________________________________________________________

Happy Trading! 
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In 
trading, as in life, it's not the cards we're dealt. It's how we 
play them.
   
Mike Parnos, Options Therapist and CPTI Master Strategist
 

Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the 
numbers represented here may have been achieved or beaten by our 
readers, we make no representation that any individual investor 
achieved these exact results. The tracking for the plays listed 
in this section uses closing prices for the day the newsletter is 
published and it is not meant to imply that any reader actually 
received those prices or participated in these recommendations. 
The portfolio represented here is hypothetical and for investment 
education purposes only. It is only an illustration of what type 
of gains a knowledgeable investor might receive utilizing these 
strategies.


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

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


**************************************************************
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The Option Investor Newsletter                   Sunday 10-17-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  Equities Rebound On Retail Data, Greenspan 
Comments...
Premium-Selling Plays: Naked Puts and Calls


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

 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

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

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

_________________________________________________________________

Sequenced by Target Yield (monthly basis/no margin)

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

GRA    11.58  NOV 10.00  GRA-KB 2.30  2989  9.28  34   6.9%
CYBS    6.04  NOV  5.00  CXQ-KA 1.35    39  4.69  34   5.9%
TACT   28.55  NOV 25.00  TUF-KE 4.90    90 23.65  34   5.1%
GTW     5.46  NOV  5.00  GTW-KA 0.70  2015  4.76  34   4.5%
USG    21.22  NOV 20.00  USG-KD 2.15 18453 19.07  34   4.4%
PMTI   23.08  NOV 20.00  HKQ-KD 4.00    30 19.08  34   4.3%
DHB    14.38  NOV 12.50  DHB-KV 2.45  1023 11.93  34   4.3%
SEAC   16.15  NOV 15.00  UEG-KC 1.80   151 14.35  34   4.1%
WEBX   25.17  NOV 22.50  UWB-KX 3.50   709 21.67  34   3.4%
OMM    16.51  NOV 15.00  OMM-KC 2.05    16 14.46  34   3.3%
AGIX   28.00  NOV 20.00  AUB-KD 8.60   545 19.40  34   2.8%

Company Descriptions

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

_________________________________________________________________

GRA - W. R. Grace  $11.58

W. R. Grace & Co. (NYSE:GRA), through its subsidiaries, provides
specialty chemicals and materials.  Grace operates in two major
business segments: Davison Chemicals and Performance Chemicals.
Davison Chemicals produces catalysts and silica-based products.
Performance Chemicals produces specialty construction chemicals,
including performance-enhancing concrete admixtures, additives
and additives for masonry products; specialty building materials,
including fireproofing and waterproofing materials and systems,
and sealants and coatings for packaging that protect food and
beverages from bacteria and other contaminants, extend shelf life
and preserve flavor.

GRA - W. R. Grace  $11.58

NOV 10.00 GRA-KB LB=2.30 OI=2989 CB=9.28 DE=34 TY=6.9%


_________________________________________________________________

CYBS - CyberSource  $6.04

CyberSource (NASDAQ;CYBS) provides secure electronic payment
and risk management solutions to organizations that process
orders for goods and services over the Internet.  The firm's
payment solutions allow eCommerce merchants to accept a range
of online payment options, from credit cards and electronic
checks, to global payment options and emerging payment types.
Its risk and compliance management tools address issues such
as credit card fraud, tax requirements and export controls.
Its reporting and management tools help automate the flow of
complex eCommerce processes, such as recurring billing and
payment reconciliation.

CYBS - CyberSource  $6.04

NOV  5.00 CXQ-KA LB=1.35 OI=39 CB=4.69 DE=34 TY=5.9%


_________________________________________________________________

TACT - TransAct Technologies  $28.55

TransAct Technologies (NASDAQ:TACT) designs, develops, makes
and markets transaction-based printers under the Ithaca and
Magnetec brand names.  In addition, the firm markets related
consumables, spare parts and service.  Its printers are used
worldwide to provide transaction records, such as receipts,
tickets, coupons, register journals and other documents.  The
company focuses on two markets: point-of-sale and banking and
gaming and lottery.  TransAct offers an array of products
utilizing inkjet, thermal and impact printing technology for
applications requiring up to 60 character columns.

TACT - TransAct Technologies  $28.55

NOV 25.00 TUF-KE LB=4.90 OI=90 CB=23.65 DE=34 TY=5.1%


_________________________________________________________________

GTW - Gateway  $5.46

Gateway (NYSE:GTW) is a direct marketer of personal computers,
servers, PC-related products and services and other consumer
electronics products.  Consumer electronics and non-PC-related
products and services consist of all offerings other than the
PC, such as peripherals, software, accessories, warranties,
training, Internet services, digital televisions, digital
cameras and enterprise system and networking products and
services.  The company sells its products nationally through
a number of channels, including its Website at www.gateway.com,
its telephone call centers (1-800-GATEWAY), its retail stores
and through a limited number of third-party channels.

GTW - Gateway  $5.46

NOV  5.00 GTW-KA LB=0.70 OI=2015 CB=4.76 DE=34 TY=4.5%


_________________________________________________________________

USG - USG Corporation  $21.22

USG Corporation (NYSE:USG) is engaged in the manufacture and
distribution of building materials.  Its business operations
are organized into three operating segments: North American
Gypsum, Worldwide Ceilings and Building Products Distribution.
North American Gypsum manufactures and markets gypsum sheetrock
and related products in the United States, Canada and Mexico.
Worldwide Ceilings manufactures and markets ceiling tile in the
United States and ceiling grid in the United States, Canada,
Europe and Asia.  Building Products Distribution distributes
gypsum wallboard, drywall metal, joint compound and other
building products throughout the United States.
  
USG - USG Corporation  $21.22

NOV 20.00 USG-KD LB=2.15 OI=18453 CB=19.07 DE=34 TY=4.4%


_________________________________________________________________

PMTI - Palomar Medical  $23.09

Palomar Medical Technologies (NASDAQ:PMTI) is a researcher and
developer of light-based systems for hair removal and other
cosmetic procedures.  The company researches, develops, makes,
markets, sells and services light-based products that perform
procedures addressing medical and cosmetic concerns.  Palomar
offers a range of products based on its technologies including
hair removal; non-invasive treatment of facial and leg veins and
other benign vascular lesions, such as rosacea, spider veins,
port wine stains and hemangiomas; removal of benign pigmented
lesions, such as age and sun spots; tattoo removal; treatment
for acne; pseudofolliculitis barbae, and other skin treatments.

PMTI - Palomar Medical  $23.09

NOV 20.00 HKQ-KD LB=4.00 OI=30 CB=19.08 DE=34 TY=4.3%


_________________________________________________________________

DHB - DHB Industries  $14.38

DHB Industries (NYSE:DHB) is a holding company consisting of two
major divisions: DHB Armor Group and DHB Sports Group.  The Armor
Group includes both Point Blank Body Armor and Protective Apparel
Corporation of America.  The Armor Group principally manufactures
three basic types of body armor: concealable armor, which is worn
beneath the user's clothing and designed to protect against less
serious weapons; tactical armor, which is worn externally and is
designed to protect against more serious threats, and modular
concealable/tactical armor, which allows the wearer to customize
the armor for either concealed or tactical use.

DHB - DHB Industries  $14.38

NOV 12.50 DHB-KV LB=2.45 OI=1023 CB=11.93 DE=34 TY=4.3%


_________________________________________________________________

SEAC - SeaChange International  $16.15

SeaChange International (NASDAQ:SEAC) is a developer, builder,
and marketer of video storage systems that automate the
management and distribution of long-form video streams, such
as movies or other feature presentations, and short-form video
streams, such as advertisements.  The company's digital video
systems provide storage and retrieval capabilities, multichannel
content delivery and highly-automated information and order
processing.

SEAC - SeaChange International  $16.15

NOV 15.00 UEG-KC LB=1.80 OI=151 CB=14.35 DE=34 TY=4.1%


_________________________________________________________________

WEBX - WebEx Communications  $25.17

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  $25.17

NOV 22.50 UWB-KX LB=3.50 OI=709 CB=21.67 DE=34 TY=3.4%


_________________________________________________________________

OMM - OMI Corporation  $16.51

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

OMM - OMI Corporation  $16.51

NOV 15.00 OMM-KC LB=2.05 OI=16 CB=14.46 DE=34 TY=3.3%


_________________________________________________________________

AGIX - AtheroGenics  $28.00

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

AGIX - AtheroGenics  $28.00

NOV 20.00 AUB-KD LB=8.60 OI=545 CB=19.40 DE=34 TY=2.8%





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

 Equities Rebound On Retail Data, Greenspan Comments...
By Ray Cummins

The major stock averages closed higher Friday amid favorable retail 
sales data and some optimistic comments from Federal Reserve Chairman 
Alan Greenspan. 

The Commerce Department reported that retail sales jumped 1.5%
in September, more than economists expected.  Fed Chief Alan
Greenspan added to the confident outlook, saying that surging
energy costs will have less of an impact on the U.S. economy
than the energy crisis of the 1970s.  The Dow Jones industrial
average climbed 38 points to 9,933, bouncing back from sizeable
losses over the past two sessions.  The technology-laden NASDAQ
Composite index added 8 points to close at 1,911.  The Standard
& Poor's 500 index closed up 4 points at 1,108.  Advancers were
ahead of decliners by a 5 to 2 margin on the NYSE, where volume
came to 1.65 billion shares.  NASDAQ breadth favored the bulls
with winners outpacing losers 3 to 2 on volume of 1.63 billion
shares.  In the treasury market, the benchmark 10-year note slid
8/32 to yield 4.05%.  Despite Friday's gains, equities ended the
week lower.  The Dow lost 1.2%, the S&P 500 fell 1.2%, and the
NASDAQ was down 0.44%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/15/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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  81.86  OCT  65.0  70.0  0.70   69.30   0.70  Closed
RYL    88.15  86.90  OCT  75.0  80.0  0.75   79.25   0.75  Closed
GIVN   38.72  38.90  OCT  30.0  35.0  0.70   34.30   0.70  Closed
MBT   140.75 140.10  OCT  20.0  25.0  0.50   24.50   0.50  Closed
COGN   34.58  37.10  OCT  30.0  32.5  0.30   32.20   0.30  Closed
SCSC   66.22  71.82  OCT  55.0  60.0  0.50   59.50   0.50  Closed
ONXX   41.99  41.59  OCT  30.0  35.0  0.50   34.50   0.50  Closed
AHC    83.99  87.41  OCT  75.0  80.0  0.55   79.45   0.55  Closed
CELG   59.39  62.13  OCT  50.0  55.0  0.55   54.45   0.55  Closed
GDT    64.02  64.95  OCT  55.0  60.0  0.65   59.35   0.65  Closed
PD     90.48  85.00  OCT  80.0  85.0  0.50   84.50   0.50  Closed
RTP   104.28 106.92  OCT  95.0 100.0  0.55   99.45   0.55  Closed
PETD   43.63  38.41  OCT  35.0  40.0  0.45   39.55  (1.14) Closed
RIMM   76.98  81.75  OCT  60.0  65.0  0.40   64.60   0.40  Closed
GIVN   44.07  38.90  NOV  35.0  40.0  0.70   39.30  (0.40) Closed
BSC    94.16  91.81  NOV  80.0  85.0  0.65   84.35   0.65   Open
PHS    37.23  36.31  NOV  30.0  32.5  0.35   32.15   0.35   Open
BTU    60.07  60.78  NOV  50.0  55.0  0.60   54.40   0.60   Open
MRVL   28.84  28.69  NOV  22.5  25.0  0.35   24.65   0.35   Open
COST   44.69  45.60  NOV  40.0  42.5  0.30   42.20   0.30   Open
NEM    46.25  44.78  NOV  40.0  42.5  0.30   42.20   0.30   Open
INSP   47.25  46.70  NOV  35.0  40.0  0.85   39.15   0.85   Open

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

Positions in Cabot Micro (NASDAQ:CCMP) and Pulte Homes (NYSE:PHM)
have previously been closed to limit potential losses.  Given
Imaging (NASDAQ:GIVN) became an early exit candidate on Friday
after posting a 50% rise in third-quarter sales, which fell short
of consensus analyst estimates.


CALL-CREDIT SPREADS

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

AZO    74.06  78.27   OCT  85.0  80.0  0.55   80.55  0.55  Closed
MXIM   40.94  42.25   OCT  50.0  45.0  0.50   45.50  0.50  Closed
PLMO   32.30  26.95   OCT  45.0  40.0  0.55   40.55  0.55  Closed
LEN    46.75  42.72   OCT  55.0  50.0  0.60   50.60  0.60  Closed
NBIX   50.65  46.98   OCT  60.0  55.0  0.55   55.55  0.55  Closed
SSP    49.66  47.09   OCT  52.5  50.0  0.50   50.50  0.50  Closed
APOL   78.35  68.21   OCT  90.0  85.0  0.25   85.25  0.25  Closed
STJ    70.73  76.90   OCT  80.0  75.0  0.55   75.55 (1.35) Closed
APOL   72.00  68.21   OCT  85.0  80.0  0.45   80.45  0.45  Closed
PRX    37.80  34.98   OCT  45.0  40.0  0.60   40.60  0.60  Closed
CERN   42.99  46.06   OCT  50.0  45.0  0.50   45.50 (0.56) Closed
IMCL   50.35  51.03   OCT  60.0  55.0  0.40   55.40  0.40  Closed
LLTC   35.71  36.09   OCT  40.0  37.5  0.30   37.80  0.30  Closed
LXK    81.50  82.40   OCT  90.0  85.0  0.65   85.65  0.65  Closed
AMZN   40.47  38.55   NOV  50.0  45.0  0.65   45.65  0.65   Open
PDX    55.00  54.45   NOV  65.0  60.0  0.60   60.60  0.60   Open
BZH   103.14 100.39   NOV 115.0 110.0  1.10  111.10  1.10   Open
CHIR   37.98  32.47   NOV  45.0  42.5  0.30   42.80  0.30   Open
FLIR   54.52  54.50   NOV  65.0  60.0  0.70   60.70  0.70   Open
MERQ   37.97  37.22   NOV  45.0  42.5  0.35   42.85  0.35   Open
BIIB   59.82  58.02   NOV  70.0  65.0  0.65   65.65  0.65   Open
MCHP   27.56  27.65   NOV  35.0  30.0  0.60   30.60  0.60   Open

L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss

Positions in Cerner (NASDAQ:CERN), as well as Lexmark (NYSE:LXK)
and Netease.com (NASDAQ:NTES), both of which ended the expiration
period profitable, have 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  27.78   OCT   30.0   30.0    2.40    2.60   Closed
MDC     74.96  71.76   OCT   75.0   75.0    3.50    8.00   Closed
ETN     64.82  62.70   OCT   65.0   65.0    2.05    5.50   Closed
RMBS    15.23  15.80   OCT   15.0   15.0    1.10    1.45   Closed

Debit straddles in MDC Holdings (NYSE:MDC) and Eaton (NYSE:ETN)
were the best performers during the October expiration period.

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

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

BG - Bunge Limited  $41.96  *** New "All-Time" High! ***

Bunge Limited (NYSE:BG) is an integrated, global agribusiness
and food company operating in the farm-to-consumer food chain,
with operations ranging from sales of raw materials such as
grains and fertilizers to retail food products.  The company
conducts its operations in three divisions: agribusiness,
fertilizer and food products.  The agribusiness division is an
integrated unit involved in the purchase, sale and processing
of grains and oilseeds.  The fertilizer division is involved
in every stage of the fertilizer business, from mining of raw
materials to the sale of fertilizer products.  The food products
division consists of two business lines, edible oil products and
milling products.

BG - Bunge Limited  $41.96

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-35.00  BG-WG  OI=456  ASK=$0.15
SELL PUT  NOV-40.00  BG-WH  OI=580  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$39.50


__________________________________________________________________

CELG - Celgene  $62.13  *** 2-for-1 Split Coming! ***

Celgene (NASDAQ:CELG) is an integrated biopharmaceutical firm
engaged in the discovery, development and commercialization of
therapies designed to treat cancer and immunological diseases
through regulation of cellular, genomic and proteomic targets.
Celgene has built a discovery, development and commercialization
platform for drug- and cell-based therapies that allows it to
both create and retain significant value within its therapeutic
franchise areas of cancer and immune/inflammatory diseases.
This target-to-therapeutic platform integrates small molecule
and cell-based therapies and spans the key functions required to
generate a pipeline of new drugs and cell therapy candidates.

CELG - Celgene  $62.13

PLAY (less conservative - bullish/credit spread):

BUY  PUT  NOV-50.00  LQH-WJ  OI=794  ASK=$0.45
SELL PUT  NOV-55.00  LQH-WK  OI=936  BID=$1.05
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$54.35



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

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.

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

CB - Chubb  $66.76  *** Hurricane Losses Hurt Outlook! ***

Chubb Corporation (NYSE:CB) is a holding company for a family
of property and casualty insurance companies known informally
as the Chubb Group of Insurance Companies.  The company is
divided into three strategic business units.  Chubb Commercial
Insurance offers a wide range of commercial customer insurance
products, including coverage for multiple peril, casualty,
workers' compensation and property and marine.  Chubb Specialty
Insurance offers specialized executive protection and liability
products for privately and publicly owned companies, financial
institutions, professional firms and healthcare organizations.
Chubb Specialty Insurance also includes the Company's surety
and accident businesses, as well as its reinsurance assumed
business.  Chubb Personal Insurance offers products for people
who require more coverage choices and higher limits than basic
insurance policies.

CB - Chubb  $66.76

PLAY (conservative - bearish/credit spread):

BUY  CALL  NOV-75.00  CB-KO  OI=611  ASK=$0.20
SELL CALL  NOV-70.00  CB-KN  OI=378  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$70.60


__________________________________________________________________

HIG - Hartford Financial  $56.30  *** Spitzer Probe = Scandal? ***

Hartford Financial Services Group (NYSE:HIG) is a diversified
insurance and financial services company.  Through its many
subsidiaries, the company provides investment products and life
and property and casualty insurance to individual and business
customers in the United States and internationally.  Hartford
is organized into two major operations: Life and Property and
Casualty.  Life provides investment and retirement products
such as variable and fixed annuities, mutual funds, retirement
plans and other institutional products; individual and corporate
life insurance, and group benefit products such as group life
and group disability insurance.  Property and Casualty provides
a number of coverages including workers' compensation, property,
automobile, liability, umbrella, specialty casualty, marine,
agriculture, bond, professional liability and directors and
officer's liability coverage.

HIG - Hartford Financial  $56.30

PLAY (aggressive - bearish/credit spread):

BUY  CALL  NOV-65.00  HIG-KM  OI=1672  ASK=$0.20
SELL CALL  NOV-60.00  HIG-KL  OI=863   BID=$1.05
INITIAL NET-CREDIT TARGET=$0.85-$0.90
POTENTIAL PROFIT(max)=20% B/E=$60.85



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

JCOM - j2 Global Communications  $29.93  *** Earnings Play! ***

j2 Global Communications (NASDAQ:JCOM) provides outsourced,
value-added messaging and communications services to more
than five million customers around the world.  j2 Global's
network spans more than 1,100 cities in 20 countries on five
continents.  The company offers its services and software
under the j2, eFax, jConnect, jFax, Consensus, Hotsend, M4
Internet, PaperMaster, Protofax, Electric Mail and Documagix
brands.  Earnings are due after the closing bell on 10/18/04.

JCOM - j2 Global Communications  $29.93

PLAY (very speculative - neutral/debit straddle):

BUY CALL  NOV-30.00  JQF-KF  OI=780  ASK=$1.95
BUY PUT   NOV-30.00  JQF-WF  OI=754  ASK=$1.90
INITIAL NET-DEBIT TARGET=$3.65-$3.75
INITIAL TARGET PROFIT=$1.10-$1.75




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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/15/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   14.82    0.22   3.95%   2.74%
FHRX     OCT    17.50   17.05   22.20    0.45   6.31%   2.64%
SNDK     OCT    22.50   22.00   20.43   (1.57)  0.00%   0.00%
SSYS     OCT    25.00   24.45   30.00    0.55   5.91%   2.25%
JNPR     OCT    22.50   22.00   23.76    0.50   5.73%   2.27%
CREE     OCT    22.50   22.15   28.78    0.35   5.28%   1.58%
FFIV     OCT    22.50   22.20   31.35    0.30   4.45%   1.35%
AMZN     OCT    37.50   37.00   38.55    0.50   3.96%   1.35%
ASKJ     OCT    25.00   24.45   33.96    0.55   7.42%   2.25%
USNA     OCT    30.00   29.30   33.18    0.70   6.10%   2.39%
YHOO     OCT    30.00   29.40   34.52    0.60   5.51%   2.04%
CELL     OCT    15.00   14.50   15.50    0.50   8.28%   3.45%
CREE     OCT    25.00   24.35   28.78    0.65   7.26%   2.67%
CLHB     OCT    10.00   9.75    11.50    0.25   7.98%   2.56%
PDII     OCT    25.00   24.45   28.04    0.55   6.98%   2.25%
GILD     OCT    35.00   34.35   37.49    0.65   5.61%   1.89%
BOBJ     OCT    20.00   19.65   24.09    0.35   5.73%   1.78%
ASTE     OCT    17.50   16.95   19.27    0.55   9.55%   3.24%
LCAV     OCT    25.00   24.35   26.46    0.65   7.97%   2.67%
ALO      OCT    17.50   17.10   16.53   (0.57)  0.00%   0.00%
FHRX     OCT    17.50   17.20   22.20    0.30   6.33%   1.74%
GNSS     OCT    12.50   12.20   13.60    0.30   8.02%   2.46%
COGN     OCT    32.50   31.90   37.10    0.60   6.15%   1.88%
PSFT     OCT    17.50   17.20   20.85    0.30   6.15%   1.74%
LF       OCT    20.00   19.75   18.99   (0.76)  0.00%   0.00%
ATYT     OCT    15.00   14.75   15.89    0.25   5.90%   1.69%
YHOO     OCT    30.00   29.50   34.52    0.50   6.01%   1.69%
AGIX     OCT    12.50   11.75   28.00    0.75  21.96%   6.38%
DHB      OCT    12.00   11.60   14.38    0.40  14.91%   3.45%
INTV     OCT    10.00   9.70    11.81    0.30  12.10%   3.09%
NVTL     OCT    22.50   21.95   22.02    0.07   1.32%   2.51%
SFL      OCT    20.00   19.55   21.38    0.45   9.47%   2.30%
FHRX     OCT    17.50   17.15   22.20    0.35   8.94%   2.04%
PAAS     OCT    15.00   14.75   16.43    0.25   7.04%   1.69%
BLUD     OCT    20.00   19.75   27.83    0.25   6.52%   1.27%
AAPL     OCT    35.00   34.35   45.50    0.65   9.07%   1.89%
RIGL     OCT    22.50   21.85   26.68    0.65  13.86%   2.97%
CMTL     OCT    25.00   24.65   27.29    0.35   6.90%   1.42%
NABI     OCT    12.50   12.25   13.11    0.25   9.59%   2.04%
CREE     OCT    25.00   24.70   28.78    0.30   6.67%   1.21%
STLD     OCT    35.00   34.65   34.60   (0.05)  0.00%   0.00%
OMM      OCT    15.00   14.75   16.51    0.25   7.89%   1.69%
SNDK     OCT    27.50   27.10   20.43   (6.67)  0.00%   0.00%
WRLS     NOV     7.50   7.20    10.05    0.30   7.65%   4.17%
OSTK     OCT    35.00   34.60   40.57    0.40   7.74%   1.16%
SIMG     NOV    12.50   12.10   12.99    0.40   5.95%   3.31%
NVTL     OCT    22.50   22.25   22.02   (0.23)  0.00%   0.00%
RIGL     OCT    22.50   22.20   26.68    0.30   9.26%   1.35%
SYNA     OCT    20.00   19.80   24.95    0.20   6.50%   1.01%
YHOO     OCT    32.50   32.10   34.52    0.40   7.88%   1.25%
NCRX     NOV    25.00   24.30   25.67    0.70   5.52%   2.88%
ANF      NOV    32.50   32.10   36.50    0.40   2.78%   1.25%
STTX     NOV    25.00   24.60   25.61    0.40   3.89%   1.63%
SNDA     NOV    22.50   21.85   27.95    0.65   7.78%   2.97%
PMTI     NOV    20.00   19.15   23.09    0.85   9.23%   4.44%
IDBE     NOV    12.50   12.15   15.16    0.35   6.44%   2.88%
BVF      NOV    17.50   17.05   18.56    0.45   5.40%   2.64%
USG      NOV    17.50   16.90   21.22    0.60   6.84%   3.55%
SNDA     NOV    25.00   24.50   27.95    0.50   5.67%   2.04%
WEBX     NOV    20.00   19.60   25.17    0.40   5.75%   2.04%
ENER     NOV    15.00   14.40   19.75    0.60   8.11%   4.17%
DRIV     NOV    25.00   24.35   29.70    0.65   6.81%   2.67%
PLMD     NOV    30.00   29.55   32.32    0.45   3.33%   1.52%
CNCT     NOV    22.50   22.10   26.07    0.40   4.68%   1.81%
CCBI     NOV    22.50   21.90   23.20    0.60   5.51%   2.74%

Sandisk (NASDAQ:SNDK) was the only major "loser" this month as
the stock fell over 20% on Thursday, a day after the company
said oversupply forced it to cut prices, hurting its quarterly
profit and revenue.  Alopharma (NYSE:ALO), Leapfrog Enterprises
(NYSE:LF) and Novatel (NASDAQ:NVTL) were already on the "watch"
list, so those positions were candidates for early exit during
the past week.  American Pharmaceutical Partners (NASDAQ:APPX)
and Navarre (NASDAQ:NAVR), which ended the expiration period
profitable, have previously been closed to limit 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   16.87    0.50   6.99%   2.17%
LNCR     OCT    32.50   33.30   35.63   (2.33)  0.00%   0.00%
ADTN     OCT    30.00   30.30   21.82    0.30   3.79%   0.99%
DIGE     OCT    30.00   30.35   25.25    0.35   6.05%   1.15%
CTB      OCT    22.50   22.85   18.68    0.35   4.25%   1.53%
MDCO     OCT    30.00   30.80   23.65    0.80   8.33%   2.60%
CECO     OCT    40.00   40.50   28.13    0.50   6.34%   1.23%
CPRT     OCT    20.00   20.35   18.57    0.35   6.97%   1.72%
FLML     OCT    17.50   17.80   15.15    0.30  10.47%   1.69%
USPI     OCT    35.00   35.65   33.08    0.65   6.36%   1.82%
BDY      OCT    22.50   22.90   18.48    0.40   7.63%   1.75%
PLMO     OCT    35.00   35.90   26.95    0.90  11.25%   2.51%
XLNX     OCT    30.00   30.25   26.68    0.25   4.46%   0.83%
APPX     OCT    30.00   30.50   25.00    0.50   8.60%   1.64%
CYMI     OCT    30.00   30.40   27.52    0.40   6.78%   1.32%
TASR     OCT    45.00   45.35   37.47    0.35   8.19%   0.77%
ALD      OCT    25.00   25.25   25.03    0.22   5.69%   0.99%
CYBX     OCT    20.00   20.40   18.27    0.40  14.93%   1.96%
BRCM     NOV    35.00   35.35   28.20    0.35   4.44%   0.99%
LLTC     NOV    40.00   40.60   36.09    0.60   3.74%   1.48%
SINA     NOV    35.00   35.35   28.00    0.35   4.56%   0.99%
LRCX     NOV    25.00   25.40   21.75    0.40   5.37%   1.57%
IVX      NOV    20.00   20.75   18.25    0.75   9.51%   3.61%
PLMO     NOV    40.00   40.45   26.95    0.45   5.62%   1.11%
SLXP     NOV    20.00   20.65   18.00    0.65   8.83%   3.15%

The position in Lincare Holdings (NASDAQ:LNCR) should have been
closed earlier in the week when the stock rallied on news that
Medicare will likely pay higher monthly fees to dispensers of
home respiratory care.  Mercury Interactive (NASDAQ:MERQ) and
Storage Technology (NYSE:STK), along with Altera (NASDAQ:ALTR)
and SS&C Technologies (NASDAQ:SSNC), both of which ended the
expiration period profitable, have previously been closed to
limit potential losses.

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

RIGL   26.68  NOV 22.50  QRG-WX 0.65   33 21.85  34   2.7%   8.1%
ENER   19.75  NOV 17.50  EQI-WW 0.45   87 17.05  34   2.4%   6.6%
USG    21.22  NOV 17.50  USG-WW 0.35 12K+ 17.15  34   1.8%   6.1%
FARO   23.48  NOV 20.00  QEJ-WD 0.40  205 19.60  34   1.8%   5.7%
EYET   43.40  NOV 35.00  QUJ-WG 0.55 2877 34.45  34   1.4%   5.2%
NOVN   21.77  NOV 20.00  NPQ-WD 0.40   20 19.60  34   1.8%   4.9%
VRSN   22.05  NOV 20.00  QVR-WD 0.35 1145 19.65  34   1.6%   4.4%
MCD    28.99  NOV 27.50  MCD-WY 0.35 3639 27.15  34   1.2%   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.
_________________________________________________________________

RIGL - Rigel Pharmaceuticals  $26.68  *** Drug Speculation ***

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

RIGL - Rigel Pharmaceuticals  $26.68

NOV 22.50 QRG-WX LB=0.65 OI=33 CB=21.85 DE=34 TY=2.7% MY=8.1%


_________________________________________________________________

ENER - Energy Conversion Devices  $19.75  *** Rally Mode! ***

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  $19.75

NOV 17.50 EQI-WW LB=0.45 OI=87 CB=17.05 DE=34 TY=2.4% MY=6.6%


_________________________________________________________________

USG - USG Corporation  $21.22  *** Next Leg Up? ***

USG Corporation (NYSE:USG) is engaged in the manufacture and
distribution of building materials.  Its business operations
are organized into three operating segments: North American
Gypsum, Worldwide Ceilings and Building Products Distribution.
North American Gypsum manufactures and markets gypsum sheetrock
and related products in the United States, Canada and Mexico.
Worldwide Ceilings manufactures and markets ceiling tile in the
United States and ceiling grid in the United States, Canada,
Europe and Asia.  Building Products Distribution distributes
gypsum wallboard, drywall metal, joint compound and other
building products throughout the United States.
  
USG - USG Corporation  $21.22

NOV 17.50 USG-WW LB=0.35 OI=12186 CB=17.15 DE=34 TY=1.8% MY=6.1%


_________________________________________________________________

FARO - FARO Technologies  $23.48  *** Bullish Sales Forecast ***

FARO Technologies (NASDAQ:FARO) designs, develops, markets and
supports portable, software-driven, 3-D measurement systems used
in a broad range of manufacturing and industrial applications.
The firm's principal products are the Faro-Arm Control Station
and Control Station Pro (articulated measuring devices), the Faro
Laser Tracker and Laser Control Station and their companion Soft
Check Tool and CAM2 software, respectively, which provide for
computer-aided design (CAD)-based inspection and factory-level
statistical process control.  Faro's products bring precision
measurement, quality inspection and specification conformance
capabilities, integrated with CAD software, to the factory floor.

FARO - FARO Technologies  $23.48

NOV 20.00 QEJ-WD LB=0.40 OI=205 CB=19.60 DE=34 TY=1.8% MY=5.7%


_________________________________________________________________

EYET - Eyetech Pharmaceuticals  $43.40  *** Premium-Selling! ***

Eyetech Pharmaceuticals (NASDAQ:EYET) is a biopharmaceutical firm
that specializes in the development and commercialization of novel
therapeutics to treat diseases of the eye.  Its initial focus is
on diseases affecting the back of the eye, particularly the retina.
The company's most advanced product candidate is Macugen, which it
is developing for wet age-related macular degeneration (AMD) and
diabetic macular degeneration (DME).

EYET - Eyetech Pharmaceuticals  $43.40

NOV 35.00 QUJ-WG LB=0.55 OI=2877 CB=34.45 DE=34 TY=1.4% MY=5.2%


_________________________________________________________________

NOVN - Noven Pharmaceuticals  $21.77  *** Entry Point? ***

Noven Pharmaceuticals (NASDAQ:NOVN) is engaged primarily in the
development and manufacture of unique transdermal drug delivery
technologies and prescription transdermal products.  The firm's
principal commercialized products are prescription transdermal
drug delivery systems for use in menopausal hormone therapy.
Its first product was an estrogen patch for the treatment of
menopausal symptoms.  Noven's second-generation estrogen patch;
Vivelle-Dot, is marketed in the United States and abroad.  The
company also has an estrogen/progestin transdermal patch for the
treatment of menopausal symptoms, which is sold under the brand
name CombiPatch in the United States and under the brand name
Estalis in Europe and certain other markets.

NOVN - Noven Pharmaceuticals  $21.77

NOV 20.00 NPQ-WD LB=0.40 OI=20 CB=19.60 DE=34 TY=1.8% MY=4.9%


_________________________________________________________________

VRSN - VeriSign  $22.05  *** Smith Barney Issues "BUY" Rating ***

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

VRSN - VeriSign  $22.05

NOV 20.00 QVR-WD LB=0.35 OI=1145 CB=19.65 DE=34 TY=1.6% MY=4.4%


_________________________________________________________________

MCD - McDonald's  $28.99  *** Blue-Chip Portfolio Stock ***

McDonald's (NYSE:MCD), with its various subsidiaries, operates
and franchises restaurants.  These restaurants serve a varied,
yet limited, value-priced menu in over 100 countries around the
world.  Its menu includes hamburgers and cheeseburgers, Big Mac,
Quarter Pounder with Cheese, Big N' Tasty, Filet-O-Fish, several
chicken sandwiches, Chicken McNuggets, French fries, Premium
Salads, milk shakes, McFlurry desserts, sundaes and soft serve
cones, pies, cookies and soft drinks and other beverages.  In
addition, the restaurants market a variety of other products
during limited-time promotions.  The firm also operates Boston
Market and Chipotle Mexican Grill in the United States, and has
a minority ownership interest in Pret A Manger.

MCD - McDonald's  $28.99

NOV 27.50 MCD-WY LB=0.35 OI=3639 CB=27.15 DE=34 TY=1.2% MY=3.0%



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

ACF - AmeriCredit  $19.17  *** Downgrade = Sell-Off ***

AmeriCredit (NYSE:ACF) is a consumer finance firm specializing
in purchasing retail automobile installment sales contracts
originated by franchised and select independent dealers in
connection with the sale of used and new automobiles.  The
company generates revenue and cash flows primarily through the
purchase, retention, subsequent securitization and servicing
of finance receivables.  To fund the purchase of receivables
prior to securitization, AmeriCredit uses borrowings under its
warehouse credit facilities.  The company earns finance charge
income on the finance receivables and pays interest expense on
borrowings under its warehouse credit facilities.  Earnings
are due 10/21/04.

ACF - AmeriCredit  $19.17

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    ACF-KD    3009   0.70  20.70   8.3%   3.4%


_________________________________________________________________

AOC - Aon Corporation  $21.74  *** Industry Scandal? ***

Aon Corporation (NYSE:AOC) through its various subsidiaries
worldwide, serves its clients through three operating segments:
Risk and Insurance Brokerage Services, which acts as an advisor
and insurance broker, helping clients manage their risks and
negotiates and places insurance risk with insurance carriers
through its global distribution network; Consulting, which
provides advice and services to clients for employee benefits,
compensation, management consulting, communications and human
resources outsourcing, and Insurance Underwriting, which offers
specialty insurance products, including supplemental accident,
health and life insurance; credit life, accident and health
insurance; extended warranty products, and select property and
casualty insurance products and services.

AOC - Aon Corporation  $21.74

PLAY (sell naked call):

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

SELL CALL  NOV 25    AOC-KE    118    0.25  25.25   3.9%   1.0%


_________________________________________________________________

CVH - Coventry Health Care  $43.89  *** New Downtrend? ***

Coventry Health Care (NYSE:CVH) is a managed health care firm
perating a diversified portfolio of local market health plans
serving 14 markets, primarily in the mid-Atlantic, midwest and
southeast United States.  Coventry's health plans are operated
under the names Altius Health Plans, Carelink Health Plans,
Coventry Health Care, Coventry Health and Life, Group Health
Plan, HealthAmerica, HealthAssurance, HealthCare USA, Wellpath,
PersonalCare, SouthCare, and Southern Health.  The company has
three reportable segments: Commercial, Medicare and Medicaid
products.  Coventry also offers management services and access
to its provider networks.

CVH - Coventry Health Care  $43.89

PLAY (sell naked call):

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

SELL CALL  NOV 50    CVH-KJ    677    0.60  50.60   4.5%   1.2%


_________________________________________________________________

DSPG - DSP Group  $19.41  *** Pre-Earnings Sell-Off? ***

DSP Group (NASDAQ:DSPG) is a fabless semiconductor maker with
complex integrated circuit solutions.  It is engaged in the
short-range wireless communication market, enabling home
networking convergence for voice, video and data.  DSP Group
combines its in-house technologies, including digital signal
processors, its portfolio of wireless communication protocols,
advanced radio frequency complimentary metal-oxide chips and
silicon germanium, as well as voice-over Internet protocol ICs,
offering a one-stop shop for a wide range of applications.
Earnings are due 10/19/04.

DSPG - DSP Group  $19.41

PLAY (sell naked call):

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

SELL CALL  NOV 22.5  DPQ-KX      0    0.35  22.85   6.2%   1.5%


 


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