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Daily Newsletter, Sunday, 10/31/2004

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The Option Investor Newsletter                   Sunday 10-31-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Kerry Wins!
Futures Wrap: See Note
Index Trader Wrap:  TECH LEADS FOR A CHANGE
Editor's Plays:  Short, Now What?
Market Sentiment:   Forget it!
Ask the Analyst: Best 6 months starts in November
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 10-29        WE 10-22        WE 10-15        WE 10-08 
DOW    10027.47 +269.66 9757.81 -175.57 9933.38 -121.82 -137.45 
Nasdaq  1974.99 + 59.85 1915.14 +  3.64 1911.50 -  8.47 - 22.23 
S&P-100  540.65 + 15.49  525.16 -  6.64  531.80 -  6.67 -  4.64 
S&P-500 1130.20 + 34.46 1095.74 - 12.46 1108.20 - 13.94 -  9.36 
W5000  11068.95 +320.91 10748.0 - 90.63 10838.7 -125.85 - 94.18 
SOX      412.25 + 17.09  395.16 + 13.79  381.37 -  8.15 - 12.39 
RUT      583.79 + 16.02  567.77 -  0.65  569.42 -  6.23 -  9.38 
TRAN    3497.42 +125.48 3371.94 + 19.26 3352.68 + 16.68 + 37.20 
VXO       16.57           16.09           15.89           14.95 
VXN       21.90           21.36           21.80           20.69
******************************************************************

Kerry Wins!
Jim Brown

The markets are predicting a Kerry victory but it depends
on which market you are looking at. A normally dependable
indicator says if the Dow falls in the three months prior
to the election the challenger will win 81% of the time
or 9 of the last 11 elections. The Dow lost -1.1% over
the last three months. However, that is not the final 
word.  

According to Forbes.com they have analyzed the trend 
using not only the Dow but based on the Nasdaq, 5 of 8
years, the S&P, 8 of 11 and an average of the three gave
8 of 11 correct predictions. The most accurate was based
on the S&P gains minus the inflation rate as evidenced 
by the 90-day T bill. Using this indicator there has 
been a 91% success rate or correct predictions in 10 of
11 years. With the S&P up +2.5% for the last three months
and the 90-day T bill at 0.40 the result is a +2.1% S&P
indicator that says Bush will pull it out at the end. 
This indicator has a 91% track record of success. Now
we know you can make any indicator predict anything if
you apply enough qualifications. I would not bet the
farm on this outcome. The electronic futures polls had
the race exactly dead even at midday on Friday with each
candidates futures contract worth $50.00. By days end
they had separated to $52 Bush, $48 Kerry. The Real
ClearPolitics.com average of all polls as of Friday
night had Bush ahead by +2%. Bottom line it remains 
a dead even election and the lack of any market gains
on Friday was probably more related to the lack of a
clear leader than any other factor.

To further confuse the issue Jeremy Siegel, professor
at Wharton, highlighted some election statistics on
Friday. There have only been negative market returns
over the last 100 years under three presidents. They
were Hover, Nixon and Bush. We all understand why the
economy under Bush has performed poorly with the 9/11
attack knocking 2.5 million jobs out of the economy
and the Y2K bubble turning into a serious bear market
and a recession. Neither event was his doing and he
had no control over either. Also, in the last 100 
years only TWO republicans have been unseated by a
democratic challenger. Carter beat Ford and Clinton
beat Bush. Siegel suggested it really did not matter
to the markets now on who won this election just that
it was behind us. I doubt he will find any objections
from traders.  

Nasdaq Chart


Dow Chart


SPX Chart


Friday was full of economic events and the overall news
was very good for the economy. The opening salvo was the
GDP at +3.7%, which was weaker than the +4.4% expected
but better than the +3.3% number for Q2. The internals
were significantly better than the headline number with
consumer spending up +4.6%, business spending up +11.6%
and business equipment up a whopping +14.9%. This was
a very good report and the headline number would have
been much better except for the high oil prices skewing
the import numbers and the excessive inventory build in
Q2 holding down additional inventory additions in Q3.
Core inflation as measured by the PCE component rose
only +0.7% for the quarter and at the lowest rate since
1962. This is a phenomenal number and allows the Fed to
pause in the current rate hike cycle and watch for new
economic clues in 2005. 

Prior to today the expectations for the eventual rate
level was something in the 3.0-3.5% range. After the GDP
and some comments from Fed Vice Chairman Roger Ferguson
that level is now drifting to the 2.5% range. This is a
big drop in expectations and the market did not react to
it on Friday probably due to the election cloud. Ferguson
said "several aspects of the current outlook lead me to 
suspect that the return of the equilibrium real rate from
its currently somewhat depressed level to its long-run 
value might plausibly be expected to be gradual and 
attenuated compared with historical experience." In English
the rate hike pace could slow based on external conditions.
He also said "I believe that the combined force of several
factors restraining aggregate demand, would require a lower
real rate than otherwise to avoid economic slack."  These
comments led analysts to believe the Fed was measuring 
its current policy of continued rate hikes against the 
low job growth, high oil and the potential impact on the
struggling economy. Again, the market did not react to
the slight policy shift and I believe it was the election
cloud keeping traders from seeing the light. 

Another clearly visible sign of strength returning to the
economy was the Chicago PMI which soared to 68.5 and well
above the consensus estimates of only 59.7. Anything over
50 represents an expansion and the jump to 68.5 pushed it
to the highest reading since the 1980s. New orders rose
+10 points to 79.4 and production soared +21 points to
79.7. Another good sign was a substantial inventory drop
to 51.8 from 64.7 which indicates the need to ramp up the
replenishment cycle. That was the lowest reading since 
April. This is a very strong report and suggests the ISM
on Monday could also be very strong. The PMI is unique to
the Chicago region but the ISM is a national view of the
same components. 

The NY NAPM continued to rise with a small move to 313.7
from 310.4 in September. The NY-NAPM was not as bullish
as the Chicago PMI but still an improvement after 14
consecutive months of gains. The August 2003 number of
221.7 was the cycle low for this series and NY has been
improving ever since. The only material change was a drop
in the six month outlook from 60.0 to 50.0. This suggests
the 2005 view is starting to fade.

Consumer Sentiment took an about face from the early
reading for October and jumped to 91.7 from the drop to
87.5 on Oct-15th. The end of month rebound to 91.7 was
still a drop from the September level at 94.2 but a big
sigh of relief for analysts. Present and future conditions
both jumped over four points in the final analysis. 

For the coming week we have not only the election cloud
but the closely watched ISM on Monday and the Jobs Report
on Friday. The ISM will be the more critical report this
time around simply for the election impact. Post election
the Jobs report will have far less impact on the national
scene and even a bad report could be beneficial for the
markets. In theory a bad report helps push the Fed to the
sidelines and keep rates lower for a longer period of time.

Just before the bell it was announced a new Bin Laden tape
was on the way and bonds soared and a closing rebound was
nipped in the bud. After the close the Al Qaeda leader 
appeared on camera in traditional attire and without any
camo and no gun. The tape was not a cave shoot and was 
much better produced. It contained negative comments 
on both Kerry and Bush and references to the election. 
The tape warned of more 9/11 style attacks and claimed
neither Bush or Kerry could keep America safe. The tape
was not made available until after the equity markets
closed and that blunted the impact but the campaigns
quickly picked up on the opportunity to go on the offense
against terrorism. Conventional wisdom suggests the tape
could give an edge to Bush as he has the track record for
pressing the attack against Al Qaeda. Some said the tape
also may have given Bush the edge because Osama attacked
Bush in much more detail and only mentioned Kerry. That
direct attack could have a reverse effect of suggesting
Bush has severely pressured Al Qaeda and voters could 
cheer his effort. There are far too many questions and 
the spin machines will be working overtime all weekend
to influence voter opinion. 

Oil prices took another dive off the high board and 
retreated all the way to $50 intraday before rebounding
to close at $51.75. This -10% drop from the $55.65 high
on Wednesday could have all the appearances of a break
in the trend but we only have to look back to August
when oil fell from $47 to $41 and analysts were all
predicting $35 before the election. I have believed for
several months we would see a pullback in prices after
the terrorist risk to the election has passed. The profit
taking this week allowed funds to take their gains off
the table and shift back into stocks for their year end
statements. I view any pullback in oil prices as buying
opportunities for oil stocks but I would wait for the
election to pass before jumping into new positions.

Analysts were pointing to oil as the catalyst for the
gains in equities this week. I view that as strange since
equities soared on Tuesday with oil at $55 and a day
before the actual high in oil and the big profit taking
drop. I do believe we could see a monster rally next week
if we have a successful election with a clear winner on
Wednesday and oil under $50. This would prompt further
profit taking in oil and further strong asset allocation
back into equities. 

For the week the Dow gained a whopping +269 points, 
+317 if you count from the 9708 low on Monday. This is 
a very strong bounce and as I illustrated on Thursday
night a historical trend for mutual funds to paint the
tape for their year end on Oct-31st. Now that their year
end is over we have two trading days left before the
election is history. It will be a real test of market
strength to see if we can hold our gains until the 
election results are known. The Osama tape should be
somewhat forgotten by Monday and hopefully not a factor.

The Dow has rebounded to 10000 and held there for two
days while the gains were consolidated and the October
clock expired. I fear that after the end of October
race to a milestone level which provided strong marketing
copy for end of year statements that Monday could be 
not just a pause for the election event but a profit
taking episode. After three weeks of heavy selling it
may be too much to ask for the selling to be magically
over. The economics were strong on Friday and they
produced no gains despite the month end. We have seen
it many times before in far less confusing situations 
where window dressing turned into undressing following
a calendar crossing. 

What could hold us up is the strong historical potential
for a post election year end rally. November is the 2nd
strongest month of the year behind December making the
next 60 days very key to producing returns for funds.
Even the very cautious funds cannot afford to be out of
the market if a post election explosion occurs. Missing
the first couple days of a rally typically takes 25% of
the profit out of the eventual gains. Funds can't afford
to guess wrong. If the Dow soared another +300 points
before next Friday those out of the market would be in
a very unsatisfactory position. They can't just place 
an order like you and I for a thousand shares each of 
ten stocks and call it a day. If a fund gets behind the
curve and needs to buy millions of shares across dozens
or even hundreds of stocks then prices go to the moon.
It is the same as the cockroach theory. Where you see
one there are probably dozens you don't see. When one
fund is behind the curve there are likely dozens if not
hundreds also behind the curve. For an example of funds
behind the curve we only need to look at October 2002.
The Dow rebounded off the 7200 bottom to hit 8540 in
only eight days. Had you been flat at the bottom after
two months of declines totaling nearly -2000 points the
initial reaction to the first +400 point bounce in only
two days would have been to expect a pullback from the
oversold bounce. Unfortunately for those who waited there
was no pullback and six days later the Dow was another
+1000 points higher. This is a lesson that will not be
soon forgotten by thousands of fund managers.

Dow Chart - October-2002


 
After reviewing the chart above it may put the +300
point bounce from this week into a different perspective.
Instead of expecting a tape painting bounce to fail we
may just see a pause for the election and a bookend 
rally to follow. This has been a terrible year for the
markets and most funds are at basically a breakeven for
the year if they did not play the oil rally. The SPX is
only about 20 points away from where it began 2004 and
the Dow is down about -425 points. The Nasdaq is nearing
breakeven at 2003 and just hitting that goal will only
make a new four month high. Funds need performance and
this late in the year they are going for broke. Maybe
that is a bad choice of words but you know what I mean.
They have to load the boat with every available share
and hope for a rising tide after Tuesday. They cannot 
afford for other funds to capture the gains and win
the ratings race.

Conversely, should the market rocket fail to lift off
the launching pad by the end of next week there is a
serious danger of an implosion instead of an explosion.
I would dare to bet that nearly 100% of traders expect
a post election rally and should one not appear there
could suddenly be some surprised bulls. Personally I
think that Friday economics and a good ISM on Monday 
will set the stage for a pretty good run but there is 
always the possibility that all the bets have already
been placed. Because the expectations of a post election
rally are so strong anybody with money to invest should
already be in the market. That only leaves those who were
too afraid of an election event to chase the prices. Will
it be enough to produce another Oct-2002 bounce? I really
doubt it but until the market proves otherwise I suggest
we remain long. 

The bears are not without their rally points with strong
resistance overhead on the SOX, Russell and the Wilshire.
However, one strong day like we had last week and those 
bears would be racing to cover any shorts as those levels
were broken. All really strong market rallies are built 
on the backs of disbelieving bears.  

Wilshire Chart


SOX Chart


Russell Chart



The end of October tape painting left us with two 
days to ponder our fate and adjust positions before
the election is over or at least until we hope it is
over. I would look to buy any Monday dip and keep my
stops tight until the election passes. At this point
the market is past worrying over who will win the 
election and it more focused on just getting it over.
Anybody placing an election bet based on a specific
winner has already put their money on the line and we
are just waiting for the dice to be rolled. Once past
Tuesday the negative talk will be gone and sentiment,
both market and consumer should improve. Earnings are
over and the holiday spirit will begin building along
with retail sales. It should be a great time to be in
the markets but then disaster normally strikes when it
is the most unexpected. Never assume and end of year
rally is the only outcome. Hope for it, plan for it 
and bet on it but always keep an exit plan in place. 
The Dow and the Nasdaq are still in a long term down
trend and until that trend breaks the risk for bulls
is still high. 
  
Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

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


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

TECH LEADS FOR A CHANGE
By Leigh Stevens

THE BOTTOM LINE – 
The blue chip weakness signaled by the recent new yearly low 
close in the Dow 30 (INDU), was masking the fact that the tech-
heavy Nasdaq indices were holding up ok and were not far below 
their June highs. 

Tech indices led the way in the renewed rally this past week. My 
take is that continued economic growth has led to the perception 
that these are the only stocks much undervalued based on upside 
earnings potential. Eventually, semiconductors, hardware, 
software, select Internet, etc. should see earnings growth the 
longer the economic expands. 

The Nasdaq Composite (COMP) and Nasdaq 100(NDX) indexes look like 
they could work a bit higher still - to 2000, even to around 2050 
in COMP and perhaps 1520 in NDX. The S&P 100 (OEX) has some room 
on the upside too, but also some tough resistance in the 546-550 
zone.     
 
FRIDAY'S CLOSING NUMBERS – 
The S & P 500 Index (SPX) was up 2.7 points to 1130 and up a 
substantial 3.1 % on the week (+1.3% for October). The Dow 30 
Average (INDU) closed 22.9 points higher to 10,027.47. INDU 
rebounded 2.75% on the week. However, unlike the broad SPX blue 
chip index, the Dow lost 0.6% in October.

The Nasdaq Composite (COMP) was down slightly - off 0.7 points at 
1,974.9 by the close. However, COMP rose 3.1 percent on the week, 
same as the S&P 500 - but gained a far better 4.1% for the full 
month (October).

FRIDAY'S TRADING NEWS – 
In a mild disappointing note after such a strong week, the 
Commerce Department reported that GDP grew at a 3.7% annual rate 
in the third quarter, following a 3.3%.  Hey, that's an increase, 
right!  As always in the Street of Dreams, this figure was judged 
based on Economists expectations for a 4.3% growth rate. 

The core inflation rate increased an annualized 0.7%, touted as 
the lowest in 42 years. Yes, we have no inflation - tell it to 
the Fed.  Well, there is that pesky pump price marching up and up 
but that's not in the "core" inflation rate.  You could have 
fooled me to the core due to my rising cost for fill-ups! 

Bullish encouragement came next as the University of Michigan 
released its consumer sentiment index - it rose to 91.7 points in 
late-October from 87.5 earlier in the month. Expectations were 
for a decrease, to about 85.0. 

Also, a Chicago region survey of purchasing managers showed 
stronger-than-anticipated expansion of business activity in 
October. 

OTHER MARKETS –
The dollar was down slightly again on Friday against both the 
euro and the Japanese yen. The Euro hit a substantial new high 
this past week, trading in the $1.27 area, with no end in sight. 
Not much concern to the stock market right now, but not so great 
for visitors like me with dollars to convert while on a business 
trip to Spain. 

There are other reasons to fear a dollar that falls too far, but 
it does moderate the oil price hikes with our major trading 
partners, given that oil is priced in dollars.

December crude oil futures ended up 84 cents at $51.76 a barrel 
on the New York Mercantile Exchange. Funny that I would we think 
that oil prices still above $50 would be encouraging!  Well, 
after hitting $55, it seems a bit of a relief. 

Crude oil gained 5% for the month, with the longer-range 
influence of China perhaps not being able to dampen its economy 
overly much, keeping its energy demands strong.  That plus the 
usual suspects this year for supply disruptions somewhere in the 
oil-rich areas, given the high demand globally, especially from 
China and the U.S. - more SUV's anyone?

In a quiet bond market, the 10-year (Treasury) Note ended up 6/32 
to 101 25/32, for a yield of 4.03%. 

MY INDEX OUTLOOKS – 

S&P 500 Index (SPX) – Daily chart:
Just as when the S&P 500 (SPX) dropped under its 21-day moving 
average and couldn't rebound back above it, suggesting further 
weakness, the reverse was true on the rebound back above this key 
trading average and the follow through strength.  

I assumed SPX was headed back toward support in the 1090 area and 
might dip under even, before the next rally, but the trading 
range has been narrowing some. Indecision? Of course, if we 
listen the two parties, the fate of the world (for at least 4 
more years) has to be settled just ahead.  I'm not sure that who 
wins will be as significant as the fact that the uncertainty goes 
away.

I also pointed out the significance of a move through 1110 
resistance (play the market for higher) for turning the chart 
picture bullish again near-term. 



So what now?  There is a significant overhead resistance in the 
1140 area.  SPX either fails and reverses in this area or 
achieves an upside penetration, in which case a next objective 
may be to around 1150. A close just slightly over 1140 lacking 
upside follow through the next day would suggest switching from a 
bullish to bearish trading stance. 

Of course, the recent rally in SPX could reverse at any point shy 
of 1140 resistance, consistent with its pattern this year of 
going only to rally highs lower than the one that preceded it.  
Stay tuned!  

Meanwhile, bullish sentiment is building to that "over-confident" 
stage that sets up the next decline so to speak.  We're close, 
but haven't seen that one-day reading yet that would put my 
indicator in bearish warning territory.     

S&P 100 Index (OEX) – Daily chart:
I had a downside target to the 52 area and the S&P 100 (OEX) got 
to 522 - close enough. Near support looks like 530-532.  Near 
resistance is at 545-546, at its down trendline and 200-day 
moving average respectively. The June rally peak implies major 
resistance at 558.  Only a close over this area breaks the 
bearish pattern of lower (up) swing highs.  



I suggested exiting puts in the 520 area.  Hope you did and 
perhaps went the other way into OEX calls for a trade.  OEX was 
oversold enough finally last week on Monday's close to make a 
continued put play risky.

Dow 30 Average (INDU) - Daily chart: 
Instead of a move to the lower end of the well-defined downtrend 
channel, the Dow 30 (INDU) managed to stay in the area of its 
prior early-August lows and rebounded before touching 9700. (9600 
was my "worst case" downside objective.) 

10,220-10,240 is resistance implied by the top of INDU's 
downtrend channel and the prior rally highs. I think it's 
doubtful that the Dow will close above the top of its channel. 
Not for more than a day especially - two consecutive days changes 
this picture. If so, next resistance is in the 10,350 area, at 
the cluster of prior highs from early-September.    



The Dow did get into my oversold zone and if you look at the (14-
day) RSI chart and reversals/rallies this year at least have been 
fairly consistent when this indicator has reached the oversold 
area as highlighted above. 

Nasdaq Composite (COMP) Index  – Daily chart:
After holding in the area of (or not far under) its 21-day 
average, rally potential was improved and came about last week.  
I figure next resistance as the 2000 area based on the 
psychological importance of this big round number.  Technically, 
key resistance is assumed to be around 2050, the area of the 
late-June top. 

Support is seen at 1900-1905 or just under at the minor up 
trendline intersecting at 1880 currently.    



I had pegged 1900-1910 as key near support, so I hope those 
playing the put side took action when the strong rally developed 
after COMP reached this area - oil backing off from the $55 level 
was a help too! 

Nasdaq 100 (NDX) Index  – Daily chart:
Holding, then rebounding from the low end of its recent trading 
range, then piercing the top end of this same range kept the Nas 
100 (NDX) chart bullish. 1520-1530 looks to be a possible 
objective.  1523 is resistance implied by the prior NDX top. 

Key technical support is at 1420, at the up trendline.  



The RSI Indicator was diverging from price action and gave a 
minor bearish outlook - it wasn't the most pronounced divergence 
but it was there, proving once again that patterns always have 
their exceptions.  

At this point, I don't want to overstay in calls if there is any 
sign of a double top shaping up - watch for signs of a rally that 
stops at or short of the prior top (at 1523).

Nasdaq 100 tracking Stock (QQQ) Daily chart:
QQQ has gotten above the down trendline the way I've drawn it as 
touching the greatest number of highs.  If I constructed it 
through just the intraday highs, QQQ has gotten to this 
resistance trendline, but not above it.  

An even more key technical level is the prior 37.9 high.  Failure 
in this area sets up a possible double top. Conversely, clearing 
this prior high sets up a possible re-test of the early-year peak 
in the 38 area. Stay tuned for what's next.  

Election and terror jitters abound and Tuesday (election day) is 
often a "change" point - if the Q's rally into Tuesday, I'm 
inclined to go the other way and exit calls and the stock and 
play the stock for another pullback and continuation of the back 
and forth trading range. 

35.25-35.30 is first support, at the low end of the recent range. 
Next is support implied by the last downswing low at 34.23. 



I've figured QQQ to be in a 34-37 trading range, maybe that will 
be expanded to 38 on the upside.  

Volume tapered off after the strong Wed. rally, with On Balance 
Volume (OBV) also turning down  - not the best sign for a renewed 
bull market trend.  Still a mixed picture - one seeming to 
continue to offer opportunities on both sides of the market.     

Good Trading Success!



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

Short, Now What?

The XLE rose to a high of $36.13 on Wednesday before
the bottom fell out on the China news. As you probably
already know from my wraps I don't expect oil to stay
down very long. I was looking for a post election dip
and we are three days away from that possibility. 
Assuming there is no terrorist event around the 
election most investor eyes will move to equities
and away from "overpriced" oil. 

The XLE put play was triggered on Thursday morning
with a trade at $35 and the price of the Dec-$35 Put
XLE-XI was $1.25 at the time. Because the Wednesday 
drop was so sharp the premiums inflated on the sharp 
increase in volatility. They were as low as 80 cents
the prior Friday. Sometimes things just don't work
out as we expect. 

The profit target is $32 and I am going to lower the
stop to $36.25. Move the stop to $35.50 with a trade
at $34.50.

Initial recommendation: 
http://members.OptionInvestor.com/editorplays/edply_101704_1.asp

XLE Chart
 



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

MRK Put $31.31   

** Stop $33.00 ** (lowered)
** Target $25.00 **

Jan-2006 $25 LEAP Put WMR-ME 

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


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

XMSR Call $32.47   

** Stop $30.00 ** (raised)
** Target $35.00 **

XMSR slowed its climb in advance of the SIRI earnings
last week. Sirius missed earnings and posted a bigger
than expected loss. XMSR held its ground. XMSR earnings
are next Thursday and good news compared to the SIRI
bad news could really fuel the next bounce. A post
election rally would not hurt either.  

Earnings are Nov-4th

JAN-$30 Call QSY-AF cost 2.75 currently $4.10
JAN-$32 Call QSY-AZ cost 1.75 currently $2.60

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

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

PVN Call Update $15.56 

We suffered a setback in July and another in August but 
PVN is finally back on track and only 45 cents from a
new 52-week high. The target remains $20.

PVN beat earnings estimates of 27 cents last week with
a blowout 34 cents and raised full year estimates from
$1.00 to $1.15. It appeared to be the target of a fund
on Friday with a strong spike beginning at 1:PM that
lasted into the close. Volume rose +25% for the day. 

Jan-$15 Call PVN-AC cost 1.05, currently $1.25

Initial recommendation:
http://members.OptionInvestor.com/editorplays/edply_061304_1.asp

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

Forget it!
- J. Brown

It was a busy day on Friday.  The +3.7% GDP number came in less 
than the expected +4.3% growth rate but above the previous 
reading's +3.3% rate.  Consumer sentiment soared from 87.5 to 
91.7 when economists were looking for a drop to 85.  Plus, the 
PMI index vaulted to a very strong reading, which is a nice 
change from the pattern of positive but slow growth economic 
data.  After the closing bell a new Osama Bin Laden tape surfaced 
just before the election, which could raise terror fears when 
combined with the earlier English speaking terror tape released 
this past week.  

Yet through it all investors are focused on one thing. Forget the 
GDP.  Forget consumer sentiment.  Forget oil near $50 a barrel.  
Forget the PMI and forget Osama.  Right now the markets are 
focused on Tuesday's election and only Tuesday's election.  This 
alone is likely to keep trading somewhat subdued for the next two 
sessions.  

You've heard it before and you'll probably hear it again.  The 
markets hate uncertainty.  Right now there couldn't be much more 
uncertainty about who will win Tuesday's race.  With that in mind 
I think stocks did pretty well last week.  However, imagine the 
uncertainty if there is no clear winner on Tuesday night?  That's 
right, if the election is tied up in recounts and lawsuits for 
the next couple of months there could be no post-election rally.

Let's assume, no, let's hope that there is a winner come 
Wednesday morning.  If that is the case then we could be in for a 
strong year-end.  Historically we're stepping into the best two 
months of the year through November and December.  

Keep your fingers crossed for a strong turn out on Tuesday and 
get out there and vote!


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9497
Current     : 10027

Moving Averages:
(Simple)

 10-dma:  9903
 50-dma: 10109 
200-dma: 10257



S&P 500 ($SPX)

52-week High: 1163
52-week Low : 1018
Current     : 1130

Moving Averages:
(Simple)

 10-dma: 1111
 50-dma: 1115
200-dma: 1119



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1486

Moving Averages:
(Simple)

 10-dma: 1459
 50-dma: 1419
200-dma: 1438



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

CBOE Market Volatility Index (VIX) = 16.27 +0.88
CBOE Mkt Volatility old VIX  (VXO) = 16.57 +1.11
Nasdaq Volatility Index (VXN)      = 21.90 +0.65 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.73        768,397       561,320
Equity Only    0.60        629,879       378,292
OEX            0.88         18,563        16,120
QQQ            1.25         61,220        76,802


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

Bullish Percent Data

           Current   Change   Status
NYSE          64.0    + 0.2   Bear Correction
NASDAQ-100    52.0    + 1     Bull Alert      
Dow Indust.   50.0    - 0     Bear Confirmed
S&P 500       62.0    + 0.6   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: 0.85
10-dma: 0.94
21-dma: 1.01
55-dma: 1.02


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    1554      1504
Decliners    1234      1535

New Highs     166       119
New Lows       24        37

Up Volume   1052M      773M
Down Vol.    722M      831M

Total Vol.  1823M     1642M
M = millions


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

Commitments Of Traders Report: 10/26/04

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 don't seem willing to place any big 
directional bets ahead of the Nov. 2nd election.  The longs
and shorts are pretty much dead even.  Small traders are 
also narrowing their bullish bias a bit.

Commercials   Long      Short      Net     % Of OI
10/05/04      421,217   435,736   (14,519)   (1.7%)
10/12/04      423,472   436,780   (13,308)   (1.5%)
10/19/04      432,945   441,041   ( 8,096)   (0.1%)
10/26/04      441,263   445,992   ( 4,729)   (0.0%)

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
10/05/04      137,210   114,489    22,721     9.0%
10/12/04      139,175   113,903    25,272     9.9%
10/19/04      147,148   124,827    22,321     8.2%
10/26/04      138,201   121,275    16,926     6.5%

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

Commercials have added to their longs and reduced some shorts
but they remain strongly net bearish here.  Small traders
reduced both their longs and shorts with almost no change in
their bias.

Commercials   Long      Short      Net     % Of OI 
10/05/04      248,190   476,608   (228,418)  (31.5%)
10/12/04      258,457   517,805   (259,348)  (33.4%)
10/19/04      264,860   531,541   (266,681)  (33.4%)
10/26/04      276,128   509,552   (233,424)  (29.7%)

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
10/05/04      308,021     80,373   227,648    58.6%
10/12/04      309,720     62,502   247,218    66.4%
10/19/04      353,903     66,027   287,876    68.5%
10/26/04      345,908     64,061   281,847    68.7%

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


NASDAQ-100

There is still very little change in commercials' NDX positions.
Actually there is very little change in the small-traders'
positions too.

Commercials   Long      Short      Net     % of OI 
10/05/04       55,640     32,872    22,768   25.7%
10/12/04       52,572     32,775    19,797   23.2%
10/19/04       52,630     31,940    20,690   24.4%
10/26/04       53,233     31,323    21,910   26.2%

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
10/05/04       12,254    30,693   (18,439)  (42.9%)
10/12/04        8,756    24,400   (15,644)  (47.2%)
10/19/04       10,462    25,243   (14,781)  (41.3%)
10/26/04       10,521    25,388   (14,867)  (42.8%)

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 hedged their bets even more ahead of
the Nov. 2nd election so there is no clear up or downside
bias.  Small traders remain net bullish after the big
change two weeks ago.

Commercials   Long      Short      Net     % of OI
10/05/04       27,498    25,772    1,726       3.2%
10/12/04       24,150    22,849    1,301       2.7%
10/19/04       25,385    24,213    1,172       2.3%
10/26/04       25,707    24,855      852       1.6%
 
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
10/05/04        5,531     5,539   (    8)   ( 0.0%)
10/12/04        8,814     9,167   (  353)   ( 1.9%)
10/19/04        8,327     6,015    2,312     16.1% 
10/26/04        8,405     6,336    2,069     14.3%

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



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Best 6 months starts in November

The "best six months" for equities begins in November and runs 
through the end of April, where the Russell 2000 Index ($RUT.X) 
has shown a historical tendency to gain an impressive 12.9% from 
November through May.

I had some questions that I wanted answered.  I should say, I 
just wanted more information, and some type of "proof" that a 
historical statistic could stand the test of time.

I'm not from the "show me state" of Missouri, but those of you 
that have followed my writings know that I'm the type of trader 
and investor that is always back testing things, to try and make 
more certain that we're not going off on a wild goose chase.

Let me first say, I am a BIG BELIEVER in history.  Those that 
don't learn from history, are often doomed to repeat it.  There.  
I've disclosed my bias.

Today I'm going to at least test the statistical theory that the 
Stock Trader's Almanac discusses on page 118 of this year's 
(2004) Almanac.  

In 1968, the Stock Trader's Almanac featured a study by Merrill 
Lynch.  The study showed that buying aerospace, agriculture, air 
conditioning, eastern railroads, fire/casualty insurance, machine 
tools, and meatpacking sectors around September or October, and 
selling in the first few months of 1954-1964 years gained more 
that triple the profit than holding them for ten years.

Years later, Jon D. Markman, senior investment strategist and 
portfolio manager at Pinnacle Investment Advisors, took some of 
Merrill Lynch's findings a step further, looking at various 
sectors and even some major market averages, in search of 
seasonal patterns.

Today's article focus is the seasonal tendency for the Russell 
2000 Index ($RUT.X) to gain 12.9% from November through May.

Some investors/traders do not believe that BULLISH history can be 
used to profit in the FUTURE.  Some reasons for not believing 
that past BULLISH history will be duplicated in the future are as 
follows.

Times are different now.  Things are worse today than they were 
in the past.  The deficit is too large.  Interest rates are too 
high.  It's an election year.  Terrorism is too much of a threat.  
We're at war.

I agree.  Things are different today, this week, this month, this 
year, this decade.  Some things are better.  Some things are 
worse.

In the following weekly interval chart of the Russell 2000 Index 
(RUT.X), I'm going to look at the last four years of trade 
history for the Russell 2000 Index.

Here are some things I thought of as major events the past four 
years.

November 2000:  George W. Bush was elected President of the 
United States of America.

January 2001:  George W. Bush takes the oath of office to become
 the 43rd President of the United States of America.

March 2001:  Many economists believe the world's largest economy 
sank into a recession, ending 10 years of growth that was the 
longest expansion on record in the United States.  

September 2001:  Terrorists attacked various targets in the 
United States of America.

March 2003:  United States and coalition forces attack Iraq.

There are other events that we could consider major.  The Enron 
scandal, corporate distrust.  

For some investors, any one of the above dates, may have been a 
good reason NOT to try and profit from a BULLISH historical 
tendency.

In the following chart, I will outline a BULLISH trade for the 
Russell 2000 Index ($RUT.X).  Things are different today than 
they were in 1968 when the Stock Trader's Almanac featured 
Merrill Lynch's study.  Today we have computerized bar charts, 
with moving averages, oscillators and retracement brackets.

Trade outline for conservative bull:  Should the Russell 2000 
Index (RUT.X) 583.79 close above 600.00 on a Friday, place an 
order to buy at the open the following Monday.  Target a 12.9% 
gain to 659 before June 1, 2005.

Russell 2000 Index ($RUT.X) Chart - Weekly Intervals



A weekly interval bar chart allows us to look at the past four 
years of trade.  Horizontal PINK lines extend from the first 
trading day of November and extend to the last day of trading in 
May.

BLUE retracement brackets are anchored at the approximate closing 
value for the last day of trade in October and have been extended 
higher to reflect a 12.9% gain from the October close.

Starting from the left of the chart (first BLUE retracement), 
many economists believe the economy was slipping toward 
recession, where many economists now believe an official 
recession began in March 2001.  The Russell-2000 Index (RUT.X) 
opened November's trade at 498, and close at 496 on May 31, 2001.  
The historical average gain of 12.9% was never challenged.  A 
peak decline of 16% was found instead.  

Important technical observations Nov. 2000 to May 2001:  Weekly 
MACD oscillator was bearish with MACD below its Signal (red 
line).  As time passed, MACD fell below its zero level, 
suggesting further bearishness.  I looked closely, and the RUT.X 
NEVER showed a FRIDAY close above its 19.1% retracement of 
510.00.  Had a trader/investor waited to enter a bullish trade on 
MONDAY, after a FRIDAY close above that 19.1% retracement level, 
a bullish trade would NEVER have been initiated. (see earlier 
trade setup for a November 2004-May 2005 seasonal play).

Let's move to the Nov. 2001-May 2002 period, just after 
terrorists attacked targets in the U.S..  

Important technical observations Nov. 2001-May 2002:  November 
trade opens at the 428 level.  MACD is below Signal at beginning 
of the month, and MACD is below the zero level.  Bullish caution 
is advised under this oscillator setup.  Three weeks later, MACD 
crosses above Signal, suggest some resumption of strength.  The 
SECOND weekly bar closes decimals BELOW its 19.1% retracement of 
439.  The THIRD weekly bar closes ABOVE its 38.2% retracement of 
449.  The RUT.X trades, then exceeds a historical 12.9% average 
gain if taken from its October close of 428 on April 17, when the 
RUT.X traded an intra-day high of 523.  The RUT.X closed at 487 
on May 31, 2002, a 13.7% gain from its October 2001 close.

Let's move to the Nov. 2002-May 2003 period.  The U.S. is at war 
in Iraq.

Russell 2000 Index ($RUT.X) Chart - Weekly Intervals



Important technical observations Nov. 2002-May 2003:  WEEKLY MACD 
oscillator was cautiously bullish, where MACD was above its 
Signal, but still below zero.  On Friday, November 1, 2002, the 
RUT.X saw a close ABOVE its 19.1% retracement of 382.  Prior to 
achieving a historical average gain of 12.9%, the RUT.X rose to 
412, but then fell as low as 343, an 8% decline from its October 
close as U.S. and coalition forces liberated Iraq.  MACD wavered 
at its Signal.  A weekly "doji" was found at that pullback, 
resolution was to the upside, and the RUT.X went on to achieve 
its historical average gain of 12.9%.  On Friday, May 30, 2003, 
the RUT.X closed at 441, a 17.9% gain from its October close of 
374.  Note the strength of the move as MACD rises above its zero 
level.

Let's move to the Nov. 2003-May 2004 period.  The U.S. is at war 
in Iraq.

Important technical observations Nov. 2003-May 2004:  The RUT.X 
has surged roughly 173 points, or 48% since a weekly "doji" was 
formed as U.S. and coalition forces attempts to liberate Iraq.  
MACD is above zero, but wavering at Signal.  On Friday, November 
7, the RUT.X closes ABOVE its 19.1% retracement at 543.  On 
Monday morning a bullish order would have been placed at the open 
of 543.  The RUT.X proceeded to fall to a relative low of 520 
over the course of the next 7 sessions, but rebounds strong from 
its rising 50-day SMA (10-week SMA). The RUT.X barely exceeds its 
historical 12.9% average seasonal gain to 596.  On Friday May 28, 
2004, the RUT.X closes at 568, a 7.5% gain from its October 2003 
close of 528.

Let's move to Nov. 2004-May 2005 period.  The U.S. is at war in 
Iraq.  U.S. Election Day is Tuesday, November 2, 2004.

Important technical observations Nov. 2004-May 2005:  Seven (7) 
weeks ago, MACD moved above its Signal.  Six (6) weeks ago, MACD 
moved above its zero level, and this oscillator suggests 
bullishness building.  As of Friday's close (10/29/04) the 
RUT.X's 50-day SMA is rising at 568, but still just below its 
200-day SMA of 570.

A FRIDAY CLOSE above the 600 level could begin to suggest 
seasonal bullish tendencies unfolding, where a historical gain of 
12.9% on average could have the RUT.X trading 659 on or before 
May 31, 2005.

It is getting very late and deadline for this column is fast 
approaching.  

The historical bullish seasonal trade for the RUT.X is at our 
doorstep.  I wanted to cover the possibility of a Russell-2000 
Growth Index ($RUO.X) versus a Russell-2000 Value Index ($RUJ.X), 
whereby analyzing relative strength, we might look to 
"outperform," the more blended Russell 2000 Index, by selecting a 
"growth" or "value" strategy.

I'm going to quickly show you that "value" has been the stronger 
play among the small cap Russell 2000 longer-term as depicted by 
the 200-day SMA, but there is some sign that "growth" is starting
to outperform.  

The following chart is a weekly interval chart, where I compare 
the RELATIVE STRENGTH of the Russell 2000 Value Index ($RUJ.X) 
versus the Russell 2000 Index ($RUT.X), which is a composition of 
"growth" and "value."  

If you never believed that "value" could outperform "growth," 
you'd better find a sturdy chair and sit down.

Relative Strength Chart of Russ. Value vs. Russell 2000



I marked the beginning of a seasonal bullish period with GREEN 
bars and the end of the seasonal period with PINK bars.  The four 
(4) periods covered are the same periods discussed above.

It was the Nov. 2000 to May 2001 period where the Russell 2000 
Index (RUT.X) had some "trouble" and didn't come close to 
performing up to its historically seasonal bullish average gain 
of 12.9%.  But look at the above relative strength chart, where 
the Russell 2000 Value Index ($RUJ.X) showed some impressive 
relative strength.  

I was sitting down, luckily.  I went back and checked the bar 
chart of the $RUJ.X and this bugger rose an incredible 15% from 
its October 2000 close of 535 to its May 31, 2001 close of 620.  

I didn't know this until I was writing this column.  I'm amazed!

In the past four (4) seasons, value has outperformed growth 3 of 
the 4 times.

Now I want to focus on Nov. 2002 to May 2003 period.  That's when 
the U.S. was just beginning war in Iraq.  During this season, 
value underperformed growth.  Not by a lot, but it was probably 
more profitable over the entire season to have been positioned in 
growth.

As I study that period closer, because it showed DIVERGENCE from 
the past, I see some SIMILARITY developing as the 2004-2005 
season begins.  The SIMILARITY is only due to the relative 
strength slipping below its intermediate-term 10-week SMA (50-day 
SMA).

Now, the Stock Trader's Almanac does not discuss any type of 
seasonal average return for "value" or "growth" as it relates to 
the Russell 2000, but I would think a trader/investor could 
follow the same technical analysis use above, to derive a bullish 
entry point.

A SIMPLER way would be to forget about trying to derive an action 
point, but leg into (dollar cost average) a bullish position.  I 
(Jeff Bailey) would wait until after the U.S. elections, just to 
try and make sure we don't get stuck in a "voter recount" for a 
couple of weeks, which might create some uncertainty in the 
markets.

I outlined a strategy whereby a trader that has $10,000 of 
capital (round number as an example, $1,000 is fine too) might 
take $2,500 (1/4 of $10,000) or $5,000 (1/2 of $10,000) and buy 
"growth" to begin with.  An options trader may buy just 1 call 
option in the Russell 2000 Growth Index ($RUO.X) 301.45 to begin 
with.

Then sit back and wait a week or two, see how things go, but use 
the above 4-year analysis as a helpful guide.  

Equity traders/investors!!!! Remember the June 15, 2003 Ask the 
Analyst column titled "Sector/Index trading with HOLDRs and 
iShares."  

Those looking to play a seasonal bullish trend in the Russell 
2000 will look at the Russell 2000 Index Fund (AMEX:IWM) $116.19.  
Those looking to implement relative strength analysis will find 
the Russell 2000 Growth Index (AMEX:IWO) $60.00 or the Russell 
2000 Value Index (AMEX:IWN) $174.20 useful securities.

Jeff Bailey


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

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

*This is not a complete list.  We only try and highlight the 
more significant earnings reports.


Symbol  Co               Date           Comment          EPS Est

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

ABMD ABIOMED Inc.         Mon, Nov 01  Before the bell     -0.03
ACDO Accredo Health       Mon, Nov 01  Before the bell      0.36
ASF  Administaff          Mon, Nov 01  Before the bell      0.11
AGN  Allergan             Mon, Nov 01  ----- n/a -----      n/a
ALO  Alpharma             Mon, Nov 01  After the market     n/a
AVNX Avanex Corp.         Mon, Nov 01  After the market    -0.15
CHK  Chesapeake Energy    Mon, Nov 01  After the market     0.30
NNN  Comm. Net Lease Rlty Mon, Nov 01  Before the bell      0.36
CTV  CommScope            Mon, Nov 01  After the market     0.20
DADE Dade Behring         Mon, Nov 01  Before the bell      0.36
DECA Decoma Intl          Mon, Nov 01  After the market     0.15
DRCT Direct General       Mon, Nov 01  After the market     0.62
ETM  Entercom Comm.       Mon, Nov 01  Before the bell      0.40
FFG  FBL Financial Grp    Mon, Nov 01  After the market     0.45
FWHT FindWhat.com         Mon, Nov 01  After the market     0.14
FHCC First Health         Mon, Nov 01  ----- n/a -----      0.32
HUM  Humana Inc.          Mon, Nov 01  After the market     0.44
IVX  Ivax                 Mon, Nov 01  Before the bell      0.21
KRON Kronos Inc           Mon, Nov 01  After the market     0.50
LZ   Lubrizol             Mon, Nov 01  Before the bell      0.75
MVSN Macrovision          Mon, Nov 01  After the market     0.19
MECA Magna Entertainment  Mon, Nov 01  After the market     n/a
MLM  Martin Marietta Mat. Mon, Nov 01  Before the bell      1.02
MXIM Maxim Integrated Pr. Mon, Nov 01  After the market     0.42
MNT  Mentor               Mon, Nov 01  After the market     0.28
MTLM Metal Mngmt          Mon, Nov 01  Before the bell      0.72
NAVI Navisite             Mon, Nov 01  ----- n/a -----      n/a
NBIX Neurocrine Biosci.   Mon, Nov 01  After the market    -0.39
CHUX O'Charleys Inc       Mon, Nov 01  Before the bell      0.20
ORBK Orbotech             Mon, Nov 01  Before the bell      0.29
PAAS Pan American Silver  Mon, Nov 01  Before the bell      0.03
PDLI Protein Design Labs  Mon, Nov 01  After the market    -0.21
RUBO Rubios Restaurants   Mon, Nov 01  After the market     0.15
SCLN Scicline Pharma      Mon, Nov 01  Before the bell     -0.11
SGMS Scientific Games     Mon, Nov 01  After the market     0.21
SPW  SPX Corp             Mon, Nov 01  Before the bell      0.89
SWC  Stillwater Mining    Mon, Nov 01  ----- n/a -----      0.24
SYY  Sysco Corp           Mon, Nov 01  Before the bell      0.35
TLM  Talisman Energy      Mon, Nov 01  ----- n/a -----      0.40
XL   XL Capital Ltd       Mon, Nov 01  After the market    -0.53


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

CTAC 1-800 Contacts, Inc. Tue, Nov 02  After the market     n/a
AETH Aether Systems Inc.  Tue, Nov 02  After the market     n/a
ABC  AmeriSource Bergen   Tue, Nov 02  Before the bell      0.77
AMLN Amylin Pharma.       Tue, Nov 02  Before the bell     -0.39
BMC  BMC Software         Tue, Nov 02  Before the bell      0.14
CDIS Cal Dive Intl        Tue, Nov 02  After the market     0.49
CERG Ceres Group          Tue, Nov 02  After the market     0.14
CLX  Clorox               Tue, Nov 02  Before the bell      0.54
CCRT CompuCredit          Tue, Nov 02  After the market     0.51
EMR  Emerson Electric     Tue, Nov 02  Before the bell      0.79
EXPD Expeditors Intl      Tue, Nov 02  Before the bell      0.39
IGT  Intl. Game Tech.     Tue, Nov 02  Before the bell      0.33
ITRI Itron, Inc.          Tue, Nov 02  After the market     0.28
LAF  Lafarge N. America   Tue, Nov 02  After the market     2.12
LNC  Lincoln National     Tue, Nov 02  After the market     0.94
MAS  Masco                Tue, Nov 02  Before the bell      0.63
MBI  MBIA Inc.            Tue, Nov 02  Before the bell      1.32
NBL  Noble Energy         Tue, Nov 02  Before the bell      1.13
OII  Oceaneering Intl     Tue, Nov 02  After the market     0.49
PZZA Papa John's Intl     Tue, Nov 02  After the market     0.50
PER  Perot Systems        Tue, Nov 02  Before the bell      0.22
PLA  Playboy Enterprises  Tue, Nov 02  Before the bell      0.04
PCLN Priceline.com        Tue, Nov 02  After the market     0.27
PRU  Prudential           Tue, Nov 02  After the market     0.77
HOOK Redhook Ale Brewery  Tue, Nov 02  After the market     n/a
RKT  Rock-Tenn Co         Tue, Nov 02  Before the bell      0.27
RYAAY Ryanair Holdings    Tue, Nov 02  During the market    n/a
THC  Tenet Healthcare     Tue, Nov 02  Before the bell     -0.05
WEC  Wisconsin Energy     Tue, Nov 02  Before the bell      0.44

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

AAP  Advance Auto Parts   Wed, Nov 03  After the market     0.68
DOX  Amdocs Ltd           Wed, Nov 03  After the market     0.30
ADRX Andrx Corp           Wed, Nov 03  ----- n/a -----      0.31
BLDP Ballard Power        Wed, Nov 03  ----- n/a -----     -0.33
BNT  Bentley Pharma.      Wed, Nov 03  Before the bell      0.07
BJS  BJ Services Co       Wed, Nov 03  ----- n/a -----      0.55
SAM  Boston Beer Co       Wed, Nov 03  During the market    0.24
BOBJ Business Objects     Wed, Nov 03  After the market     0.18
CNQ  Canadian Nat. Resrc. Wed, Nov 03  Before the bell      0.69
CPC  Central Parking      Wed, Nov 03  ----- n/a -----     -0.03
CEPH Cephalon Inc.        Wed, Nov 03  After the market     0.67
CI   Cigna                Wed, Nov 03  Before the bell      1.36
DVA  DaVita               Wed, Nov 03  Before the bell      0.52
DF   Dean Foods           Wed, Nov 03  Before the bell      0.45
DUK  Duke Energy          Wed, Nov 03  Before the bell      0.38
EDMC Education Mgmt Corp  Wed, Nov 03  After the market     0.08
EDS  Electronic Data Sys  Wed, Nov 03  After the market     0.08
ESRX Express Scripts      Wed, Nov 03  After the market     0.98
FSH  Fisher Scientific    Wed, Nov 03  After the market     0.74
IACI InterActiveCorp      Wed, Nov 03  Before the bell      0.21
JUPM Jupiter Media        Wed, Nov 03  After the market     0.12
KOSP Kos Pharmaceuticals  Wed, Nov 03  Before the bell      0.74
NTES Netease.com          Wed, Nov 03  After the market     0.36
NICE NICE Systems         Wed, Nov 03  Before the bell      0.26
PHS  PacifiCare Health    Wed, Nov 03  Before the bell      0.87
PDII PDI, Inc.            Wed, Nov 03  After the market     0.33
RL   Polo Ralph Lauren    Wed, Nov 03  Before the bell      0.73
QCOM Qualcomm Inc.        Wed, Nov 03  After the market     0.29
RAH  Ralcorp Holdings     Wed, Nov 03  ----- n/a -----      0.39
COL  Rockwell Collins     Wed, Nov 03  Before the bell      0.45
SONS Sonus Networks       Wed, Nov 03  After the market     0.02
TTEC TeleTech Holdings    Wed, Nov 03  After the market     0.07
BCO  The Brink's Co       Wed, Nov 03  Before the bell      0.41
EL   The Estee Lauder Co  Wed, Nov 03  Before the bell      0.37
PMI  The PMI Group        Wed, Nov 03  Before the bell      1.00
TWX  Time Warner Inc.     Wed, Nov 03  Before the bell      0.14
TWTC Time Warner Telecom  Wed, Nov 03  After the market    -0.27
TOM  Tommy Hilfiger       Wed, Nov 03  ----- n/a -----      0.66
UNM  UnumProvident Corp.  Wed, Nov 03  After the market     0.41
VARI Varian Inc.          Wed, Nov 03  After the market     0.46
VSH  Vishay Intertech.    Wed, Nov 03  Before the bell      0.14
WTW  Weight Watchers Intl Wed, Nov 03  After the market     0.40
WWCA Western Wireless     Wed, Nov 03  ----- n/a -----      0.53
UBET Youbet.com           Wed, Nov 03  After the market     0.03


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

TFSM 24/7 Real Media      Thr, Nov 04  After the market     0.00
AL   Alcan Inc.           Thr, Nov 04  ----- n/a -----      0.69
AMSC American Supercond.  Thr, Nov 04  Before the bell     -0.21
ANPI Angiotech Pharma.    Thr, Nov 04  After the market     0.26
ATAR Atari Inc.           Thr, Nov 04  After the market    -0.19
BRL  Barr Pharmaceuticals Thr, Nov 04  Before the bell      0.49
BE   BearingPoint, Inc.   Thr, Nov 04  Before the bell      0.06
BDX  Becton Dickinson Co  Thr, Nov 04  Before the bell      0.68
BVF  Biovail Corp.        Thr, Nov 04  ----- n/a -----      0.37
BRKS Brooks Automation    Thr, Nov 04  ----- n/a -----      0.31
CPN  Calpine Corp         Thr, Nov 04  Before the bell      0.17
CHINA Chinadotcom         Thr, Nov 04  Before the bell      0.05
CQB  Chiquita Brands Intl Thr, Nov 04  After the market     0.34
CNXT Conexant Systems     Thr, Nov 04  ----- n/a -----     -0.02
CSR  Credit Suisse Group  Thr, Nov 04  Before the bell      n/a
CMLS Cumulus Media        Thr, Nov 04  Before the bell      0.13
CVX  CVS Corp             Thr, Nov 04  Before the bell      0.41
DTE  DTE Energy           Thr, Nov 04  After the market     0.59
EELN E-Loan               Thr, Nov 04  ----- n/a -----      0.00
RDEN Elizabeth Arden      Thr, Nov 04  ----- n/a -----      0.13
ENZN Enzon Pharma.        Thr, Nov 04  After the market     0.02
ESPD eSpeed, Inc.         Thr, Nov 04  After the market     0.10
FS   Four Seasons Hotels  Thr, Nov 04  Before the bell      0.29
HANS Hansen Natural       Thr, Nov 04  ----- n/a -----      n/a
HIG  Hartford Financial   Thr, Nov 04  After the market     0.69
THX  Houston Exploration  Thr, Nov 04  Before the bell      1.49
ICOS ICOS Corp            Thr, Nov 04  ----- n/a -----     -0.56
IMGN Immunogen Inc.       Thr, Nov 04  After the market    -0.07
KCS  KCS Energy           Thr, Nov 04  ----- n/a -----      0.37
MGA  Magna Intl. Inc.     Thr, Nov 04  ----- n/a -----      1.31
MFC  Manulife Financial   Thr, Nov 04  After the market     0.72
MOVI Movie Gallery Inc.   Thr, Nov 04  Before the bell      0.29
GAS  Nicor Inc.           Thr, Nov 04  After the market     0.06
NVDA NVIDIA Corp.         Thr, Nov 04  ----- n/a -----      0.09
PGN  Progress Energy      Thr, Nov 04  Before the bell      1.05
PSA  Public Storage       Thr, Nov 04  ----- n/a -----      0.76
Q    Qwest Communications Thr, Nov 04  Before the bell     -0.15
ROK  Rockwell Automation  Thr, Nov 04  Before the bell      0.49
SBGI Sinclair Broadcast   Thr, Nov 04  Before the bell      0.00
TSO  Tesoro Petroleum     Thr, Nov 04  ----- n/a -----      1.22
TEVA Teva Pharmaceutical  Thr, Nov 04  Before the bell      0.35
TRW  TRW Auto             Thr, Nov 04  Before the bell      0.12
UVN  Univision Comm.      Thr, Nov 04  After the market     0.20
VCLK ValueClick, Inc.     Thr, Nov 04  After the market     0.06
HLTH WebMD                Thr, Nov 04  After the market     0.10
OATS Wild Oats Markets    Thr, Nov 04  ----- n/a -----     -0.11
XMSR XM Satellite Radio   Thr, Nov 04  ----- n/a -----     -0.65


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

BZH  Beazer Homes USA Inc Fri, Nov 05  Before the bell      5.49
BRKa Berkshire Hathaway   Fri, Nov 05  ----- n/a -----    748.50
WGR  Western Gas Resource Fri, Nov 05  Before the bell      0.38


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

Symbol  Company Name              Ratio    Payable     Executable

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
BGG     Briggs & Stratton         2:1      Nov  9th    Nov 10th
DVN     Devon Energy              2:1      Nov 15th    Nov 16th
NFB     North Fork Banc           3:2      Nov 15th    Nov 16th
FBNC    First Bancorp             3:2      Nov 15th    Nov 16th


-----------------------------------
Economic Reports & Events This Week
-----------------------------------

Q3 earnings are still announcing at a steady pace but the real
focus this week will be the Tuesday Presidential Election.  The
beginning of a new month also brings a parade of economic data.
Watch for the ISM indices, vehicle sales, same-store sale, and
on Friday will be the non-farm payrolls report.


==============================================================
                       -For-           
----------------
Monday, 11/01/04
----------------
ISM  manufacturing index for October  Last: 58.5  Est: 58.0
Personal Income for September
Pesonal Spending for September
Construction spending for September

-----------------
Tuesday, 11/02/04
-----------------
U.S. Presidential Election
Challenger corporate Layoffs report for October

-------------------
Wednesday, 11/03/04
-------------------
ISM Services index for October   Last: 56.7   Est: 58.3
Factory Orders for September
Auto Sales for October
Truck Sales for October

------------------
Thursday, 11/04/04
------------------
Weekly Initial Jobless Claims
Q3 Productivity report (preliminary reading)
Chain store comparable/same-store sales numbers

----------------
Friday, 11/05/04
----------------
Non-farm Payrolls (Jobs) for Oct.  Last: +96K  Est: +175K
Unemployment rate for October.     Last: 5.4%   
Hourly Earnings for October
Average work week for October
Consumer Credit for September


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The Option Investor Newsletter                   Sunday 10-31-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: SLB, PD, LTR, VIP
Dropped Calls: None
Dropped Puts: None


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

Miners to Oil services and more!

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Phelps Dodge - PD - close: 87.54 change: +2.85

WHAT TO WATCH: Material stocks took a hit mid-week on concerns 
that China's economy would slow down too fast and its demand for 
commodities would ease.  The concern didn't last long.  Copper 
prices soared on Friday and shares of PD added 3.3 percent.  The 
daily MACD indicator on PD's chart is nearing a new buy signal.  
We would watch for a break into the gap or a breakout over round-
number resistance at the $90.00 mark.  The P&F chart remains 
bullish with a $138 target.

Chart=


---

Schlumberger Ltd - SLB - close: 62.94 change: +0.89

WHAT TO WATCH: We mentioned SLB before.  The oil service stock 
has seen some serious profit taking after peaking near $70 about 
three weeks ago.  Now shares are testing the simple 200-dma and 
its long-term trendline of support dating back to April 2003.  
The pattern suggests we should go long now but that takes more 
faith than we have at the moment.  We will be watching for a 
bounce and consider a move over $63.50-64.00 as a potential entry 
point.

Chart=


---

Loews Corp - LTR - close: 59.90 change: +0.41

WHAT TO WATCH: This diversified conglomerate has its hands in 
several industries but it's main business is insurance.  The 
rebound from the exponential 200-dma looks pretty strong but 
shares are still stuck under round-number resistance at $60.00.  
There is more resistance near $63.00 but we'd consider going long 
on a breakout over $60.  A move over $60 would reverse its P&F 
chart back into a buy signal.

Chart=


---

Vimpel Communications - VIP - close: 114.00 change: +2.50

WHAT TO WATCH: Once again we strongly considered adding VIP to 
the play list this weekend as a bullish candidate.  The stock's 
recent breakout back over the $110 level and breaking its short-
term trend of lower highs looks tempting.  Short-term technicals 
are strongly bullish and its MACD is nearing a new buy signal.  
Consider using a trigger over $115.  The P&F chart only points to 
$120 but we would probably target $125. 

Chart=



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

ASH $57.62 +0.97 - ASH isn't the fastest moving stock but the up 
trend looks consistent.  It's MACD is in a new buy signal and its 
P&F chart points to a $70 target.

TARO $26.57 +1.76 - TARO still looks tempting with the bounce 
from $24.00.  Volume has been pretty strong the last few days.

WWY $65.40 +0.33 - WWY continues to rally after breaking out over 
resistance at the $64.00 mark.

MTB $103.00 +0.50 - Wow!  MTB is now up five days in a row.  
Looks like we had our stop too tight.  We'll watch for a dip.



**************************
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
^^^^^

None

PUTS
^^^^

None


***********
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 10-31-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: DHR, FDX, GS, IBM, ITW, LEH, SBUX
New Calls: ITT
Current Puts: APOL
New Puts: None

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

Danaher - DHR - close: 55.13 change: +0.39 stop: 51.99

Company Description:
Danaher, a leading industrial company, designs, manufactures and 
markets innovative products, services and technologies with 
strong brand names and significant market positions.
(source: company press release)

Why We Like It:
DHR finished out a relatively strong week.  The stock posted 
gains four out of the last five days.  The current up trend and 
pattern of higher lows is still very much intact.  Volume on 
Friday was above average as the stock broke out over resistance 
at the $55 level to close at new all-time highs.  The P&F chart 
remains bullish.  Short-term technicals remain bullish.  
Everything appears to be flashing the green light for DHR.  We 
are still targeting a move to $60.00.  If shares do dip we'll 
look for a bounce in the $53-54 level.  No change in our stop 
loss at $51.99.

Suggested Options:
Short-term traders can choose the Novembers, Decembers or January
calls.  We're going to suggest the Decembers and January strikes.

BUY CALL DEC 50 DHR-LJ OI= 832 current ask $5.80
BUY CALL DEC 55 DHR-LK OI=1558 current ask $2.00
BUY CALL DEC 60 DHR-LL OI=   0 current ask $0.35

BUY CALL JAN 55 DHR-AK OI=2835 current ask $2.55
BUY CALL JAN 60 DHR-AL OI= 178 current ask $0.65

Annotated chart:


Picked on October 27 at $54.99
Change since picked:    + 0.14
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     1.3 million 
Chart =


---

Fedex Corp - FDX - close: 91.12 change: +0.57 stop: 84.99

Company Description:
FedEx Corp. provides customers and businesses worldwide with a 
broad portfolio of transportation, e-commerce and business 
services. With annual revenues of $26 billion, the company offers 
integrated business applications through operating companies 
competing collectively and managed collaboratively, under the 
respected FedEx brand. Consistently ranked among the world's most 
admired and trusted employers, FedEx inspires its more than 
240,000 employees and contractors to remain "absolutely, 
positively" focused on safety, the highest ethical and 
professional standards and the needs of their customers and 
communities. (source: company press release)

Why We Like It:
It was a strong week for transportation stocks.  The ten percent 
pull back in crude oil helped propel the already strong Dow 
Transportation index to new five-year highs over resistance in 
the 3400-3430 range.  FDX was helping lead the pack.  Shares of 
FDX rose four days in a row, broke out over round-number, 
psychological resistance at the $90.00 mark to close at new all-
time highs.  The technicals remain very bullish and its MACD is 
strengthening its new buy signal.  The P&F chart remains in its 
bullish catapult breakout with a $97 target.  Our target is the 
$100 level.  Plus, we suspect FDX could announced a 2-for-1 split 
at any time and the odds only rise for a split announcement as 
the stock nears triple digits.  It last split 2:1 in May of 1999. 

FYI: You may have noticed that all of the suggested options below
have risen sharply from last week with gains of +50 percent to 
more than 100 percent.  We still think this is a bullish 
opportunity at current levels.

Suggested Options:
Traders can choose from the Novembers, Decembers and January 
calls.  Currently the Novembers have a lot of open interest and
volume but we'd suggest the Decembers too.  Both months will 
work.

BUY CALL NOV 85 FDX-KQ OI=1646 current ask $6.50
BUY CALL NOV 90 FDX-KR OI=5073 current ask $2.45
BUY CALL NOV 95 FDX-KS OI=1418 current ask $0.45

BUY CALL DEC 85 FDX-LQ OI= 150 current ask $7.10
BUY CALL DEC 90 FDX-LR OI= 863 current ask $3.40
BUY CALL DEC 95 FDX-LS OI= 306 current ask $1.15

Annotated Chart:


Picked on October 21 at $89.45 
Change since picked:    + 1.67
Earnings Date         09/22/04 (confirmed)
Average Daily Volume =     1.5 million 
Chart =


---

Goldman Sachs - GS - close: 98.38 change: +0.95 stop: 93.00*new*

Company Description:
Goldman Sachs is a leading global investment banking, securities
and investment management firm that provides a wide range of 
services worldwide to a substantial and diversified client base 
that includes corporations, financial institutions, governments 
and high net worth individuals. Founded in 1869, it is one of the 
oldest and largest investment banking firms. The firm is 
headquartered in New York and maintains offices in London, 
Frankfurt, Tokyo, Hong Kong and other major financial centers 
around the world. (source: company press release)

Why We Like It:
This past week was also a very strong one for the broker-dealers.  
The XBD index confidently broke out over resistance at the 130 
level and its simple 200-dma above that.  While the XBD paused a 
bit on Friday to digest some of its gains shares of GS did not.  
The stock (GS) is now up four days in a row after its strong 
bounce from the $91 level and its simple 100-dma.  We're very 
encouraged by the follow through on its breakout over resistance 
at $96 and the simple 200-dma.  Short-term technicals look very 
strong and its MACD is now two days into a new buy signal.  The 
P&F chart looks strong with an ascending triple-top breakout buy 
signal and a $114 price target.  We are currently targeting a 
move to the $105 level but short-term traders may want to 
consider taking some profits at the $100 mark, which is likely to 
be short-term, round-number, psychological resistance. Given the 
strong rebound GS does look a little bit overbought.  If you're 
patient one could wait for a potential dip and bounce from the 
$96 level, which should now be support.  We're going to raise our 
stop loss to $93.00.

FYI: Many of the suggested options below have already seen 
significant gains since we added GS.  We still believe this is
a bullish opportunity.

Suggested Options:
Short-term traders can use the November, December or January
calls.  We're going to suggest the Decembers and Januarys.

BUY CALL DEC 90 GS-LR OI=1546 current ask $9.30
BUY CALL DEC 95 GS-LS OI=3115 current ask $5.20
BUY CALL DEC 100 GS-LT OI=6826 current ask $2.15

BUY CALL JAN 95 GS-AS OI=14228 current ask $6.10
BUY CALL JAN 100 GS-AT OI=25517 current ask $3.00
BUY CALL JAN 105 GS-AA OI=14577 current ask $1.20

Annotated chart:



Picked on October 27 at $96.10
Change since picked:    + 2.28
Earnings Date         09/21/04 (confirmed)
Average Daily Volume =     3.2 million 
Chart =


---


Intl Business Mach. - IBM - close: 89.75 chg: +0.25 stop: 86.00

Company Description:
IBM is the world's largest information technology company, with 
80 years of leadership in helping businesses innovate. Drawing on 
resources from across IBM and IBM Business partners, IBM offers a 
wide range of services, solutions and technologies that enable 
customers, large and small, to take full advantage of the new era 
of e-business. (source: company press release)

Why We Like It:
Bulls certainly can't complain about IBM's past week.  The stock 
is up four out of the last five days.  If there is anything to 
complain about it's the tug-of-war going on at the stock's 
current 200-dma.  Wednesday IBM broke out above this technical 
level.  Thursday is dropped back below.  Friday it rebounded 
above it again.  We remain bullish.  IBM is merely digesting some 
of its gains as it builds up steam to really breakout over the 
$90 level.  Short-term technicals remain positive.  It's P&F 
chart shows a bullish catapult breakout with a $97 target.  Our 
six to eight week target is the $100 level.  We might suggest 
that more conservative traders wait for IBM to make a more 
significant breakout over the $90 mark. 

Suggested Options:
Traders can choose from the Novembers, Decembers and January
strikes.  We're going to suggest the December and January calls.

BUY CALL DEC 85 IBM-LQ OI= 5078 current ask $5.50
BUY CALL DEC 90 IBM-LR OI= 7021 current ask $2.10
BUY CALL DEC 95 IBM-LS OI= 5150 current ask $0.55
BUY CALL DEC100 IBM-LT OI= 1192 current ask $0.15-not suggested

BUY CALL JAN 85 IBM-AQ OI=13482 current ask $6.20
BUY CALL JAN 90 IBM-AR OI=40608 current ask $2.90
BUY CALL JAN 95 IBM-AS OI=25154 current ask $1.00
BUY CALL JAN100 IBM-AS OI=36253 current ask $0.40-not suggested

Annotated chart:



Picked on October 27 at $90.00
Change since picked:    - 0.25
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 
Chart =


---

Illinois Tool Works - ITW - close: 92.28 chg: +1.19 stop: 87.50


Company Description:
ITW is a $10 billion in revenues diversified manufacturer of 
highly engineered components and industrial systems and 
consumables. The Company consists of approximately 625 
decentralized operations in 44 countries and employs some 47,500 
people. (source: company press release)

Why We Like It:
Good news for ITW bulls.  The stock has not missed a beat.  
Shares dipped to the bottom of its trading range last week and 
began to rebound.  Now ITW is up five days in a row with a near 
perfect rebound.  Friday's 1.3 percent gain was important because 
it cleared minor resistance at $92 and a cloud of minor moving 
averages.  Short-term technicals remain strong and its MACD 
indicator just produced a fresh buy signal.  Of course now that 
ITW is up five days in a row it's probably time to look for a 
little profit taking.  Nothing moves in a straight line.  If 
shares dip we'll look for a bounce from $91 or $90.  We continue 
to target the top of the trading range near $96.

FYI: ITW's Boad of Directors just announced a quarterly cash
dividend of 28 cents per share payable on Monday, January 24th,
2005 to shareholders on record December 31st, 2004.

Suggested Options:
We are going to suggest the December or January calls.

BUY CALL DEC 85 ITW-LQ OI= 98 current ask $8.30
BUY CALL DEC 90 ITW-LR OI=977 current ask $4.30
BUY CALL DEC 95 ITW-LS OI=694 current ask $1.55

BUY CALL JAN 85 ITW-AQ OI=3316 current ask $8.70
BUY CALL JAN 90 ITW-AR OI= 403 current ask $4.90
BUY CALL JAN 95 ITW-AS OI= 556 current ask $2.25

Annotated chart:


Picked on October 27 at $90.89
Change since picked:    + 1.39
Earnings Date         10/19/04 (confirmed)
Average Daily Volume =     1.2 million 
Chart =


---

Lehman Brothers - LEH - close: 82.15 chg: -0.20 stop: 77.25

Company Description:
Lehman Brothers, an innovator in global finance, serves the 
financial needs of corporations, governments and municipalities, 
institutional clients, and high-net-worth individuals worldwide. 
Founded in 1850, Lehman Brothers maintains leadership positions 
in equity and fixed income sales, trading and research, 
investment banking, private equity and wealth and asset 
management services. The Firm is headquartered in New York, with 
regional headquarters in London and Tokyo and operates in a 
network of offices around the world.
(source: company press release)

Why We Like It:
The rebound has now reached new relative highs.  We initially 
added LEH for its relative strength, the strength in the broker-
dealer sector, and LEH's bounce from a 38.2 percent Fibonnaci 
retracement of the August to October rally.  The breakout over 
round-number resistance at $80.00 has now lead to a breakout over 
minor resistance at $82 and new six-month highs.  Short-term 
technicals look strong and its MACD just produced a new buy 
signal.  We remain bullish but LEH is arguably short-term 
overbought.  If shares dip look for a bounce from $80.  Our 
short-term target remains $85 but we main keep the play open 
given its relative strength. In the news Lehman Brothers agreed 
to pay a $222.5 million settlement to the University of 
California.  The move was a remedy for alleged fraudulent 
misrepresentations of Enron's stock and bonds that LEH sold to 
the University.  As is normally the case LEH was not actually 
charged with fraud.

Suggested Options:
Short-term traders can choose from Novembers, Decembers and 
January strikes.  We're going to suggest the Decembers.

BUY CALL DEC 75 LES-LO OI=108 current ask $8.00
BUY CALL DEC 80 LES-LP OI=785 current ask $4.20
BUY CALL DEC 85 LES-LQ OI=982 current ask $1.60

Annotated chart:


Picked on October 26 at $80.60 
Change since picked:    + 1.55
Earnings Date         09/21/04 (confirmed)
Average Daily Volume =     2.0 million 
Chart =



---

Starbucks - SBUX - close: 52.88 chg: +0.03 stop: 47.95      

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:
We certainly have nothing to complain about here with SBUX.  Our 
momentum play actually seems to be picking up speed.  A few days 
ago shares tested the simple 10-dma and rebounded.  This should 
remain SBUX's first line of defense.  Below that will be round-
number, psychological support at the $50.00 mark.  As we 
suggested on Thursday our only real risk here is a broker 
downgrade on valuation.  The stock is above the median price 
target of $50.  We continue to target the $54-55 range.  

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= 889 current ask $8.00
BUY CALL NOV 47.50 SQX-KT OI=3386 current ask $5.70
BUY CALL NOV 50.00 SQX-KJ OI=4753 current ask $3.40

Annotated Chart:



Picked on October 17 at $49.47 
Change since picked:    + 3.41
Earnings Date         11/10/04 (confirmed)
Average Daily Volume =     3.3 million 
Chart =




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

ITT Industries - ITT - close: 81.14 chg: +0.73 stop: 77.50

Company Description:
ITT Industries, Inc. is a $6 billion global multi-industry 
company based in White Plains, NY. ITT supplies advanced 
technology products and services in key markets including: fluid 
and water management including water treatment; defense 
communication, opto-electronics, information technology and 
services; electronic interconnects and switches; and other 
specialty products. (source: company press release)

Why We Like It:
If the markets are going to produce a post-election rally then 
this diversified conglomerate should follow.  The stock has been 
consolidating sideways for the last few months but the trend of 
higher lows suggests it's coiling for another bullish breakout.  
We also like how the lows are bouncing from (or near) the simple 
and exponential 200-dma's.  Currently ITT is testing resistance 
near the $81.40-81.50 region.  We see the same pattern on the P&F 
chart, which is bullish with a $92 target.  However, if ITT can 
trade over the $82.00 mark it would produce a new triple-top 
breakout buy signal.  We are going jump in a bit early and use a 
TRIGGER at $81.51.  Only if ITT trades at or above our entry 
point will we go long.  If triggered we'll use an initial stop 
loss near the exponential 200-dma at $77.50.  The next level of 
resistance beyond $81.50 will be the $86 region.

Suggested Options:
Traders can choose the November, December or January calls but
we're going to suggest the January strikes.

BUY CALL JAN 80 ITT-AP OI= 783 current ask $3.70
BUY CALL JAN 85 ITT-AQ OI=1351 current ask $1.35

Annotated chart:


Picked on November xx at $xx.xx <-- see TRIGGER
Change since picked:     + 0.00
Earnings Date          10/21/04 (confirmed)
Average Daily Volume =      460 thousand
Chart =




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

Apollo Group - APOL - close: 66.00 chg: -1.17 stop: 71.01 *new*

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:
Our bearish play in APOL is right on track.  The stock gapped 
down last Tuesday, consolidated sideways for a couple of days and 
closed at a new low for the year on Friday.  The lack of 
participation in this past week's market rally is very 
encouraging.  Short-term technicals continue to look bearish and 
its MACD has rolled over into another sell signal. As a relative 
strength loser we do not think it's too late to open new bearish 
positions.  Our target remains the $60 region.  We are going to 
lower our stop loss to $71.01.  APOL should find overhead 
resistance at $68.50 and again at $70.00.

FYI: Traders who entered this play early may want to consider
taking some money off the table since some of the suggested
November puts have doubled in value.

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=3538 current ask $9.40
BUY PUT NOV 70 OAQ-WN OI=6950 current ask $5.20
BUY PUT NOV 65 OAQ-WM OI=5454 current ask $2.35

BUY PUT JAN 75 OAQ-MO OI=2124 current ask $10.50
BUY PUT JAN 70 OAQ-MN OI=3553 current ask $ 7.00
BUY PUT JAN 65 OAQ-MM OI=1385 current ask $ 4.40
BUY PUT JAN 60 OAQ-ML OI=1481 current ask $ 2.60

Annotated Chart:



Picked on October 10 at $69.81
Change since picked:    - 4.23
Earnings Date         10/05/04 (confirmed)
Average Daily Volume =     3.3 million 
Chart =



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

None


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The Option Investor Newsletter                   Sunday 10-31-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Did You Get Some?
Spreads and Straddles:  It's That Time Of Year Again

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*****
LEAPS
*****

Did You Get Some?

Last week I suggested picking up any new positions
you did not already have as the indexes slipped to
their lows before the election. Monday provided a
very good buying opportunity just before the blast
off began. 

The trick question for today is will that rally
hold? Historically there is a strong precedent for
a continued move higher in Nov/Dec but once a trend
becomes well established it becomes a target for the
trend breakers. They will have their work cut out
for them this year with all the signs pointing 
toward a bullish fourth quarter. 

That is the only thing worrying me. There are too
many signs pointing to a strong Nov/Dec and there
is the lingering estimates for only +5-8% earnings
growth in all of 2005. Will funds push the envelope
into the year end and then test the wind for 2005
before bailing out? Let's hope that is the game 
plan.  

Oil finally broke with a -10% drop but the initial
bounce appears firm. I have been expecting a drop
post election as the terrorist fears fade but the
demand fears are still growing. It should be very
interesting. If we are stopped out on our oil 
plays we will look for opportunities to reenter. 
OXY was stopped at $55 and I added it back to the
watch list at $50.

Speaking of reentering, MMM has recovered sharply
from the stop that took us out of the play last
week. I am not ready to reenter it despite the
new forecast for 20% growth but we do need to keep
it on the radar screen. 

I am not adding any new plays again this week. I
would like to see a confirmation of a post election
rally first. We have plenty of profit opportunities
already in the portfolio so no need to add more
just for the sake of adding.  

All but two of our leaps are profitable and Pfizer
should be back into the green soon if the current
trend continues. 
 

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

NONE TODAY

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

OXY - Stopped out @ $55.00

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

QQQ  $36.50 Nasdaq Tracking Stock 
 

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

Position Summary Table




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

XLE - S&P Energy SPDR $35.12  ** Stop 33.90 **

We narrowly escaped being stopped on the XLE play with
a drop to $34.45 on Thursday. It is too soon to tell 
if this oil weakness will last past the election or
rebound as did the last two profit taking corrections. 
Maintain the stop and we will look to get back in closer
to the long term uptrend at $32 if stopped.   

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




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


INTC - Intel Corp $22.24  **Stop $20.50**

Intel gained over a buck for the week and tested a new
two month high at $22.50. No complaints here and Intel
should continue to move higher if a real tech rally
emerges after the election. Several news bites about
cancelled or delayed chips have not slowed the advance.

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. $31.10  **Stop $29.00**

Tyco gained a $1.30 for the week in advance of their
earnings due out Monday. Estimates are for +43 cents
on revenue of $10.45 billion. Full year estimates are
$1.63 on revenue of $40.68 billion. This is a +26%
increase from last year. Should they beat estimates
and not release any negative trial news we could see
some short covering push it over resistance at $32.

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 $26.64 **Stop $23.25**

Juniper broke out to a new SIX-MONTH high on Friday as
funds dressed up their year end statements. This is one
stock I had great faith in and it appears to be well
founded. 70% margins in a growth sector can't be all
bad.  
 

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 $84.25    **Stop 81.00**

COP fell from highs for the week near $87 but ended
the week only off -75 cents from the prior week. COP
announced earnings on Wednesday that beat the street
by +30 cents at $2.87 and +1.05 over the same qtr in
2003. Quarterly revenue rose nearly $10 billion to 
$34.7B. They produced $4.4B in free cash for the qtr.  

Suddenly COP has found itself in the bidding for new
oil properties in Venezuela and Iraq as a new partner 
with LUKOIL. LUKOIL won the rights to develop the
giant West Quma oil field in Iraq in 1997 and has
now teamed with COP to develop it once the elections
in Iraq install a formal government. 


Current position:
Jan-2006 $75 LEAP Call YRO-AO at $6.70 now $13.50

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

COP Chart




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


NWS - News Corp $32.24 **Stop 29.00**

News Corp spiked to $33.21 after the shareholder vote 
to move to the NYSE was approved by 93.1% of shares.
Preferred shares approved it with a 96.2% vote in
favor. 

Earnings are Wednesday and various news items not
related to NWS put a drag on the price going into 
the close on Friday. 

NWS which represents 6% of the Australian stock market
should complete its move to the NYSE sometime in mid
November and you can bet there will be a big splash
at the NYSE when it happens. 

We are significantly under water with the NWS leap 
which was moved to the leap section from the Editors
Plays several months ago. NWS declined after the 
initial recommendation when Australian funds began
dumping the shares when it appeared the move to the
US would be successful. Once the move is completed
the company will be eligible for inclusion into the
US indexes and at a market cap of nearly $50 billion
index funds will have to buy a huge number of shares.
We have plenty of time on these leaps and I still 
have confidence in the plan.    

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 $48.70  **Stop $46.00**

UPL gave up ground from the drop in oil prices and
is holding just above $48. I am leaving he stop in
place at $46 and we will look to get back in at a 
lower level if stopped. This stock was due for 
some profit taking but the blowout earnings should
keep the buyers interested. 

Earnings were reported on Wednesday and UPL saw
a huge +170% jump in earnings for the quarter. 
Production increased +87% and they raised estimates
for the year.  

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 $97.54      ** Stop $92.00 **

EBAY is holding near its all time highs set last week
at $102 and should benefit from any future tech rally.
Meg Witman was honored by the WSJ as a leader in her
field this week and gave an interview to Maria B. at
CNBC which will be aired on Saturday. 

In the interview she said the China business had taken 
flight and they were already the largest Internet
business in China. The big news was her claim that
China would eventually be the largest revenue source
for the company, even larger then the US. She said
business was booming and the holiday season should
be very profitable.   

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.

Earnings were Oct-20th

Stop raised to $92.00

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 $53.91   ** Stop $50.50 **
               
Merrill continuing to move higher despite news on the
Enron barge case trickling out from the court. MER
broke out to a new four month high on Thursday and
gained more than $2 for the week.  


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



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

RIMM - Research in Motion $88.22  ** Stop $81.00 **

Despite two downgrades to hold on Thursday RIMM continued
to buck the trend and held within 80 cents of its all
time high at $90 set over the last two weeks. This
stock has positive news on a daily basis and they 
are delivering all the Blackberry devices they can
make. A continued tech rally could easily see $120 
by year end. 

RIMM could be building another consolidation pattern
like it did at $77 before breaking out for the big
gain. 

RIMM announced earnings on Sept-30th.

2006 $80 LEAP Call WLJ-AP @ $16.50 now $25.00
2006 $90 LEAP Call WLJ-AR @ $13.20 now $19.60
Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 now $37.50

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

RIMM Chart  


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


OXY - Occidental Petroleum $55.82  ** Stopped $55.00 **

OXY dropped back to touch $54.90 on Thursday and 
stopped us out on the play. Very frustrating since
it came close to its all time high of $58.42 on
Monday. 

We will look to reenter OXY at $50 on any post 
election pullback in oil prices.  

Earnings were Oct-21st

2006 $50 LEAP Calls WXY-AJ @ $8.60 exit $8.20
2006 $55 LEAP Calls WXY-AK @ $5.60 exit $6.10
2006 $60 LEAP Calls WXY-AL @ $3.50 exit $3.50

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

OXY Chart



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

SYMC - Symantec - $56.91   ** Stop $51.00 **

SYMC was knocked for a loss this week when AOL announced
it would be giving away the McAfee virus product to its
subscribers. AOL had previously sold it for $2.95 per
month. 

While this was seen as a potential earnings hit foe SYMC
other analysts believe it was self defense by AOL. The
company was not selling as many of the McAfee products
as it wished and too many of their subscriber computers
were getting hit by viruses. Those viruses can then 
make their way back into the AOL system and infect other
users. 

Another analyst did not feel SYMC would be hurt by the
practice because AOL was not their major market. A typical
AOL subscriber is far less computer literate than a non
AOL Internet user. They are less likely to purchase 
Symantec virus products on their own.  

The stop was lowered to $51.00 to give SYMC time to shake
the news and a post election rally to develop. SYMC was
at a new all time high of $62 on Wednesday so profit
taking was natural with any negative news. 

Earnings were Oct-20th 

2:1 Split announced 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 $32.47  ** Stop $28.00 **

XMSR is consolidating the gains from the prior week and
trying to shake off an earnings miss from Sirius. XMSR
has earnings next Thursday and is expected to do well.
They are much stronger financially than SIRI and should
not miss. 

Earnings are Nov-4th.  

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 $28.92    ** Stop $26.00 **

Finally a bounce on Pfizer after two weeks of being
slammed with the VIOXX bat from Merck. The stock is
far from out of the woods but a Bush victory should
give it new life. A Kerry victory could add additional
pressure. 

PFE announced on Thursday they would buy back $5B in
stock and that helped overcome negative news that 
another Merck COX-2 drug had been denied approval 
until more safety tests could be run.  

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  $100.37 Dow Diamonds Trust **Stop 97.00**

A +300 point Dow bounce worked out great to take us
away from the stop and the lows for the year. I raised
the stop to 97.00 because a return to those levels
now would suggest serious market damage and a failure
of the post election rally to appear. 

A continued rebound will have to break $102-$103 to
gain any real momentum so that is the next level to
watch. 

Stop was raised to 97.00
 
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



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

SMH  $32.35 Semiconductor Holders ** Stop $29.00 **

So far, so good! The Semiconductor Holders appear
to be moving nicely with a close at a three month
high but they need to clear $33 to really gain
momentum. 

Chip stocks were bought last week despite the
multiple warnings and this week will be the key 
to the fourth quarter rally. 

2006 $30 LEAP Call YRH-AF @ 5.20
2006 $35 LEAP Call YRH-AG @ 3.12
Sell 2006 $55 LEAP Put YRH-MK @ 24.30 

Entry $30.50 (10/19)

SMH Chart



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

QQQ  $35.63 Nasdaq 100   **Stop $35.00**

The Nasdaq 100 tracking stock came within 16 cents of
our breakdown entry at $35.25 before blasting off to
breakout the topside and trigger the breakout entry 
at $36.50. This is not what we wanted but if we get
a real rally in the 4Q it should work out all right. 

Twice over the last month we came within a quarter
of the lower entry we wanted and both time we missed.
I am going to keep a tight stop on the QQQ until we
are sure the rebound is going to stick. We ended up
in the options about 50-60 cents higher than if we
had gotten the lower entries so at least it is not
a major difference. 
 
Entry $36.50 (10/27)
2006 $35 LEAP Call YWZ-AI @ $5.10
2006 $37 LEAP Call YWZ-AD @ $3.90

QQQ Chart




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

Back to the Drawing Board 

All of our watch list entries have been triggered with
the final addition of the QQQ Leap last week. 

We were stopped on OXY this week by 10 cents and I 
put it back on the watch list at $50.00 just in 
case we get further weakness in the oil stocks. 

If we have a positive market after the election I
will start adding more stocks to the list. Until
we see which direction the market is going I do not
want to add anything to the portfolio. If the 4Q
rally fails to appear I do not want a lot of entries
getting filled only to stop out on a market implosion.



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

None 


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

OXY to reenter at $50.00


************************Advertisement*************************
 
We got trailing stops!
 * Trade online with trailing stops at optionsXpress, at no extra cost 
 * Trailing stops based on the option price or the stock price
 * Also place Contingent, Stop Loss, and "One Cancels Other" orders
 * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees!
 
Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33
 
Note: Options involve risk. Risk disclosure: 
http://www.optionsxpress.com/welcome_risk_index.htm
 
**************************************************************


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

It's That Time Of Year Again
By Mike Parnos   

How does it feel to always have Uncle Sam's hand in your pocket?  
And he didn't even take you out to dinner first.  Seriously 
though, I understand that we have to fund our government.  The 
least we can do is to provide the government cheese for 
directional traders.  

We, at the Couch Potato Trading Institute, have pocketed a nice 
chunk of dough this year.  And we see no reason why we won't do 
it again this year.  The question is:  How do we keep the most of 
the profits we generated?

I'm not suggesting we do anything illegal, but there are ways to 
navigate through and around tax laws.  Below are answers to a few 
basic tax questions that you should explore when preparing your 
tax return -- and to get ready for next year's profits.

_________________________________________________________________
QUESTION: What is the best structure for tax savings?
ANSWER: You have three options. One is to keep filing your Form 
1040 (U.S. Individual Tax Return) year after year. That is the 
most expensive solution and unfortunately, that is what most 
people do. 

Next, you could try to file as a "trader" and deduct your 
business expenses on Schedule C of your Form 1040. This is risky 
and does not offer you any income tax strategies, so we advise 
you to stay away from this option. The third strategy is to place 
your trading capital in a legal entity. There are various 
entities that may be appropriate, depending on your situation. 
Your main choices are the c-corporation, the flow-thru entities 
such as the limited liability company (LLC) and the limited 
partnership, and a combination of a c-corporation and a flow-thru 
entity. 

The following is an explanation of the corporation - LLC strategy 
for active traders. This strategy can allow you to legally write-
off your computers, home office equipment, all educational 
expenses, and a large percentage of meals, entertainment and 
travel. You will learn how to run your investment activities as a 
qualified business, and how you can grant yourself all the legal 
perks, benefits, tax breaks, and tax deductions afforded to large 
companies. 

The Limitations of Filing a 1040 Tax Return as an Investor 
As you probably know, when you file your Form 1040 tax return, 
your ability to deduct expenses related to your investment 
activities is extremely limited. Certain expenses are deductible, 
but these itemized deductions are subject to the 2% of adjusted 
gross income limitation. Additionally, deductions for investment 
seminars and home offices are categorically disallowed. 
Another limitation affecting more and more investors is the Wash 
Sale rule. This rule prevents you from realizing losses on 
securities sales if you are in basically the same financial 
position in a 61-day window of time. The goal of the IRS is to 
prevent you from selling a position simply to record the loss, 
and then immediately buying back the stock at a lower basis 
price. Unfortunately, with active trading being more the norm, 
individuals often find themselves moving in and out of the same 
stock within the same 61-day window. 

One benefit of filing a Form 1040 tax return is the capital gain 
treatment of your long-term stock positions. If you hold your 
securities for 12 months or longer you can lower your capital 
gains tax bracket to as low as 10% or 20%. In conclusion, if you 
work at a full-time job and are realizing capital gains in the 
stock market, you do not have any powerful methods for offsetting 
your tax liabilities. In fact, all of the expenses incurred in 
learning how to grow and manage your capital are almost entirely 
non-deductible. But what if there was a way to make your 
investment activities into a business? What if you became a 
qualified money manager in your part-time? Do you think that you 
might receive a preferential tax treatment by the IRS? Let's see: 

Filing as "Trader" on Form 1040 Tax Return ... tax breaks but risky 
This tax strategy boils down to this: You convert your investment 
activities into a trading business. Once your investing is 
recognized as a business, you are able to deduct any ordinary and 
necessary business expenses. What does it take to form a trading 
business? The Internal Revenue Code is conspicuously quiet about 
how to qualify as a trading business. So, the burden has been 
placed on brave individuals who filed their 1040 tax returns and 
attempted to establish themselves as "traders" in order to write-
off their business expenses. 

Most of these individuals were slaughtered in the tax courts. In 
case after case, the individuals were rebuked by the courts. The 
net effect of the rulings is that it is nearly impossible to 
qualify as a trader. To qualify, you would most likely have to be 
trading full-time, hold your positions for less than a day, and 
trade a large amount almost every business day throughout the 
year. In essence, the court has said, "If you are not on the 
floor of the exchange, or holed up in a trading room, you do not 
qualify." 

Some CPAs have been very active in promoting "trader status" 
filings. If you look at the actual text from the court cases, 
you will agree that attempting to establish your trading business as 
an individual trader on your personal Form 1040 tax return is a 
risky proposition and can lead to sleepless nights worrying about
 a possible audit. The bottom line is that while a very small 
portion of active traders can realize substantial tax savings by 
filing as a "trader", a majority of investors do not qualify and 
need an alternative strategy. 

The Complete Solution: Placing Trading Capital in an Entity Structure 
Instead of attempting the Herculean task of qualifying as a 
"trader" on your personal return, there is a method of qualifying
 that is automatic, trouble-free, and positively overflowing with 
powerful tax benefits. This strategy is what business greats like 
Warren Buffet, Michael Dell, and Michael Bloomberg, along with 
tens on thousands of others, have chosen for their investment 
capital. 

Advantages of Using a Corporation 
One of the most exciting things about using a corporation is the 
sheer amount of tax deductions and perks that are available to 
corporate owners and company employees. Congress has created tax 
laws and special exemptions for corporations. It is the lobbyists 
of the major corporations that have paved the way for you. Now, 
you can own your own corporation and be able to write-off all 
"ordinary and necessary" business expenses, fully deduct the 
costs of attending board meetings that are held in vacation 
areas, write-off all medical expenses with no limitations, 
contribute up to $40,000 to your own pension plan, and much much 
more. 

For individuals that are generating a large amount of excess 
revenue, the corporation structure allows you to start-up 
additional businesses with the expenses of the new business 
offsetting the income from the trading business. Another great 
benefit of the corporate entity is that it is a perpetual entity. 
Many individuals choose to retain the controlling interest in the 
corporation, and gift the non-controlling stock to their 
beneficiaries early in the growth of the business. That way, all 
future growth occurs in the estate of the beneficiaries, so that 
when you pass away, your beneficiaries do not need to sell off 
your business simply to pay the taxes. All they would be 
receiving is the small amount of controlling stock. 

Taking Action 
If you are a part-time trader, you have created a situation where 
you can take advantage of major tax strategies usually reserved 
for individuals with full-time businesses. It is simply a matter 
of getting started. We are the experts in this arena. We can look 
at your situation and show you how the entity structure would 
work in your situation. 

The Trader Tax Experts
Once again, the answers have been provided by the tax experts at 
TradersAccounting.com. All questions and/or clarifications should 
be directed to their website. 
_____________________________________________________________________________

NOVEMBER CPTI POSITIONS
November Position #1 - SPX Iron Condor - 1130.20
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 - 1130.20
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 - 540.65
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 - 583.79
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.
____________________________________________________________

ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $36.90
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 November. $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 – 540.65
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.

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 - 1130.20
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 an 
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. 
____________________________________________________________

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 10-31-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls:  CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
Spreads and Straddles:  Rally Stalls As GDP Fails To Inspire Investors
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

DNDN   10.34  NOV 10.00  UKO-KB 1.00 4338  9.34  20  10.7%
GERN    7.86  NOV  7.50  GQD-KU 0.85 3158  7.01  20  10.6%
NTMD   24.30  NOV 22.50  QNR-KX 3.00 1112 21.30  20   8.6%
BVF    18.72  NOV 17.50  BVF-KW 1.90 2194 16.82  20   6.1%
SYNA   31.64  NOV 30.00  QYG-KF 2.70  124 28.94  20   5.6%
SIGM    7.91  NOV  7.50  MQN-KU 0.65   69  7.26  20   5.0%
DHB    13.82  NOV 12.50  DHB-KV 1.70 1258 12.12  20   4.8%
TSRA   27.93  NOV 25.00  TJQ-KE 3.70 2084 24.23  20   4.8%
STSI    5.50  NOV  5.00  QSE-KA 0.65  242  4.85  20   4.7%
LNG    24.84  NOV 22.50  LNG-KX 2.90  510 21.94  20   3.9%

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).

_________________________________________________________________

DNDN - Dendreon  $10.34

Dendreon (NASDAQ:DNDN) is a biotechnology company focused on the
discovery, development and commercialization of therapies for
cancer.  The company's portfolio includes product candidates to
treat a range of cancers using therapeutic vaccines, monoclonal
antibodies, small molecules and pro-drugs.  Its most advanced
product candidate is Provenge, a therapeutic vaccine for the
treatment of prostate cancer.  Dendreon's preclinical programs
include monoclonal antibodies, therapies targeting the trp-p8
pathway and serine protease and pro-drug product candidates for
the treatment of cancer.

DNDN - Dendreon  $10.34

NOV 10.00 UKO-KB LB=1.00 OI=4338 CB=9.34 DE=20 TY=10.7%


_________________________________________________________________

GERN - Geron  $7.86

Geron (NASDAQ:GERN) is a biopharmaceutical company focused on
developing and commercializing therapeutic and diagnostic
products for cancer.  The company's products are based on its
telomerase technology and cell-based therapeutics using its
human embryonic stem cell technology.  Geron is working to
develop anti-cancer therapies based on telomerase inhibitors,
telomerase therapeutic vaccines and, through its collaborators,
telomerase-based oncolytic (cancer-killing) viruses.  It also
intends to continue the development and commercialization of
its products using telomerase as a marker for cancer diagnosis,
prognosis, patient monitoring and screening.

GERN - Geron  $7.86

NOV  7.50 GQD-KU LB=0.85 OI=3158 CB=7.01 DE=20 TY=10.6%


_________________________________________________________________

NTMD - NitroMed  $24.30

NitroMed (NASDAQ:NTMD) is an emerging pharmaceutical company
with substantial expertise and intellectual property in nitric
oxide-based drug development.  The firm is applying its nitric
oxide technology to develop new pharmaceuticals, as well as
safer and more effective versions of existing pharmaceuticals
to target diseases and commercial markets.  Its lead nitric
oxide-enhancing medicine, BiDil, which is being developed to
reduce mortality and hospitalization and to improve quality of
life for African Americans diagnosed with heart failure is the
subject of a Phase III confirmatory clinical trial.

NTMD - NitroMed  $24.30

NOV 22.50 QNR-KX LB=3.00 OI=1112 CB=21.30 DE=20 TY=8.6%


_________________________________________________________________

BVF - Biovail  $18.72

Biovail (NYSE:BVF) is a pharmaceutical company engaged in the
development, manufacture and marketing of medications utilizing
advanced drug delivery technologies for the treatment of chronic
medical conditions.  The firm's primary focus is on three major
therapeutic areas: cardiovascular (including Type II diabetes),
central nervous system and pain management.  Other major areas of
interest include antiviral medicine and select niche therapeutic
categories with identified potential.  

BVF - Biovail  $18.72

NOV 17.50 BVF-KW LB=1.90 OI=2194 CB=16.82 DE=20 TY=6.1%


_________________________________________________________________

SYNA - Synaptics  $31.64

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

SYNA - Synaptics  $31.64

NOV 30.00 QYG-KF LB=2.70 OI=124 CB=28.94 DE=20 TY=5.6%


_________________________________________________________________

SIGM - Sigma Designs  $7.91

Sigma Designs (NASDAQ:SIGM) specializes in silicon-based digital
media processing solutions for consumer products.  Its solutions,
based on its REALmagic Video Technology, provide decoding of
MPEG-4, MPEG-2, MPEG-1 and Windows Media Video 9 content.  The
company has developed system solutions for convergence products,
including DVD playback, digital television reception, video over
Internet protocol, personal video recording and video-on-demand.
Its business operates in one major segment, consumer electronic
devices and products.

SIGM - Sigma Designs  $7.91

NOV  7.50 MQN-KU LB=0.65 OI=69 CB=7.26 DE=20 TY=5.0%


_________________________________________________________________

DHB - DHB Industries  $13.82

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  $13.82

NOV 12.50 DHB-KV LB=1.70 OI=1258 CB=12.12 DE=20 TY=4.8%


_________________________________________________________________

TSRA - Tessera Technologies  $27.93

Tessera Technologies develops semiconductor-packaging technology
that meets the ongoing demand for miniaturization and increased
performance of electronic products.  It licenses its technology
to customers, enabling them to produce semiconductors that are
smaller and faster and incorporate more features.  These chips
are utilized in electronics products, including digital cameras,
MP3 players, personal computers, personal digital assistants,
video game consoles and wireless phones.  The firm's technology
enables multiple semiconductors to be stacked vertically in a
single three-dimensional, multi-chip package that occupies almost
the same circuit board area as a chip-scale package.

TSRA - Tessera Technologies  $27.93

NOV 25.00 TJQ-KE LB=3.70 OI=2084 CB=24.23 DE=20 TY=4.8%


_________________________________________________________________

STSI - Star Scientific  $5.50

Star Scientific (NASDAQ:STAR) and its wholly owned subsidiary,
Star Tobacco, is engaged in the development, implementation and
licensing of scientific technology for the curing of tobacco,
so as to prevent the formation of carcinogenic toxins present
in tobacco and tobacco smoke, the tobacco-specific nitrosamines.
It is also engaged in the manufacturing, sales, marketing and
development of low-nitrosamine smokeless tobacco products that
carry enhanced warnings beyond those required by the Surgeon
General, including Stonewall moist and dry snuffs, ARIVA
compressed powdered tobacco cigalett pieces and STONEWALL Hard
Snuff.

STSI - Star Scientific  $5.50

NOV  5.00 QSE-KA LB=0.65 OI=242 CB=4.85 DE=20 TY=4.7%


_________________________________________________________________

LNG - Cheniere Energy  $24.84

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

LNG - Cheniere Energy  $24.84

NOV 22.50 LNG-KX LB=2.90 OI=510 CB=21.94 DE=20 TY=3.9%





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

Rally Stalls As GDP Fails To Inspire Investors
By Ray Cummins

Stocks traded in small range Friday after data from the gross
domestic product report suggested that record energy costs are
restraining economic growth.
 
A Commerce Department report said that third-quarter GDP rose
by 3.7%, less than the 4.3% rise expected among analysts, and
investors are concerned that crude prices will restrain growth
further in the coming months.  The Dow Jones industrials added
22 points to finish at 10,027, with ChevronTexaco (NYSE:CVX)
among the bullish components after posting a 60% increase in
quarterly profits.  The NASDAQ composite index ended unchanged
at 1,974, despite selling pressure in internet retail shares.
The S&P 500-stock index closed up 2 points at 1,130, as steel,
gold, oil & gas equipment, railroad and hospital issues enjoyed
buying interest.  Advancing issues outnumbered decliners 5 to 4
on the New York Stock Exchange on volume of 1.5 billion shares.
Breadth on the technology exchange was roughly neutral with 1.6
billion shares changing hands.  Treasury prices drifted higher
with the benchmark 10-year note up 6/32 at 4.02%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/29/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

BSC    94.16  94.75  NOV  80.0  85.0  0.65   84.35   0.65   Open
BTU    60.07  63.78  NOV  50.0  55.0  0.60   54.40   0.60   Open
MRVL   28.84  28.57  NOV  22.5  25.0  0.35   24.65   0.35   Open
COST   44.69  47.94  NOV  40.0  42.5  0.30   42.20   0.30   Open
NEM    46.25  47.52  NOV  40.0  42.5  0.30   42.20   0.30   Open
INSP   47.25  52.50  NOV  35.0  40.0  0.85   39.15   0.85   Open
BG     41.96  47.73  NOV  35.0  40.0  0.50   39.50   0.50   Open
ADBE   53.57  56.03  NOV  45.0  50.0  0.50   49.50   0.50   Open
VRNT   37.73  38.88  NOV  30.0  35.0  0.55   34.45   0.55   Open
GTRC   47.81  44.63  NOV  40.0  45.0  0.45   44.55   0.08   Open?
OSTK   52.63  54.14  NOV  40.0  45.0  0.60   44.40   0.60   Open
MDC    76.00  76.75  NOV  65.0  70.0  0.50   69.50   0.50   Open
SPF    53.90  56.15  NOV  45.0  50.0  0.60   49.40   0.60   Open

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

Although both are currently profitable, positions in Pacificare
Health Systems (NYSE:PHS) and Celgene (NASDAQ:CELG) have previously
been closed to limit potential losses.  Guitar Center (NASDAQ:GTRC)
is a candidate for "early-exit" on any further downside movement.


CALL-CREDIT SPREADS

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

AMZN   40.47  34.13   NOV  50.0  45.0  0.65   45.65  0.65   Open
PDX    55.00  56.25   NOV  65.0  60.0  0.60   60.60  0.60   Open
BZH   103.14 109.78   NOV 115.0 110.0  1.10  111.10  1.10   Open?
CHIR   37.98  32.42   NOV  45.0  42.5  0.30   42.80  0.30   Open
FLIR   54.52  53.21   NOV  65.0  60.0  0.70   60.70  0.70   Open
MERQ   37.97  43.43   NOV  45.0  42.5  0.35   42.85 (0.58) Closed
BIIB   59.82  58.16   NOV  70.0  65.0  0.65   65.65  0.65   Open
MCHP   27.56  30.25   NOV  35.0  30.0  0.60   30.60  0.35  Closed
CB     66.75  72.13   NOV  75.0  70.0  0.60   70.60 (1.53) Closed
HIG    56.30  58.48   NOV  65.0  60.0  0.80   60.80  0.80   Open?
AET    87.26  95.00   NOV 100.0  95.0  0.40   95.40  0.40  Closed
CI     60.65  63.46   NOV  70.0  65.0  0.75   65.75  0.75   Open?
IFIN   36.50  38.49   NOV  42.5  40.0  0.30   40.30  0.30   Open
TTWO   32.55  32.96   NOV  37.5  35.0  0.30   35.30  0.30   Open
SPW    37.40  38.35   NOV  42.5  40.0  0.30   40.30  0.30   Open
QCOM   39.50  41.60   NOV  45.0  42.5  0.30   42.80  0.30   Open

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

Positions in the Insurance sector became candidates for early exit
after an unexpected announcement from the New York Attorney General
sparked a rally in the group.  The issues include Aetna (NYSE:AET)
Hartford Insurance (NYSE:HIG), Cigna (NYSE:CI) and Chubb (NYSE:CB). 
Beazer Homes (NYSE:BZH) is also an exit candidate with the bullish
activity in home construction shares.  Qualcomm (NASDAQ:QCOM) and
SPX Corp. (NYSE:SPW) are on the "watch" list.  Mercury Interactive
(NASDAQ:MERQ) and Microchip (NASDAQ:MCHP) have 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

JCOM    29.93  29.78   NOV   30.0   30.0    3.75    3.50   Closed
NTES    40.00  46.51   NOV   40.0   40.0    5.00    7.90    Open?

The speculative position in Netease.com (NASDAQ:NTES) reached our
profit target in less than one week.  The straddle on j2 Global
Communications (NASDAQ:JCOM) has previously been closed in the
interest of capital preservation, as the earnings report did not
produce the expected volatility in the issue.
 
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

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

NEM - Newmont Mining  $47.52  *** For Gold "Bulls" Only! ***

Newmont Mining (NYSE:NEM), along with its subsidiaries, is a
worldwide company engaged in the production of gold, exploration
for gold and acquisition of gold properties.  The company also
has an interest in a copper/gold mine that commenced production
in late 1999.  In addition, the company produces zinc, lead and
copper concentrates at its property in Western Australia.  The
company approved in late 2002 a restructuring to facilitate the
acquisitions of Normandy Mining Limited and Franco-Nevada Mining
Corporation Limited and to create a flexible corporate structure.

NEM - Newmont Mining  $47.52

PLAY (less conservative - bullish/credit spread):

BUY  PUT  NOV-42.50  NEM-WV  OI=5757   ASK=$0.20
SELL PUT  NOV-45.00  NEM-WI  OI=11673  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$44.65


__________________________________________________________________

PD - Phelps Dodge  $87.54  *** Consolidation Complete? ***

Phelps Dodge (NYSE:PD) is engaged in the production of copper,
carbon black, magnet wire, continuous-cast copper rod and also
molybdenum products.  The firm consists of two major divisions:
Phelps Dodge Mining, which is an international business for its
vertically integrated copper operations, and Phelps Dodge
Industries, which is the manufacturing division, comprising two
individual business segments that produce engineered products
for the global energy, telecommunications, transportation and
specialty chemicals sectors.

PD - Phelps Dodge  $87.54

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-75.00  PD-WO  OI=2936  ASK=$0.35
SELL PUT  NOV-80.00  PD-WP  OI=4887  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$79.50



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

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.

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

ESRX - Express Scripts  $64.01  *** In a Trading Range? ***

Express Scripts (NASDAQ:ESRX) is an independent pharmacy benefit
manager (PBM), provides integrated PBM services including network
pharmacy claims processing, mail pharmacy services, benefit design
consultation, drug utilization review and formulary management.
The company offers PBM services to clients in the United States
and Canada.  Some of the Company's largest clients included United
HealthCare Insurance Company, which manages the AARP Pharmacy
Service, Blue Cross Blue Shield of Massachusetts, Blue Shield of
California, Mutual of Omaha, the State of Georgia, Mid Atlantic
Medical Services, Group Health Incorporated, and the Department of
Defense TRICARE Management Activity.

ESRX - Express Scripts  $64.01

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-75.00  XTQ-LO  OI=220  ASK=$0.35
SELL CALL  DEC-70.00  XTQ-LN  OI=67   BID=$0.90
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$70.60


__________________________________________________________________

JCP - J. C. Penney  $34.59  *** Sell-Off In Progress! ***

J. C. Penney (NYSE:JCP) is a department store, catalog and
e-commerce retailer.  JCP operates over 1,000 JCPenney stores
throughout the United States and Puerto Rico, and 59 Renner
department stores in Brazil.  JCPenney Catalog, including
e-commerce, is a catalog merchant of general merchandise, and
JCPenney.com is an apparel and home furnishings site on the
Internet.  J. C. Penney Corporation, is a contributor to
JCPenney Afterschool Fund, a charitable organization committed
to providing children with after school programs to help them
reach their full potential.

JCP - J. C. Penney  $34.59

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-40.00  JCP-LH  OI=266   ASK=$0.25
SELL CALL  DEC-37.50  JCP-LU  OI=1920  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=16% B/E=$37.85



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

NEW - New Century Financial  $55.15  *** Earnings Play! ***

New Century Financial Corporation (NYSE:NEW) is one of the
nation's largest specialty mortgage companies, providing first
and second mortgage products to borrowers nationwide through its
operating subsidiaries.  It offers mortgage products to borrowers
who generally do not satisfy the credit, documentation or other
underwriting standards prescribed by conventional mortgage lenders
and loan buyers, such as the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.  New Century is
committed to serving the communities in which it operates with
fair and responsible lending practices.  Earnings are due on or
about 11/4/04.

NEW - New Century Financial  $55.15

PLAY (very speculative - neutral/debit straddle):

BUY CALL  NOV-55.00  NEW-KK  OI=2462  ASK=$2.40
BUY PUT   NOV-55.00  NEW-WK  OI=7821  ASK=$2.35
INITIAL NET-DEBIT TARGET=$4.60-$4.70
INITIAL TARGET PROFIT=$1.75-$2.50




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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 10/29/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

WRLS     NOV     7.50    7.20    6.87   (0.33)  0.00%   0.00%
SIMG     NOV    12.50   12.10   13.70    0.40   5.95%   3.31%
NCRX     NOV    25.00   24.30   25.63    0.70   5.52%   2.88%
ANF      NOV    32.50   32.10   39.18    0.40   2.78%   1.25%
SNDA     NOV    22.50   21.85   30.26    0.65   7.78%   2.97%
PMTI     NOV    20.00   19.15   20.49    0.85   9.23%   4.44%
IDBE     NOV    12.50   12.15   17.30    0.35   6.44%   2.88%
BVF      NOV    17.50   17.05   18.72    0.45   5.40%   2.64%
USG      NOV    17.50   16.90   22.39    0.60   6.84%   3.55%
SNDA     NOV    25.00   24.50   30.26    0.50   5.67%   2.04%
ENER     NOV    15.00   14.40   16.84    0.60   8.11%   4.17%
DRIV     NOV    25.00   24.35   33.30    0.65   6.81%   2.67%
PLMD     NOV    30.00   29.55   35.00    0.45   3.33%   1.52%
CNCT     NOV    22.50   22.10   26.88    0.40   4.68%   1.81%
CCBI     NOV    22.50   21.90   22.43    0.53   4.87%   2.74%
EYET     NOV    35.00   34.45   42.44    0.55   5.17%   1.60%
USG      NOV    17.50   17.15   22.39    0.35   6.12%   2.04%
RIGL     NOV    22.50   21.85   24.00    0.65   8.14%   2.97%
MCD      NOV    27.50   27.15   29.15    0.35   2.99%   1.29%
FARO     NOV    20.00   19.60   24.85    0.40   5.67%   2.04%
NOVN     NOV    20.00   19.60   22.55    0.40   4.88%   2.04%
VRSN     NOV    20.00   19.65   26.83    0.35   4.40%   1.78%
ENER     NOV    17.50   17.05   16.84   (0.21)  0.00%   0.00%
SSNC     NOV    20.00   19.55   23.64    0.45   5.71%   2.30%
CKFR     NOV    30.00   29.40   31.00    0.60   4.91%   2.04%
OSTK     NOV    35.00   34.60   54.14    0.40   4.10%   1.16%
GBBK     NOV    30.00   29.40   31.25    0.60   5.01%   2.04%
KRON     NOV    45.00   44.50   49.05    0.50   3.10%   1.12%
DITC     NOV    20.00   19.70   22.94    0.30   5.29%   1.52%
MRVL     NOV    23.75   23.35   28.57    0.40   5.59%   1.71%
AGIX     NOV    20.00   19.70   29.99    0.30   4.50%   1.52%
AFCO     NOV    20.00   19.55   23.19    0.45   6.68%   2.30%
TSRA     NOV    25.00   24.70   27.93    0.30   4.18%   1.21%
SRDX     NOV    25.00   24.50   26.85    0.50   5.79%   2.04%
ELN      NOV    22.50   22.05   25.80    0.45   6.53%   2.04%
XMSR     NOV    30.00   29.45   32.32    0.55   5.48%   1.87%
ENDP     NOV    20.00   19.55   21.80    0.45   6.72%   2.30%
LNG      NOV    20.00   19.45   24.84    0.55   8.61%   2.83%
USG      NOV    20.00   19.50   22.39    0.50   8.45%   2.56%
EDS      NOV    20.00   19.65   21.27    0.35   5.49%   1.78%
MANT     NOV    17.50   17.05   21.62    0.45   9.65%   2.64%
NTMD     NOV    17.50   17.25   24.30    0.25   6.12%   1.45%
A        NOV    22.50   22.10   25.06    0.40   5.86%   1.81%
SCHN     NOV    26.60   26.15   28.25    0.45   5.81%   1.72%
CYTC     NOV    25.00   24.60   26.09    0.40   5.27%   1.63%
 
Energy Conversion Devices (NASDAQ:ENER) at the $17.50 strike,
Palomar Medical (NASDAQ:PMTI), and Telular (NASDAQ:WRLS) are
among the most obvious "early-exit" candidates.  The position
in Epiq Systems (NASDAQ:EPIQ) was not initiated due to a "gap
down" in the price of the stock on the day after the play was
published.  A number of issues remain on the "watch" list.


NAKED CALLS

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

BRCM     NOV    35.00   35.35   27.05    0.35   4.44%   0.99%
LLTC     NOV    40.00   40.60   37.88    0.60   3.74%   1.48%
SINA     NOV    35.00   35.35   33.50    0.35   4.56%   0.99%
LRCX     NOV    25.00   25.40   26.03   (0.63)  0.00%   1.57% *
IVX      NOV    20.00   20.75   18.10    0.75   9.51%   3.61%
PLMO     NOV    40.00   40.45   28.97    0.45   5.62%   1.11%
SLXP     NOV    20.00   20.65   16.03    0.65   8.83%   3.15%
AOC      NOV    25.00   25.25   20.41    0.25   3.93%   0.99%
CVH      NOV    50.00   50.60   40.90    0.60   4.46%   1.19%
ACF      NOV    20.00   20.70   19.40    0.70   8.31%   3.38%
DSPG     NOV    22.50   22.85   19.83    0.35   6.23%   1.53%
HYSL     NOV    40.00   40.85   40.13    0.72   5.29%   2.08% *
RNR      NOV    50.00   50.65   46.82    0.65   3.51%   1.28%
X        NOV    40.00   40.25   36.72    0.25   3.49%   0.62%
IIVI     NOV    35.00   35.65   34.24    0.65   6.51%   1.82%
GIVN     NOV    40.00   40.45   32.24    0.45   5.86%   1.11%
UCI      NOV    30.00   30.70   29.58    0.70  13.93%   2.28%
USPI     NOV    35.00   35.45   35.01    0.44   5.06%   1.27% *
ARW      NOV    25.00   25.40   23.96    0.40   5.82%   1.57%
TACT     NOV    30.00   30.50   25.02    0.50  10.16%   1.64%

Positions in Lam Research (NASDAQ:LRCX), Hyperion Solutions
(NASDAQ:HYSL), and United Surgical (NASDAQ:USPI) have been
closed to limit potential losses.  Positions in the Insurance
sector including RenaissanceRe Holdings (NYSE:RNR) and UCI
(NASDAQ:UICI), as well as Ii-Vi (NASDAQ:IIVI), are on the
"watch" list.

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

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

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

NEW NAKED-PUT CANDIDATES

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

FARO   24.85  NOV 22.50  QEJ-WX 0.40  164 22.10  20   2.8%   7.6%
USG    22.39  NOV 20.00  USG-WD 0.30 9147 19.70  20   2.3%   6.6%
NTAP   24.47  NOV 22.50  NUL-WX 0.35 1527 22.15  20   2.4%   6.5%
TSRA   27.93  NOV 22.50  TJQ-WX 0.20  291 22.30  20   1.4%   5.1%
DOX    25.25  NOV 22.50  DOX-WX 0.25  996 22.25  20   1.7%   5.0%
JNPR   26.61  NOV 25.00  JUX-WE 0.30 7762 24.70  20   1.8%   4.9%
ROST   26.27  NOV 25.00  REQ-WE 0.30  176 24.70  20   1.8%   4.8%
VAR    40.15  NOV 37.50  VAR-WU 0.35  659 37.15  20   1.4%   3.9%

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.
_________________________________________________________________

FARO - FARO Technologies  $24.85  *** Next Leg Up? ***

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  $24.85

NOV 22.50 QEJ-WX LB=0.40 OI=164 CB=22.10 DE=20 TY=2.8% MY=7.6%


_________________________________________________________________

USG - USG Corporation  $22.39  *** Uptrend Intact! ***

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  $22.39

NOV 20.00 USG-WD LB=0.30 OI=9147 CB=19.70 DE=20 TY=2.3% MY=6.6%


_________________________________________________________________

NTAP - Network Appliance  $24.47  *** Entry Point? ***

Network Appliance (NASDAQ:NTAP) is a provider of enterprise
network storage and data management solutions.  Its system
products consist of fabric-attached storage appliances, also
known as filers, NearStore systems, NetCache content delivery
appliances, the Data ONTAP operating system, Write Anywhere
File Layout file management system, data management and content
delivery software and NetApp Global Services.  The firm also
markets appliance- and server-based software and develops
software support for a number of industry-standard protocols.
The NetCache product line includes support for proxy and
caching of standard Web protocols, including domain name
service, file transfer protocol and hypertext transfer
protocol.

NTAP - Network Appliance  $24.47

NOV 22.50 NUL-WX LB=0.35 OI=1527 CB=22.15 DE=20 TY=2.4% MY=6.5%


_________________________________________________________________

TSRA - Tessera Technologies  $27.93  *** Pure Premium-Selling! ***

Tessera Technologies develops semiconductor-packaging technology
that meets the ongoing demand for miniaturization and increased
performance of electronic products.  It licenses its technology
to customers, enabling them to produce semiconductors that are
smaller and faster and incorporate more features.  These chips
are utilized in electronics products, including digital cameras,
MP3 players, personal computers, personal digital assistants,
video game consoles and wireless phones.  The firm's technology
enables multiple semiconductors to be stacked vertically in a
single three-dimensional, multi-chip package that occupies almost
the same circuit board area as a chip-scale package.

TSRA - Tessera Technologies  $27.93

NOV 22.50 TJQ-WX LB=0.20 OI=291 CB=22.30 DE=20 TY=1.4% MY=5.1%


_________________________________________________________________

DOX - Amdocs  $25.25  *** More Business From Cingular? ***

Amdocs Limited (NYSE:DOX) is a provider of software products
and services to major communications companies across North
America, Europe and the rest of the world.  Its products and
services provide an integrated approach to customer management,
which the Company refers to as Integrated Customer Management.
Its Integrated Customer Management product offerings consist
primarily of billing and customer relationship management
systems, which Amdocs refers to, collectively, as Customer
Care and Billing Systems.  Its portfolio also includes a range
of directory sales and publishing systems for publishers of
both traditional printed directories and electronic Internet
directories.

DOX - Amdocs  $25.25

NOV 22.50 DOX-WX LB=0.25 OI=996 CB=22.25 DE=20 TY=1.7% MY=5.0%


_________________________________________________________________

JNPR - Juniper Networks  $26.61  *** Optimistic Outlook! ***

Juniper Networks (NASDAQ:JNPR) transforms the entire business of
networking by converting a commodity: bandwidth, into a dependable,
secure, and highly valuable corporate asset.  Founded in 1996 to
meet the stringent demands of service providers, Juniper Networks
is now relied upon by the world's leading network operators, such
as government agencies, research and education institutions, and
information-intensive enterprises as the foundation for stable,
uncompromising networks.

JNPR - Juniper Networks  $26.61

NOV 25.00 JUX-WE LB=0.30 OI=7762 CB=24.70 DE=20 TY=1.8% MY=4.9%


_________________________________________________________________

ROST - Ross Stores  $26.27  *** On The Rebound? ***

Ross Stores (NASDAQ:ROST) operates a chain of off-price retail
apparel and home accessories stores that target value-conscious
men and women between the ages of 25 and 54, primarily in middle
income households.  The company offers brand-name and designer
merchandise at low everyday prices.  Ross has over 500 stores,
located predominantly in community and neighborhood shopping
centers in populated urban and suburban areas.  In the last year,
Ross opened 66 new Ross Dress For Less stores and closed five
locations.  The company's stores are located in 25 states.

ROST - Ross Stores  $26.27

NOV 25.00 REQ-WE LB=0.30 OI=176 CB=24.70 DE=20 TY=1.8% MY=4.8%


_________________________________________________________________

VAR - Varian Medical  $40.15  *** Target-Shoot An Entry! ***

Varian Medical (NYSE:VAR) designs and produces integrated systems
of equipment and software for treating cancer with radiation, as
well as cost-effective x-ray tubes for radiation equipment makers
and replacement x-ray tubes and imaging subsystems.  The company's
operations are grouped into two segments: Oncology Systems and
X-Ray Products.  Oncology Systems designs, manufactures, sells and
services hardware and software products for radiation treatment of
cancer, while X-Ray Products is involved in the design and building
of subsystems for diagnostic radiology.  GTC, which is Varian's
research facility, also manufactures and sells its brachytherapy
products and services.

VAR - Varian Medical  $40.15

NOV 37.50 VAR-WU LB=0.35 OI=659 CB=37.15 DE=20 TY=1.4% MY=3.9% TS



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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

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

ASKJ - Ask Jeeves  $25.78  *** New Downtrend Underway? ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search,
providing consumers with authoritative and fast ways to find
relevant information to their everyday searches.  Ask Jeeves
deploys its search technologies on Ask Jeeves (Ask.com and
Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com).
In addition, to its internet sites, Ask Jeeves syndicates its
monetized search technology and advertising units to a network 
of affiliate partners.  The company is based in Emeryville,
California, with offices in New York, Boston, New Jersey, Los
Angeles, London and Dublin.
 
ASKJ - Ask Jeeves  $25.78

PLAY (sell naked call):

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

SELL CALL  NOV 30    AUK-KF    5372   0.35  30.35   8.3%   1.2%


_________________________________________________________________

CBT - Cabot  $34.08  *** Post-Earnings Slump! ***

Cabot Corporation (NYSE:CBT) manufactures and sells carbon black,
fumed metal oxides, inkjet colorants, tantalum and other related
products and cesium formate drilling fluids.  The company is
organized into three business segments: the Chemical, Supermetals
and Specialty Fluids.  The Chemical segment is mainly comprised
of the carbon black, fumed metal oxides, inkjet colorants and
aerogels product lines.  Supermetals produces tantalum, niobium
and their alloys for the electronic materials and refractory
metals industries.  Specialty Fluids produces cesium formate as
a drilling and completion fluid for use in high-pressure and
high-temperature oil and gas well operations.

CBT - Cabot  $34.08

PLAY (sell naked call):

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

SELL CALL  NOV 35    CBT-KG      5    0.50  35.50   5.8%   1.4%


_________________________________________________________________

NVTL - Novatel Wireless  $20.75  *** A Big "Down" Day! ***

Novatel Wireless (NASDAQ:NVTL) is a provider of wireless
broadband access solutions for the mobile communications
market.  The company's range of products includes wireless
data modems and software for laptop personal computers,
embedded wireless modules for OEMs, and ruggedized wireless
data modems for public safety and telemetry applications.
Through the integration of hardware and software, Novatel's
products are designed to operate on most global wireless
networks, and provide mobile subscribers with secure access
to data, including corporate, public and personal information
through the Internet and enterprise networks.

NVTL - Novatel Wireless  $20.75

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    NVU-KE    4102   0.20  25.20   7.0%   0.8%





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