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Daily Newsletter, Tuesday, 11/02/2004

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The Option Investor Newsletter                 Tuesday 11-02-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: All Over But the Counting 
Futures Markets: See Note
Index Trader Wrap: More of the same, a change, a big change 
Market Sentiment: And The Winner Is...


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      11-02-2004           High     Low     Volume   Adv/Dcl
DJIA    10035.73 - 18.70 10132.99 10011.18 2.03 bln 1664/1456
NASDAQ   1984.79 +  4.90  2002.93  1978.64 1.85 bln 1543/1543
S&P 100   540.67 +  0.17   545.51   539.25   Totals 3207/2999
S&P 500  1130.58 +  0.07  1140.48  1128.12 
SOX       414.23 +  0.50   417.92   407.88
RUS 2000  585.44 -  1.56   591.54   583.53
DJ TRANS 3449.62 - 54.50  3505.67  3436.41
VIX        16.18 -  0.09    16.32    15.21
VXO (VIX-O)16.85 +  0.54    17.02    15.56
VXN        22.97 +  0.36    23.06    21.66 
Total Volume 4,228M
Total UpVol  2,425M
Total DnVol  1,731M
Total Adv  3586
Total Dcl  3409
52wk Highs  411
52wk Lows    61
TRIN       0.98
NAZTRIN    0.53
PUT/CALL   0.76
************************************************************

All Over But the Counting
by Jim Brown

By the time you read this tonight the early returns 
should be starting to trickle in and based on the exit
polls on the Internet the edge is going to Kerry. The
market had priced in a relief rally with breakouts to
new highs across the board but once those polls began
to break so did the market. 

Dow Chart

 
Nasdaq Chart

 
SPX Chart

 
Wilshire 5000 Chart

 

The Dow gave back -100 points to drop from its highs at
10132 and come very close to 10,000 at the close based
on the early election news. The Nasdaq had been trading
over 2000 for the first time since early July but 
dropped to retest 1980 resistance turned support again
at the close. With all the pundits telling us the 
markets would have a relief rally tomorrow regardless
of who wins you now wonder how valid that assumption 
was. If a couple of leaked exit polls showing Kerry 
with a potential lead in 5-6 states can turn a soaring
rally into a loss then what will happen tomorrow?

I am not going to hazard a guess because there are as
many opinions as there are traders. Historically the
markets don't care in the long run who wins and both
parties can point to significant gains when their side
is in power. However, because Bush was ahead in the 
polls for almost the entire race there is likely to
be a Bush bias in the market. Institutions don't want
to reallocate money unless forced and as long as there
was a Bush edge in the polls many may have buried their
head in the sand in hopes the problem would go away. 

The early exit polls today shocked somebody back into 
reality and the selling was very sharp. It could have 
been funds that were planning on exiting at the close
anyway to capture profits and a smaller sell program
just snowballed in the light volume. I think it would 
be hard to make any case on the direction of tomorrows
market until we actually get to tomorrow. 

There is a running debate among traders on the validity
of the post election rally period. Since funds normally
invest long before any event the odds are good that
most funds are already fully invested in advance of
the election. They are hoping the directional traders
who wanted to see a winner first will give their 
positions a boost. There is also those traders that
feared a pre-election event of either a terrorist attack
or a fatal case of foot and mouth disease by a candidate.

I am not going into a lot of discussion about historical
trends or various comparisons of the candidates and
their impact on the market. At this point it is a waste
of breath or digital ink in this case. The real scenario
will now appear and we will see the results for our self
tomorrow. So far the armies of lawyers remain unemployed
and there have been no real problems reported in the news.
Heavy voter turnout and the race is still a dead heat. 

Back in the economic world the Chain Store Sales fell
once again at -0.3% for the third consecutive week of
drops. Halloween traffic was reportedly strong but it
could not push the numbers back into positive territory.

The Challenger Layoff report showed a loss of more than
100,000 jobs for the second consecutive month. Cuts had
averaged -71,000 for the preceding seven months. When
you realize that we are in the fourth quarter where
jobs normally increase this is not a good sign. Long
term the Oct-2004 numbers at 101,840 was -40% below
the layoffs in Oct-2003 so the trend is still down in
the longer view but up in the short term. Is this a
leading edge of a problem or just a blip? In the first
ten months of 2004 826,160 layoffs had been announced.
This compares to 1,043,954 for the first ten months of
2003. The October Jobs report is due out Friday and it
will be less critical now than before the election. 
The estimate is currently +160,000 jobs. 

The Risk of Recession report continued its climb with
a 27.4% reading. The low for this cycle was only a 3.2%
risk as of Nov-2003 and we have seen a strong rise in
recent months to the high of 28.3% in August. A fall 
in consumer confidence could be to blame as is the
rise in oil prices. The drop in the market in October
also contributed to some of the increased risk. 

Two brokers came out today with lowered expectations 
for the PC sector in the 4Q. Bear Stearns lowered their
Q4 estimates slightly to only +13% growth from the prior
+14% growth. The analyst said rising energy prices
was depressing the consumer market. Merrill said the
inventory levels were increasing in expectation for
holiday sales but as of yet those sales were mediocre.
The analyst said the battle for retail shelf space 
continued to be brutal but Gateway with its eMachines
product had taken about 10% share away from H-P and
Compaq since April. According to Merrill HPQ currently
held 48% of retail desktop shelf space. eMachines is
expected to flood the market over the holidays in an
effort to capture share at lower price points. Tough
business for HPQ trying to hold their high end tactics
while the consumer is pressured for buying power. 

For those not avid watchers of the chip space you might
be surprised to look at an AMD chart. The company has
come back from a rumored demise in August at $11 to
very close to a new 52-week high at $18. Suddenly you
can find AMD chips in places you would not expect and
Intel is cutting back on new projects on almost a task
a week rate. 

Unfortunately the chip outlook is still weak. Chip
makers at the Reuters Semiconductor Summit in San 
Fran this week were still hopeful but the cloud is 
still descending. Without a robust holiday cycle the
outlook consensus was grim for inventory reductions in
time for a 2005 rebuild. The Semiconductor Assn will
update their forecasts on Wednesday and expectations
are for a drop in their outlook. The EVP for Cypress
Semi said the industry was about to pay the price in
coming months for overbuilding production capacity. 
He said there was currently 20% overcapacity compared
to 50% in 2000. Currently the association does not 
expect growth to return until 2007. NSM warned on 
Monday that sales were going to fall between 18-19% 
for Q4 compared to prior estimates of a drop of -10%.
The SOX ignored all the bad news and neared 420 today
and a three month high before the end of day selling
appeared.

A sector on a permanent high was oil but even that
bull run failed to gain traction today. With oil data
due out at 10:30 on Wednesday and pipeline explosions
in Iraq you would have expected oil to rise again. It
went the opposite direction with a close at $49.20 and
well below the $55.65 high from last week. There were
various reasons given but I expect it was due more to
rising stock prices and the end of the election cycle
that sent the prices lower. There was no terrorist
event as was predicted to send prices higher into the
election and penalize Bush. Also, with the election
over and a post election rally expected many funds
were probably dumping oil bets to raise cash to chase
the post election equity market. The morning bounce in
stocks only increased the expectations for the post 
election bounce. The afternoon drop probably shocked 
some of these funds enough to keep them on the sidelines
until a victor has been named. One interesting side note
the Euro spiked higher when Kerry was said to be ahead. 
That should tell you that a Kerry administration would
be more friendly to Europe and let bygones be bygones.
The dollar also fell compared to the Yen on the news.

The Dow had traded to a three week high at 10132 early
in the day and then faded into the early afternoon. 
The Dow bounce failed at the 100dma at 10134. That
10134 level was decent resistance with 10250 much
stronger and not that far overhead. The drop back to
10000 at the close put us right back at support for
the last week and a logical place to wait. Should we
actually get a post election rally that 10250 level 
will be a key level to watch to determine if the rally
has legs. A failure there could restart the entire 
down trend discussion. That 10250 level is the down
trend resistance from early in the year. Should the
market not like the election returns then 9900 is the
key level on the downside. A break there again could
cancel any November rally and return us to the worry
about the market predicting another recession. 

The Nasdaq hit strong resistance at 2000 and has already
broken above its February down trend at 1965. The Nasdaq
was on track to challenge the next resistance level at
2050 should a post election rally breakout but the news
drop took nearly -20 points off the optimism. The 1965-
1985 level is strong support that was built over the
last week. As long as those levels hold on any negative
election news then the overall market should remain 
sound. The SOX holding above 400 and the Russell over
580 should continue to provide support for the Nasdaq
base.

Russell Chart

 
SOX Chart

 

Tomorrows economic reports including the ISM Services,
Factory Orders, Mortgage Applications and Oil Inventory
should not matter to the market. It is all about the
election now and the bets that funds have already placed
and are ready to place tomorrow. The stage is set and
the investment community is waiting for the play to
begin. All the posturing, mudslinging, predicting and
threatening will all be behind us and real life will
begin again. According to the latest reports there are
no events that should keep us from having a winner
declared tonight but then until the votes are counted
nothing is guaranteed. 

I am not going to take any more of your time today
because what I say or any market analyst says tonight
has no bearing on our direction tomorrow. Trade the
trend tomorrow and keep your stops loose as the 
volatility could be very high. Buy any dips to the
levels I mentioned above and hope the post election
rally fable comes true. 

Enter Passively, Exit Aggressively. 

Jim Brown
Editor


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

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


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

More of the same, a change, a big change

Traders and investors got a slight taste of what the financial 
markets might be thinking should the United States of America 
elect a new president.

While stocks held gains through the bulk of today's session, a 
late round of selling left the major indices mixed as early exit 
polls had Senator John F. Kerry holding slight edge over 
incumbent George W. Bush in key battleground states of Ohio and 
Florida.

S&P 500 Index (SPX.X) Chart - 30-minute intervals

 

A market watcher would have been predicting a Bush win earlier 
this morning (certainty, MARKET knows policies).  I'll admit that 
I was a bit surprised the markets showed the strength that they 
did on this Election Day, as market participants usually avoid 
making too many buy/sell decisions as the world's largest economy 
votes for who will hold the office of president.

You watch.  Tonight's election is probably going to be a close as 
the S&P 500's fractional 1/2-point gain.

One political watcher said the election was so close that we 
could actually see a tie in the electorate, whereby George W. 
Bush would most likely retain his office, but the Democrat's Vice 
President candidate, John Edwards, could replace Dick Cheney as 
Vice President.  Can you imagine the gridlock of that ticket?

Did you know:  In the event no one obtains an absolute majority 
of electoral votes for president, the U.S. House of 
Representatives (as the chamber closest to the people) selects 
the president from among the top three contenders with each State 
casting only one vote and an absolute majority of the States 
being required to elect.  Similarly, if no one obtains an 
absolute majority for vice president, then the U.S. Senate makes 
the selection from among the top two contenders for that office. 

Presently, the Electoral College has 538 electors.  There are 535 
for the total number of senators and representatives plus three 
for Washington, D.C.  Today, a candidate must receive 270 
electoral votes to win.

While some economists believe the president doesn't have that 
much influence on an economy, at least near-term, it all comes 
down to some type of "certainty."

Market Snapshot / Internals - 11/02/04 Close

 

Maybe it was a thought I had in the 01:00 PM Intra-day update 
that when all the votes are counted by tomorrow, and the outcome 
of this year's election is known, that just 51% of voters are 
actually going to be happy tomorrow that had the major indices 
retreating to the close.  

Market Volatility Index (VIX.X) - 30-minute Intervals

 

I placed my bar chart cursor on the 30-minute interval beginning 
at 02:45 PM EDT and we can see the "pop" in the VIX.X.  At 
tonight's close I look at the top 5 most active options (Volume : 
Open Interest) and average price of today's O/H/L/C.

My analysis is that there was a buyer earlier in the day of the 
Nov 1,175 calls, but it looks like a volume spike from the 
morning (4,910) was matched from 01:00-01:30 (5,017) for a gain 
of almost 100%.  At this time, the SPX was trading 1,140.

Now, the Nov 1,150 C, is a little more interesting and may have 
been a directional play lower, IF viewed from a WINNING trade 
perspective at tonight's close.  From 01:00-01:30 2,445 contracts 
creates an uneven volume spike and traded at roughly $9.00.  I 
don't really see a short-term following spike of volume and my 
analysis would be a "naked call seller" saying the SPX wasn't 
going to trade 1,150 + $9.00 = 1,159 before November expiration.

Now, note the prior two options traded some activity between 
01:00-01:30 and no real time tie to today's VIX.X action.

The Nov. 1,100 Puts becomes a little more interesting.  Three 
"spikes" of volume intra-day, all three just over 1,200 
contracts.  That's some cash when average price of these three 
trades does look to be 1,100.  The last volume spike come from 
02:00-02:30.  This gets "closer" to the 02:45 VIX.X move.  My 
analysis is that this was a seller.  If I'm wrong and this was a 
directional play then I'd place some focus at Support #2.  The 
reason I think this was a put seller is that the first volume 
spike came early in the session, at/near the contract's high 
price.  The last volume spike came late in the day 02:00-02:30 
at/near contract low price.  My analysis of this being a put 
seller could be incorrect, if this were an institution buying 
these puts as a hedge, to hedge against bullish positions 
accumulated during the day, perhaps on thought of a "Bush 
victory."  

The Nov 1,120 puts don't really have much of a time match with 
02:45 PM EDT.  At 03:15 PM EDT there was a pretty decent spike of 
just more than 1,000 contracts at $9.50.  If I take $10 either 
side of 1,120 I can come up with a range of 1,110-1,130.  The 
1,130 is today's close, while 1,110 has the SPX down at that 
little "sliver of support" found from the WEEKLY/MONTHLY pivot 
retracement.  When I update the Pivot Matrix, we might look for 
1,110 there too.

The Nov 1,025 puts look to be a large speculator closing out 
prior to 12:00 PM EDT.  If this analysis is correct, the Open 
Interest should fall on this contract tomorrow.

The most "peculiar" trade that I see in today's option chain 
wasn't the most active, but the Nov. 1,130 puts (SPT-WF) did 
trade 6,925, which looks heavy considering open interest is just 
7,414.  I look for things that seem peculiar.  The biggest volume 
spike comes at 10:55 (1,614 contracts) at $18.68.  This isn't a 
"piker" type of trade.  That's some cash.  Then some smaller 
volume spikes of 600 and 770 contracts just after 03:00 at about 
$13.00.  Today's average price range was $13.62 and if I take 
$14.00 either side of the 1,130 strike I come up with a range of 
1,116 to 1,154.  OK... 1,116 is pretty darned close to the WEEKLY 
Pivot.  That's got to be a key level tomorrow.  

Pivot Analysis Matrix - 

 

In PINK I've marked the SPX Daily Pivot.  I see that as 
"overlapping" early resistance with the MONTHLY 38.2% retracement 
at 1,132.84.  The reason I'd watch that is if Kerry were to win 
tonight's election, bulls might want to see if that level gets 
cleared first, if futures are pointing to a higher open.

I'll note the benchmark 10-year yield ($TNX.X) gravitated right 
back to its MONTHLY Pivot of 40.77 by the close.  Treasuries 
really traded in a tight range and didn't seem to get as "carried 
away" with things as stocks did today.  

I still see the WEEKLY Pivot to MONTHLY Pivots as being the 
important near-term support.  I would have to think a break below 
those levels is going to be a restful pause of recent gains.

I've marked tomorrow's DAILY S2 with "Kerry" on thought that we 
could see trade to at least that level on a Kerry victory.  DAILY 
R2 is marked with "Bush" where stock market participants would 
breath a sigh of relief.

Jeff Bailey

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

And The Winner Is...
- J. Brown

And the winner is...?  Hopefully the answer to that question is 
stocks but only if we get a clear winner.  About the only 
certainty we have in this dead-heat of an election is that 
everyone wants it to be over.  After listening all day to the 
news media I'm encouraged that there really wasn't any major 
voter scandal brewing.  No one wants a repeat of the 2000 
election.  

What can I say about investor sentiment tonight?  The markets 
were not expected to do much before the election and that's 
exactly what we've got at least with the major indices.  Everyone 
seems poised for a post-election rally.  Of course that could be 
a problem in and of itself.  Normally if everyone expects 
something to occur it doesn't.  You've probably heard it before.  
If everyone leans over the same side of the boat it just might 
tip over. 

The market internals mirrored the pre-election indecision.  One 
could say that advancing stocks and declining stocks were in a 
"statistical dead heat" today.  Up volume out paced down volume 
but only on the NASDAQ.  It may be noteworthy that the ARMS index 
or TRIN's short-term moving averages are in or nearing bearish 
territory.  

Cross your fingers and hope that there is a clear winner.  If not 
stocks are not expected to do well while both sides try and win 
the election in court.



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9497
Current     : 10035

Moving Averages:
(Simple)

 10-dma:  9927
 50-dma: 10107 
200-dma: 10252



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     : 1494

Moving Averages:
(Simple)

 10-dma: 1467
 50-dma: 1424
200-dma: 1438



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

CBOE Market Volatility Index (VIX) = 16.18 -0.09
CBOE Mkt Volatility old VIX  (VXO) = 16.85 +0.54
Nasdaq Volatility Index (VXN)      = 22.97 +0.36 


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.77        880,089       673,404
Equity Only    0.55        723,572       398,622
OEX            1.42         31,369        44,520
QQQ            0.53         47,083        24,789


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

Bullish Percent Data

           Current   Change   Status
NYSE          65.0    + 1     Bear Correction
NASDAQ-100    53.0    + 1     Bull Alert      
Dow Indust.   50.0    - 0     Bear Confirmed
S&P 500       63.6    + 1.6   Bear Correction
S&P 100       61.0    + 1     Bear Correction


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

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


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

 5-dma: 0.80
10-dma: 0.90
21-dma: 1.03
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    1459      1517
Decliners    1368      1530

New Highs     150        97
New Lows       16        36

Up Volume   1017M     1191M
Down Vol.    988M      629M

Total Vol.  2052M     1836M
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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**********
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**********

Please read our disclaimer at:
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The Option Investor Newsletter                  Tuesday 11-02-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: None
Dropped Puts: None
Call Play Updates: DHR, FDX, GS, IBM, ITT, ITW, LEH, SBUX
New Calls Plays: See note
Put Play Updates: APOL
New Put Plays: None


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

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


CALLS:
*****

None


PUTS:
*****

None


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

Danaher - DHR - close: 55.32 change: -0.01 stop: 51.99

As expected the first two days of this week didn't see much 
progress either way.  DHR tried to rally on Tuesday morning but 
faded into the afternoon just as the Dow faded into the close.  
DHR presented at the Goldman Sachs global capital goods 
conference today but whatever was said there wasn't enough to 
produce any sort of move in the stock.  We remain bullish but 
direction tomorrow depends on the election.  Traders can still 
watch for a bounce from the $53-54 level assuming there is any 
sort of dip. No change in our stop loss at $51.99.  

Picked on October 27 at $54.99
Change since picked:    + 0.33
Earnings Date         10/21/04 (confirmed)
Average Daily Volume =     1.3 million 
Chart =


---

Fedex Corp - FDX - close: 90.97 change: +0.27 stop: 84.99

The Dow Jones Transportation index fell 1.5 percent on Tuesday 
despite a 2 percent drop in crude oil.  Shares of FDX witnessed a 
little bit of selling early in the session but managed a decent 
rebound off the lows.  The company also announced it was upping 
its transatlantic capacity by 20 percent, which should be seen by 
the markets as positive guidance for future growth.  No change in 
strategy but direction now depends on the election. 

Picked on October 21 at $89.45 
Change since picked:    + 1.52
Earnings Date         09/22/04 (confirmed)
Average Daily Volume =     1.5 million 
Chart =


---

Goldman Sachs - GS - close: 98.55 change: +0.23 stop: 93.00     

The XBD broker-dealer index turned in another strong day despite 
news that Merrill Lynch cut its earnings forecasts on fellow 
brokers Morgan Stanley (MWD) and Bear Stearns (BSC).  Shares of 
GS managed an early morning rally but struggled to break through 
round-number, psychological resistance at $100.  GS faded into 
the afternoon just as the Dow turned lower.  We remain bullish 
but if GS produces a dip traders can watch for a bounce in the 
$97-96 region.

Picked on October 27 at $96.10
Change since picked:    + 2.45
Earnings Date         09/21/04 (confirmed)
Average Daily Volume =     3.2 million 
Chart =


---


Intl Business Mach. - IBM - close: 90.47 chg: +0.36 stop: 86.00

The GHA hardware index posted its sixth gain in a row to hit new 
2 1/2 year highs.  IBM joined the group with a gain but like many 
blue chips IBM faded into the afternoon as investors turned to 
wait out the election results.  We're certainly encouraged by the 
move higher and another close over the $90 level but everything 
depends on the election results. Cross your fingers for a clear 
winner.

Picked on October 27 at $90.00
Change since picked:    + 0.47
Earnings Date         10/18/04 (confirmed)
Average Daily Volume =     4.7 million 
Chart =


---

ITT Industries - ITT - close: 80.10 chg: -0.69 stop: 77.50

There's a good reason we used a trigger on ITT.  The stock has 
been flirting with a breakout over the $81 level but it hasn't 
been able to drum up enough momentum to breakout over the $81.50 
mark.  Our entry point to go long is at $81.51 but shares hit 
$81.46 on Monday and $81.45 today.  Aggressive traders may want 
to consider a bounce from $80 or $79 but we're going to wait for 
the breakout.  Strong volume on today's failed rally is not a 
good sign, which gives us another reason to wait until our 
trigger is hit.

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 =


---

Illinois Tool Works - ITW - close: 91.00 chg: -0.69 stop: 87.50

This week has brought a little bit of profit taking to shares of 
ITW.  The drop under $92.00-91.50 may be disappointing but 
nothing goes up in a straight line.  Traders can use a bounce 
from the $90.00 level as a new entry point for bullish positions.  
If ITW trades under $89.00 we're going to get concerned. 

Picked on October 27 at $90.89
Change since picked:    + 0.11
Earnings Date         10/19/04 (confirmed)
Average Daily Volume =     1.2 million 
Chart =


---

Lehman Brothers - LEH - close: 82.87 chg: +1.43 stop: 77.95*new*

Lehman Brothers continues to help lead the XBD broker-dealer 
index higher.  As noted above in the GS update the XBD index 
posted another decent gain.  LEH out performed most of its peers 
with a 1.75 percent rally today.  The next hurdle is minor 
resistance at $83.25.  Our short-term target is still $85.00 but 
we suspect LEH can trade higher. We are going to raise the stop 
loss to $77.95 near the simple 200-dma and under the simple 50-
dma.

Picked on October 26 at $80.60 
Change since picked:    + 2.27
Earnings Date         09/21/04 (confirmed)
Average Daily Volume =     2.0 million 
Chart =



---

Starbucks - SBUX - close: 52.98 chg: -0.32 stop: 47.95      

So close!  SBUX has been flirting with a move toward our profit 
range in the $54-55 region but has not been able to cover that 
last 50 cents.  On Tuesday shares of SBUX traded in a relatively 
narrow 60-cent range as investors sat on the sidelines awaiting 
the election results.  Like everything else in this market 
direction for SBUX will be determined by Wall Street's reaction 
to any Presidential winner or lack thereof.  Conservative traders 
may want to raise their stops if you're feeling cautious.

Picked on October 17 at $49.47 
Change since picked:    + 3.51
Earnings Date         11/10/04 (confirmed)
Average Daily Volume =     3.3 million 
Chart =



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

Note from the Plays Editor!

Tonight is a significant turning point in our country 
and it could be a significant one in the markets.  Given
the uncertain outcome of who will win the Presidential
election and how stocks will react we elected to pass on 
adding any new plays until we had a clearer picture of a
winner or lack thereof.


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reveals his most recently disclosed, ACTUAL stock picks, Click HERE!


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


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

Apollo Group - APOL - close: 64.27 chg: -0.11 stop: 70.01*new*

APOL doesn't disappoint.  The stock traded lower on Monday 
breaking under meager support at $66 and round-number support at 
$65.00.  The stock tried to bounce on Tuesday but failed at the 
$66 level.  We are encouraged and continue to target the $60 
region but bears do have an immediate risk.  That risk is that if 
the market rallies tomorrow on any post-election excitement 
shares of APOL may be lifted with the tide.  Of course if there 
is no clear winner then stocks should fall and APOL could help 
lead the way down.  We are going to lower our stop loss to $70.01 
because we are willing to patiently let APOL work its way lower 
over the next several weeks.  More conservative traders may want 
to tighten their stops. 

Picked on October 10 at $69.81
Change since picked:    - 5.54
Earnings Date         10/05/04 (confirmed)
Average Daily Volume =     3.3 million 
Chart =


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

None

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


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

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


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support




The Option Investor Newsletter                  Tuesday 11-02-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Auctions to Auto Parts and more!
Spreads & Straddles: "Super Tuesday" Rally Fades At The Close...
Premium Selling Plays: Naked Puts & Calls


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

Auctions to Auto Parts and more!

___________________________________________________________________

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


eBay Inc. - EBAY - close: 100.66 change: +1.38

WHAT TO WATCH: Love it or hate it you can't deny the strength in 
shares of EBAY.  The stock broke through the $100 level again 
today and looks poised to break through minor resistance at $102 
to hit new all-time highs.  Depending on how stocks react to the 
election news traders may want to consider bullish positions over 
$102.  The bullish P&F chart points to a $125 target.

Chart=


---

AutoZone Inc - AZO - close: 81.80 change: -0.06

WHAT TO WATCH: The rebound in AZO has hit a wall.  The stock has 
spent the last five sessions struggling to breakout over its 
simple 200-dma.  It is probably not a coincidence that this level 
also happens to be resistance on AZO's P&F chart.  Readers can 
watch for a dip back to $78-79 and consider buying a bounce or 
watch for a momentum entry on a move past $82.50.   The bullish 
P&F chart does point to a $99 target. 

Chart=


---

Zebra Technologies - ZBRA - close: 53.84 change: +0.89

WHAT TO WATCH: Last week shares of ZBRA broke through major 
support as investors reacted to its earnings report.  The major 
support broken was its simple 100-dma.  This was technical 
support that had held up for over a year.  Now ZBRA has also 
fallen through round-number support at $55.  Fortunately for 
shareholders ZBRA is trying to hold support near $52.50 and its 
simple and exponential 200-dma.  Whether Tuesday's bounce is an 
oversold bounce or the beginning of a rebound is the question.  
We suspect that given ZBRA's huge run over the last two years the 
stock could be in for more profit taking.  Aggressive traders may 
want to consider shorts on a failed rally under $57.00.  
Otherwise we can watch for a momentum entry on a breakdown under 
$52.00 or $50.00.

Chart=


---

Novastar Financial Inc - NFI - close: 45.05 change: +0.80

WHAT TO WATCH: We still believe that NFI looks like a bullish 
candidate.  Share continue to rebound from their recent double-
bottom near $40.00 and now shares have cleared technical 
resistance at the simple 200-dma.  NFI has also cleared minor 
resistance in the $44-45 level.  The stock looks poised to climb 
back toward the $50 range.  If a dip occurs look for a bounce 
from $44.00.

Chart=



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

APA $49.46 -1.52 - Oil stocks continued to slip today and APA has 
seen selling with heavy volume.  The breakdown under $50 today 
looks ominous.  Watch for support near $47.50 or a full pull back 
toward the 200-dma. 

LTR $61.53 +1.57 - LTR looks very strong with today's 2.6 percent 
breakout over resistance at $60.00.

HAR $125.70 +5.55 - HAR continues to soar.  Nothing goes up in a 
straight line unless its HAR from mid-August to early October but 
this time the stock is extremely overbought.

AVP $37.64 -0.46 - AVP continues to sink after last week's 
breakdown.

CME $179.80 +4.00 - CME flirted with the $180 level today.  We 
expected a stock split sooner or later.


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

"Super Tuesday" Rally Fades At The Close...
By Ray Cummins

The major equity averages ended mixed after an early buying spree
that saw index values rise to 4-month highs.  The market pulled
back amid early exit-poll data, which suggested that Senator John
Kerry was "competitive in key states" with the senator holding a
small lead in Florida and Ohio.  The Dow Jones Industrial Average
finished down 18 points at 10,035, reversing sharp gains earlier
in the session.  The NASDAQ Composite Index held on to a 4 point
advance, closing at 1,984 after reaching the 2,000 mark for the
first time since July.  The S&P 500 Index ended nearly unchanged
at 1,130 with oil & gas equipment, aluminum, gold, and utilities
among the worst performing sectors.  Volume on the NYSE was 1.67
billion and NASDAQ volume was 1.84 billion.  Winners edged past
losers 6 to 5 on the Big Board while breadth was roughly neutral
on the technology exchange.  Treasury prices were slightly higher.
The benchmark 10-year note closed up 2/32 with its yield at 4.06%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/31/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

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

EBAY - eBay  $100.66  *** Another All-Time High! ***

eBay (NASDAQ:EBAY) is a web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

EBAY - eBay  $100.66

PLAY (less conservative - bullish/credit spread):

BUY  PUT  NOV-90.00  XBA-WR  OI=1130  ASK=$0.45
SELL PUT  NOV-95.00  XBA-WS  OI=717   BID=$1.00
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$94.40


__________________________________________________________________

CTX - Centex  $53.55  *** Rally Mode! ***

Centex Corporation (NYSE:CTX) is a multi-industry company with
operates in six principal business segments.  Conventional Homes
operations involve the construction and sale of single-family
homes, town homes and low-rise condominiums, and the purchase and
development of land.  Investment Real Estate operations involve
the acquisition, development and sale of land, and the development
of industrial, office, retail and mixed-use projects.  Financial
Services operations involve the financing of homes, home equity
and sub-prime lending, and the marketing of insurance coverage.
Construction Products involves cement production and distribution,
and the production, distribution and sale of gypsum wallboard,
concrete, aggregates and recycled paperboard.  Contracting and
Construction Services involves the construction of buildings.
Centex HomeTeam Services is involved in pest and termite control,
lawn and landscape care, electronic security, alarm monitoring
and home-wiring services.

CTX - Centex  $53.55

PLAY (conservative - bullish/credit spread):

BUY  PUT  NOV-45.00  CTX-WI  OI=3338  ASK=$0.25
SELL PUT  NOV-50.00  CTX-WJ  OI=8595  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$49.50



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

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.

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

SEPR - Sepracor  $45.44  *** In A Trading Range? ***

Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical firm
dedicated to treating and preventing human disease through the
discovery, development and commercialization of pharmaceutical
products that are directed toward serving unmet medical needs.
The company's drug development program has yielded an extensive
portfolio of pharmaceutical compounds including candidates for
the treatment of respiratory and nervous system disorders.
Sepracor selects for development compounds with the potential
to offer improvements over existing therapies with respect to
efficacy, side-effect profile, dosage forms, or, in some cases,
the opportunity for additional indications.

SEPR - Sepracor  $45.44

PLAY (speculative - bearish/credit spread):

BUY  CALL  DEC-55.00  ERU-LK  OI=613   ASK=$0.50
SELL CALL  DEC-50.00  ERU-LJ  OI=1114  BID=$1.40
INITIAL NET-CREDIT TARGET=$1.00-$1.10
POTENTIAL PROFIT(max)=25% B/E=$51.00


__________________________________________________________________

TTWO - Take-Two Int. Software  $33.24  *** Premium-Selling! ***

Take-Two Interactive Software (NASDAQ:TTWO) is an integrated
developer, marketer, distributor and publisher of interactive
entertainment software games and accessories for the personal
computer, PlayStation, PlayStation2, Nintendo Game Boy Color,
Nintendo GameCube, Nintendo Game Boy Advance and the Xbox.  The
company publishes and develops products through various wholly
owned subsidiaries including Rockstar Games, Rockstar Studios,
Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star
and under the Take-Two brand name.  The company maintains sales
and marketing offices in Cincinnati, New York, Toronto, London,
Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland.

TTWO - Take-Two Int. Software  $33.24

PLAY (conservative - bearish/credit spread):

BUY  CALL  DEC-40.00  TUO-LH  OI=679   ASK=$0.45
SELL CALL  DEC-37.50  TUO-LU  OI=5039  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$37.80



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

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

No straddles or strangles today...

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

SEE DISCLAIMER - SECTION 1

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


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

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 10/31/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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%
 
Special Tuesday Note: Palomar Medical Technologies (NASDAQ:PMTI)
became an early-exit victim after a post-earnings slump.  The
CEO said he was proud of the company's "strong quarter with a
substantial increase in revenues and profitability," however
the news was not positive enough to prevent a sell-off in PMTI
shares.


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

LNG    25.83  NOV 22.50  LNG-WX 0.35  226 22.15  18   2.7%   8.0%
MRVL   28.82  NOV 25.00  UVM-ME 0.35 8600 24.65  18   2.4%   7.3%
ANF    39.11  NOV 35.00  ANF-WG 0.45 1142 34.55  18   2.2%   6.3%
SFNT   32.09  NOV 30.00  UUI-WF 0.40  253 29.60  18   2.3%   6.1%
ELN    26.11  NOV 22.50  ELN-WX 0.25 6256 22.25  18   1.9%   6.0%
SHPGY  29.03  NOV 27.50  UGH-WY 0.35  415 27.15  18   2.2%   5.7%
XMSR   33.13  NOV 30.00  QSY-WF 0.35 8378 29.65  18   2.0%   5.6%
YHOO   37.74  NOV 35.00  YHQ-WG 0.40 16K+ 34.60  18   2.0%   5.3%

Abbreviations:

LB-Last Bid price, OI-Open Interest, CB-Cost Basis (or break-even
point), DE-Days to Expiry, SY-Simple Yield (monthly basis without
margin), MY-Maximum Yield (monthly basis with margin), TS-Target
Shoot.
_________________________________________________________________

LNG - Cheniere Energy  $25.83  *** Natural Gas Demand Soars! ***

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  $25.83

NOV 22.50 LNG-WX LB=0.35 OI=226 CB=22.15 DE=18 TY=2.7% MY=8.0%


_________________________________________________________________

MRVL - Marvell Technology  $28.82  *** Earnings Speculation! ***

Marvell (NASDAQ:MRVL) designs, develops and markets integrated
circuits utilizing proprietary communications mixed-signal and
digital signal processing technology for communications-related
markets.  Marvell offers its customers a wide range of integrated
circuit solutions using proprietary communications mixed-signal
processing and digital signal processing technologies.  Marvell's
product groups include: storage products, consisting of a variety
of read channel, system-on-chip and preamplifier products; and 
broadband communications products, consisting of a variety of
transceiver products, switching products, internetworking
products and wireless LAN products.  Earnings are due 11/18/04.

MRVL - Marvell Technology  $28.82

NOV 25.00 UVM-ME LB=0.35 OI=8600 CB=24.65 DE=18 TY=2.4% MY=7.3%


_________________________________________________________________

ANF - Abercrombie & Fitch  $39.11  *** Testing 2004 Highs! ***

Abercrombie & Fitch Company (NYSE:ANF), through its subsidiaries
as specialty retailers, operates stores selling casual apparel,
personal care and other accessories for men, women and kids under
the Abercrombie & Fitch, Abercrombie and Hollister Co. brands.
A&F's stores and point-of-sale marketing are designed to convey
the principal elements and personality of each brand.  The store
design, furniture, fixtures and music are carefully planned and
coordinated to create a shopping experience that is consistent
with the A&F lifestyle.

ANF - Abercrombie & Fitch  $39.11

NOV 35.00 ANF-WG LB=0.45 OI=1142 CB=34.55 DE=18 TY=2.2% MY=6.3%


_________________________________________________________________

SFNT - SafeNet  $32.09  *** Recovery Underway! ***

SafeNet (NASDAQ:SFNT) designs, manufactures and markets network
security technology and systems.  The firm operates through two
security business units, the Embedded Security division and the
Enterprise Security division.  The Embedded Security division is
comprised of hardware, chips, software and intellectual property
designed and manufactured in the United States and Europe for
sale to companies that will embed SafeNet's products into their
products for ultimate sale to end users.  The Enterprise Security
division includes hardware, software and network security systems
designed and manufactured in the United States for direct sales
to end users.

SFNT - SafeNet  $32.09

NOV 30.00 UUI-WF LB=0.40 OI=253 CB=29.60 DE=18 TY=2.3% MY=6.1%


_________________________________________________________________

ELN - Elan Corporation  $26.11  *** Premium-Selling Only! ***

Elan Corporation (NYSE:ELN) is an integrated biopharmaceutical
firm engaged in research and development in Alzheimer's disease,
Parkinson's disease, multiple sclerosis, pain management and
autoimmune diseases.  The company's objective is to discover and
develop products that will fulfill the unmet medical needs of
patients.  Elan conducts its global business, including research,
development, manufacturing and marketing, through subsidiaries
incorporated in Ireland, the United States, the United Kingdom
and other countries.

ELN - Elan Corporation  $26.11

NOV 22.50 ELN-WX LB=0.25 OI=6256 CB=22.25 DE=18 TY=1.9% MY=6.0%


_________________________________________________________________

SHPGY - Shire Pharmaceuticals  $29.03  *** Entry Point? ***

Shire Pharmaceuticals (NASDAQ:SHPGY) is a global pharmaceutical
company with a strategic focus on meeting the needs of the
specialist physician.  The company has a particular interest in
therapies that are prescribed by specialist doctors as opposed
to primary care physicians.  Shire is currently focusing on the
development of late stage projects and marketing products in the
areas of central nervous system, gastrointestinal and renal.

SHPGY - Shire Pharmaceuticals  $29.03

NOV 27.50 UGH-WY LB=0.35 OI=415 CB=27.15 DE=18 TY=2.2% MY=5.7%


_________________________________________________________________

XMSR - XM Satellite Radio  $33.13  *** New 2004 High! ***

XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio
service with over 1 million subscribers.  Broadcasting live daily
from Washington, DC, New York City and Nashville, Tennessee at the
Country Music Hall of Fame, XM provides its loyal listeners with
over 100 digital channels of choice: 70 music channels, more than
35 of them commercial-free, from hip hop to opera, classical to
country, bluegrass to blues; and 31 channels of premiere sports,
talk, comedy, kid's and entertainment programming.  Compact and
stylish XM satellite radio receivers for the home, the car, the
computer and even a "boom-box" for on the go are available from
retailers nationwide.

XMSR - XM Satellite Radio  $33.13

NOV 30.00 QSY-WF LB=0.35 OI=8378 CB=29.65 DE=18 TY=2.0% MY=5.6%


_________________________________________________________________

YHOO - Yahoo!  $37.74  *** Internet Shares Surge! ***

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

YHOO - Yahoo!  $37.74

NOV 35.00 YHQ-WG LB=0.40 OI=16880 CB=34.60 DE=18 TY=2.0% MY=5.3%



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

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.

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

DISH - EchoStar  $30.59  *** The Downtrend Resumes! ***

EchoStar Communications (NASDAQ:DISH) operates through two major
business units, the DISH Network and EchoStar Technologies.  The
DISH Network offers a direct broadcast satellite subscription TV
service across the United States with millions of DISH Network
subscribers.  EchoStar Technologies Corporation is engaged in the
design, development, distribution and sale of DBS set-top boxes,
antennae and other digital equipment for the DISH Network and the
design, development and distribution of similar equipment for a
range of international satellite service providers.

DISH - EchoStar  $30.59

PLAY (sell naked call):

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

SELL CALL  NOV 32.5  UAB-KZ    2571   0.40  32.90   6.3%   1.2%


_________________________________________________________________

DITC - Ditech Communications  $21.26  *** Sell-Off Underway! ***

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

DITC - Ditech Communications  $21.26

PLAY (sell naked call):

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

SELL CALL  NOV 25    QZD-KE    968    0.25  25.25   8.2%   1.0%


_________________________________________________________________

LSS - Lone Star Technologies  $24.95  *** Sector Slump! ***

Lone Star Technologies (NYSE:LSS) is a management and holding
company with six principal operating subsidiaries: Lone Star
Steel Company, Fintube Technologies, Bellville Tube Company,
Wheeling Machine Products, Delta Tubular Processing, and Delta
Tubular International.  All of these subsidiaries contribute
to the company's products and services in the oil and gas
equipment and well-drilling industry.

LSS - Lone Star Technologies  $24.95

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    LSS-KF    598    0.20  30.20   6.5%   0.7%



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

SEE DISCLAIMER - SECTION 1

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


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