The last edition of the Sterling Weekly was February 2nd, and when I wrote it, I did not realize it would be three (3) weeks before I would get a chance to write the next newsletter. That delay has created some interesting items to deal with. When writing the various newsletters I have over the years I have always maintained that my number 1 priority was to the readers of the newsletter and the information that they have access to. This is especially relevant to the strategy discussed concerning the February Puts on General Electric 'GE'.

In the February 2nd edition of the Sterling Weekly, I discussed selling the February $25.00 Puts. While I did not actually get the chance to actually execute the trade in one of my accounts, I did keep track of the prices for the proverbial "Paper Trade". Early Monday morning, February 3rd, the GE February 25 Puts were quoted $1.80 bid, and I considered this to be the entry or sales price on these Puts.

While I did not get the hoped for rally in the market that I would have liked that allowed for a quick buy back and profit. I had chosen this strategy with that possibility in mind. Early on as the market moved lower, the value of the Puts increased, not what I wanted, and limited our options (no pun intended).

With a few days left before their expiration I was talking to a friend of mine who I used to work with as a stock broker and we were discussing the GE Put strategy I had written about. At the end of the conversation I stated that with the current market, if I had a chance to buy back the Puts at a decent profit, I would and then look to sell the March contract after the February expiration. But alas, even though I discussed that in the January 26th edition of the Sterling weekly, I did not get a chance to write it up before options expiration, so I'll skip the "paper trade" on the buy back and treat our future strategy as if the stock was "put" to us at $25.00/share. This is where I really regret being tied up on a consulting project and not getting the chance to write the Sterling Weekly the last few weeks and put my opinions on record.

The GE February 25 Puts closed at $1.10 bid by $1.20 offer. If we would have bought them back, then our profit would have been $0.60/contract, or $600 minus commissions on a 10 contract position covering 1,000 shares of GE. based upon the $25,000 cost of 1,000 shares of GE, a $600 profit from a $25,000 capital commitment would have been 2.4% in 30 days or annualized at approximately 28% per year. That equates to a $7,200 profit if we could do that every month.

Since we ended up keeping the GE February 25 Puts at expiration, we purchased GE Monday at $25.00 per share, but got to keep the $1.80/share that we sold the GE puts for on February 3rd. This reduced our cost on GE to $23.20/share. By the way, GE traded today between $23.42 and $24.20/share, providing plenty of opportunity to exit the position at a profit.

Since I think the overall market is headed lower, if I get the chance to sell GE above our cost basis of $23.20/share, I am going to take it. If I do not get this opportunity, then I will look to sell March $25.00 or $22.50 Calls on any rally. As of tonight, February 24th, the March $22.50 Calls closed at $1.30 bid by $1.35 offer. The March $25.00 Calls closed at $0.25 bid by $0.25 offer. I know, locked market (same bid & offer).

If I sell the March $25.000 Calls, then I will receive $0.25/share, reducing my cost basis in GE to $22.95/share. IF GE closes above $25.00/share on the expiration of the March contracts, then we will sell our GE at $25.00/share. This will net us a profit of $2.05/share. IF this happens, then we will have received a profit of 8.2% in approximately 60 days, for an approximate annual rate of 49.2%. On a hypothetical position of 1,000 shares that is $2,050 in 60 days, and annualized is a profit of $12,300.

If I sell the March $22.50 Calls, then I will receive $1.30/share, reducing my cost basis in GE to $21.90/share. IF GE closes above $22.50/share on the expiration of the March contracts, then we will sell our GE at $22.50/share. This will net us a profit of $0.60/share. IF this happens, then we will have received a profit of 2.6% in approximately 60 days, for an approximate annual rate of 16%. On a hypothetical position of 1,000 shares that is $600 in 60 days, and annualized is a profit of $3,600.

So the question now becomes where do I think GE will close in late March??? Will it close above $25.00/share? Will it close below $22.50/share? Or somewhere in between? OOPS! I forgot to cover that. IF GE closes below $22.50 at the expiration of the March contracts then we will most likely be selling the April $22.50 Calls. IF GE closes between $25.00 and $22.50/share then we will most likely sell the April 25 Calls. Back to my question on where GE will close at the expiration of the March contracts??? I'm not sure, it all really depends upon when we attack Iraq, and how it is going. Unless we delay the attack or if it goes badly, we should close above $22.50/share, but will it close above $25.00/share? I am not sure. So, if you're very risk adverse, then I would sell the March $22.50 Calls. If you are less worried above risk and more concerned about profits, then I would sell the March $25.00 Calls. However, since I believe the market will move lower in the near term, I would look to sell the March $22.50 Calls if I could receive better than $1.25/contract, and then buy them back for a profit if the market moves lower as expected.

The S&P 500 closed Monday at 832.58 down 15.59 points. In the process our indicators generated a "Sell Signal". I am expecting the S&P 500 to move lower and test 817.37, and then 803.92 on a closing basis.

Today's Opinion: Closed @ 832.58 Last Signal: Sell Signal on 2-24 with the close of 832.58 Current Expectations: Lower The index should test 817.37 and then 803.92 on a closing basis

Of the three (3) major market indices, the one I currently feel the most comfortable with, or I should say has the chart that shows the most points of support is the NASDAQ 100 (NDX). Now that is something I do not think I have ever written before, so please pay attention to that remark. This is probably from the fact that the NDX declined the quickest and most of any of the major market indices. In the process it has numerous short lived rallies and has developed a decent trading history at these levels. This does not mean I am expecting a major rally in the NDX anytime soon, but it does mean that I see the most points of support at these levels and believe that the NDX has the least amount of risk of a significant drop when compared to the other indices I track. However, our indicators turned lower with yesterday's close on the NDX, and I am expecting the NDX to move lower and test 984.36, and then 972.48 on a closing basis. If the NDX closes below 972.48 then our next downside target is 951.90 If the NDX is lower again today, our indicators will generate a "Sell Signal".

Current Opinion: Closed @ 994.69 Last Signal: Called lower on 2-24-03 @ 994.69 Current Expectation: The NDX should move Lower and test 984.36 and then 972.48