The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

Bullish on the Mini-Russell 2000

Example:CBOE lists options based on 1/10th the value of the Russell 2000 Index, or Mini-Russell 2000 Index Options (RMN). Representing 2,000 companies, Russell 2000 options are considered a benchmark of the U.S. small-capitalization market. In this example, RMN is at a level of 60.

Outlook:Small cap stocks have had a great run in the past few months, and you are bullish through mid 2005. You believe they are undervalued in comparison to the broader marketplace and expect a 12.5% increase in the first half of the year. You want to establish a bullish position at a reduced cost with limited risk, and are willing to give up upside past 12.5%.

Possible
Strategy:Call Spread.
Buy 10 RMN June 60 calls at 3.40.
Sell 10 RMN June 67.50 calls at 1.05.
Net cost of $2.35 each, or $2,350.

*All values shown are at the time of expiration.

Index Change	RMN @ exp.	Long 60 call value	Short 67.50 call value	Spread Value	Spread Cost	Net Profit/(Loss)
+ 16.67%	70	$10,000.00	$2,500.00	$7,500.00	($2,350.00)	$5,150.00
+ 12.50%	67.50****	$7,500.00	$0.00	$7,500.00	($2,350.00)	$5,150.00
+ 3.92%	62.35*	$2,350.00	$0.00	$2,350.00	($2,350.00)	$0.00
+/- 0.00%	60**/***	$0.00	$0.00	$0.00	($2,350.00)	($2,350.00)
-5.00%	57	$0.00	$0.00	$0.00	($2,350.00)	($2,350.00)

At Expiration (06/18/05)
* Break-even: RMN @ 62.35 (+3.92%)
** Unchanged: Loss of $2,350
*** Max Loss: $2,350 if RMN < or = 60 (+/- 0.00%)
**** Max Gain: $5,150.00 if RMN > or = 67.5 (+ 12.50%)

In Short: $2,350 initial investment has the possibility of returning a maximum of $5,150 profit if RMN has increased 12.5% or more at expiration. The maximum risk is equal to initial investment of $2,350. Note: RMN options are European Exercise, AM Settlement.