When Is Cheap Borrowing Not Really Cheap?

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joins the list of companies that are not benefiting from Alan Greenspan and the
Fed’s generosity, as the direct marketer of PCs saw its credit downgraded to
JUNK status by Standard and Poor’s. This of course means that in addition to
its challenge to restore profitability, Gateway is going to be paying more in
interest to attract wary lenders.

Another problem Theodore W. Waitt,
GTW’s CEO, has to address is the company’s lack of
diversity in
hardware offerings. Both Compaq
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and Dell Computer
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have far more
varied lines to fill the profit void that ruthless price-cutting has stripped
away. Presently, GTW shares are trading at a fresh 52-week low of $8.64 a share,
down 11 percent ($1.14).

Going the opposite direction are shares of Tenet
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. In fact, things are so good for the healthcare
services company that you may think you were smoking their stock symbol when you
look at the dizzying run the company has enjoyed!

Now this morning, fellow TradingMarkets.com commentator Goran
and I were looking for low-risk plays to position for a
correction in THC. One possibility that interested us was selling
the THC October 55 — 60 call spread
. Why? Well, if a trader thought THC
shares could see some profit-taking, or an outright correction, he could
potentially keep the entire credit collected (should THC fall beneath his short
55 call strike) and have only limited risk should THC continue on its merry way
upward, as he would have capped his exposure with the purchase of the THC October 60
calls. Done in a one-to-one spread fashion, the Oct 55s could be sold for $4.30
and then he’d pay $1.70 for his protective 60 calls. Thus, a potential profit of $2.60,
while only risking $2.40*

Be sure to watch Doctor J & the Traders
live tonight at 5:30 ET on www.webfn.com. The
show will be archived approximately two hours after the live version runs. Tonight’s
guests include: Goran Yordanoff, Larry Parkhill, Benji Schwatz and Greg Temel.

*All calculations DO NOT INCLUDE commissions or tax considerations. Options
involve risk and are not suitable for all investors. Prior to buying or selling
an option, a person must receive a copy of Characteristics
and Risks of Standardized Options
. Copies of this document are
available from www.ptisecurities.com
or the Chicago Board Options Exchange, 400 S. LaSalle Street, Chicago, IL 60605.