Dow Jones 10456.96 -72.52 2:29 pm PST, March 09, 2004  NASDAQ 1995.16 -13.62 For info, visit access.smallcapnetwork.com S & P 500 1140.58 -6.62 To be removed, please click here Russell 2000 585.95 -6.56 VOLUME 04: ISSUE 18  Feature: The Appeal of Martha Stewart Ok, I was wrong. Martha got nailed. So did the stock. But I have to think that her company (NYSE: MSO) has a contingency plan for various eventualities; whether Martha goes up the river or is simply hit by a bus. Interestingly, analysts have all but abandoned the shares. There are several scenarios: Martha could win on appeal, although doubtful. Only 10 percent of Federal convictions are overturned. She may get a suspended sentence and a fine--also doubtful in this age of corporate bloodlust. Stay at home with an ankle bracelet, as well as a fine and clean up the highway shoulders for a couple of hundred hours. Go to prison for a year or so as well as pay a fine. For the extreme investor, a purchase of MSO now would either be very brave or foolhardy--no in between. Technically, we previously advised that the shares looked like they would bottom at $8-$9 which is where they now find themselves. Granted, that was before Martha was convicted, but that level seems to be where the shares have settled. That said, someone is buying the shares here, otherwise it would be trading at its cash value of about $3 a share. A company with cash of $175 million and no debt; fundamentally MSO's balance sheet is very strong. For those who want a little more substance to their purchase decision, it would be prudent to wait and see the depth and moxie of MSO's plan. I suspect that management--and Martha--has played out Martha-less scenarios frequently. As the brand, Martha --and her team-- isn't stupid enough not to 'back up' the company in the case of the kind of disaster scenario in which it now finds itself. For those investors who played the trial nimbly, well done. The folks to whom you sold your shares--pre-verdict-- at $16-$17 have likely become long-term holders. Here's some education and a possible scenario: buy MSO shares and buy a put. A put option gives the holder the right to sell shares at a specific--or strike--price up to and including the expiry date. Since the shares have had a downward bias, the 'time value' or premium over the intrinsic value has widened, making them a bit pricey. The intrinsic value is the difference between the strike price and the market price. The rest is known as the time, or risk premium.  MSO trades currently at around $9.65. The June puts with a $10 strike price are offered at $2.20. The intrinsic value, therefore, is 35 cents and the time or risk premium is $1.85.  What this means is that if you purchased 100 shares and 1 June 10 put, your cost per share would be $9.65 plus $2.20 or $11.85. You would have the right to sell the shares at $10.00 until June 18th 2004--the day after Martha's sentencing--an interesting feature.... Your cash risk would be limited to $1.85 a share which, while it seems a lot, would be a pittance should the bottom completely fall out of the shares between now and her sentencing. Conversely, by buying the shares and puts, you would not start making money until the shares rose above your combined purchase price of $11.85.  As I said, the MSO puts have become pricey, so govern yourself accordingly. If the shares tank prior to June, you can sell the put and keep the shares, which would have a lower cost base courtesy of the put profits. Or, you could sell the shares should they begin to fall and keep the put. Or, finally, you could simply put (read sell) the shares at $10.00 on or before June 18th and take the $1.85 hit, for which you'll be grateful should the shares drop to say $5. Puts are extremely useful tools if utilized properly. If you choose to employ this strategy, be judicious as it might be best to wait until the furor has died down and the puts become cheaper. Call the put purchase against stock a hedge, insurance or just piece of mind. There is likely decent money to be made in MSO in the long run. As we said in our previous piece, there's likely no one, now, who hasn't heard of Martha. And the faithful will remain so, whether she does hard time or soft. Look at Imclone (NASDAQ: IMCL) and Tyco (NYSE: TYC) --bad boys caught doing very bad things. Since the respective bad news in those situations, Tyco shares has tripled in price and Imclone has risen more than 5-fold. And those mooks don't have nearly the taste--or the loyal following --of Martha Stewart.   We Value Your Feedback Got comments, questions or suggestions? 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