Option Investor

Daily Newsletter, Wednesday, 08/28/2002

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The Option Investor Newsletter                Wednesday 08-28-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Follow the Leader
Weekly Fund Family Profile: Strong Funds
Options 101: Odds & Ends From the Land of LEAPS

Updated on the site tonight:
Swing Trader Game Plan: Bulls Go Down Swinging

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
08-28-2002                High    Low     Volume Advance/Decl
DJIA     8694.09 -130.32 8823.99  8646.19 1371 mln  773/1965
NASDAQ   1314.38 - 33.40 1340.01  1312.25 1338 mln  955/2231
S&P 100   462.53 -  8.62  471.15  459.99   totals   1728/4196
S&P 500   917.87 - 16.95  934.82  913.21
RUS 2000  389.38 -  8.07  397.45  389.38
DJ TRANS 2313.38 - 69.98 2382.64  2299.00
VIX        36.23 +  3.50   36.96  33.88
VIXN       54.70 +  4.69   56.26  51.53
Put/Call Ratio 0.88

Follow the Leader

by Steven Price

It appears the trend of the Nasdaq leading the rest of the 
broader markets around by the nose is still in tact. Yesterday's 
breakdown in the Nasdaq and NDX was the first close below their 
50-dmas since last Monday, August 19, when all four major 
indices, including the Dow and S&P 500 broke above that level for 
the first time since spring.  Sure enough, today the Dow and S&P 
500 played follow the leader.  

Charts of 50-dma break in Nasdaq, NDX, and Dow

Taking this theory a step further, what is it that leads the 
Nasdaq?  Intel helped answer this question yesterday when its 
lukewarm comments about next quarter and continuing lack of IT 
spending sent the semiconductors crashing, and brought the Dow 
along with them.  In an economy driven by computers and 
technology, this sector has been a barometer for the rest of the 
markets.  After all of the major indices broke their 50-dmas last 
week, things looked rosy, except for one factor.  The 
Semiconductor Index (SOX.X) was unable to hold above this level.  
Instead it found resistance at this point, and as a Nasdaq market 
leader, raised doubts about whether the rest of the market could 
move forward without it.  We got our answer yesterday and today. 

Prudential cut its 2002 earnings estimates on Intel, and 
increased AMD's loss estimates for 2002 and 2003. It cited 
developments in the Taiwanese PC supply chain, suggesting that 
Intel will not see more than 10% sequential growth in the fourth 
quarter.  Also back to school spending is not at expected levels.   

A look at last week's rally in the SOX, shows the group making it 
just over the 50-dma, but unable to hold, foreshadowing weakness 
in the tech sector.  As the other indices continued upward, 
finding support at the 50-dma on pullbacks, the SOX continued to 
struggle with this level.  Until the IT spending environment 
improves, or we discover another moving economic force, the 
broader markets will have an anchor hanging around their necks. 

Chart of the SOX

In addition to the bad news for the chip makers, Hewlett Packard 
made comments regarding continuation of the IT spending slowdown, 
indicating that customers were putting off making large purchases 
until the economy improves.  Revenue also came in more than $500 
million below HP's initial guidance. Revenues were down 9% 

Nortel warned on Tuesday that third-quarter revenue would be 
below previous guidance.  They are cutting 7,000 jobs and closing 
facilities. Chief executive Frank Dunn said, "We continue to see 
reductions in near-term spending plans by service providers 
especially in the United States."   The company is now expecting 
a drop of 10% in quarterly revenue, as opposed to initial 
forecasts of flat growth.

Goldman Sachs said this morning that given the current IT 
spending weakness, it did not expect Sun Microsystems to unlikely 
to meet earnings estimates for this quarter.  Goldman also 
believes revenue will be closer to the low end of its targeted 
10-15% range.

As for the Dow, which ended the day down 130.32, at 8694.09, 
things do not look good. After falling through support at 8750, 
it made several attempts to get back above that level, only to be 
turned away, indicating this level is now acting as resistance.

Chart of the Dow Resistance

What may also be significant is a look at the Point and Figure 
chart of the Dow.  Today's trade of 8750 established a triple 
bottom breakdown sell signal, followed by 2 additional "O"s at 
8700 and 8650, which confirm the breakdown and get us past the 
possibility of a bear trap.  The bear trap is when a single "O" 
on a triple bottom breakdown is followed by an immediate reversal 
up.  This breakdown formation is very bearish and lends credence 
to the breakdown of support at 8750.

Point and Figure Chart of the Dow

Another recent concern exerting considerable weight on the 
economy is the price of oil.  There is no better way to keep 
costs high than to raise the price of fuel for all industries.  

The so-called Iraqi premium built into crude oil futures has 
stayed high as Vice President Dick Cheney indicated the U.S. was 
considering an invasion sooner rather than later.  Iraq is the 
fourth largest Middle East oil producer. This comes at a time 
when global inventories are now falling, as OPEC supply curbs 
come into play.  OPEC ministers meet on September 19, a week 
after the September 11 anniversary and will discuss possible 
changes in output to keep prices within its targeted range of 
$22-$28 per barrel. This is not a slam-dunk, however. After 
cutting output three times in 2001 and again on Jan. 1, OPEC is 
holding production quotas at the lowest level since 1991 to 
achieve this price objective. President Hugo Chavez of Venezuela 
said his country would not support an increase in quotas, and 
Kuwait has come out against any change, as well. Qatar's OPEC 
governor has also said OPEC shouldn't increase output because the 
world is "awash with oil."

OPEC's president, Rilwanu Lukman, however, said the organization 
has spare output capacity to deal with rising prices.  Asked 
about prices rising over the current target levels, Lukman said, 
"We are not worried about that.  We have enough oil to put into 
the market if needs be."  There is currently several dollars of 
war premium built into the per barrel price and OPEC's reference 
export price of $26.67 a barrel reflects a 44% increase so far 
this year.  Since OPEC nations rely on oil profits to fund their 
governments, restricting supply and raising prices also raises 
their profits.  However, if prices go too high, other countries 
are encouraged to develop other sources of energy, or increase 
drilling at home.

In addition, as we enter the busiest travel vacation time of the 
year, just before labor day and the start of school, higher gas 
prices will keep more families at home, as the cost of fuel is 
figured into trips. For those who won't let higher gas prices 
keep them at home, they will wind up spending less on hotels or 
restaurants as their larger portions of the vacation budget are 
eaten up at the pump. This impact on discretionary income is 
already being felt in consumer spending.  The recent downgrades 
by Merrill Lynch on 16 retail stocks came on the heels of a sharp 
decline in sales. Analyst Daniel Barry said, "Retailers are 
saying that traffic is holding up but discretionary spending is 
slowing... The sales outlook is not good." It is no coincidence 
that Wal-Mart has issued sales warnings the last two weeks, while 
Federated, which owns Macy's and Bloomingdale's, has issued sales 
warnings the last three weeks.  These warnings have coincided 
with the increase in oil prices, as consumers are beginning to 
feel pinched at the pump.   A look at the retail Index (RLX.X) 
shows the rally from the beginning of August rounding off as oil 
futures broke above $28 a barrel and stayed there.  While oil 
prices are certainly not the only factor influencing spending, it 
only adds to concerns about a new wave of layoffs and the economy 
in general.  These factors are all taken into account and 
reflected in Consumer Confidence, which took a hit on Tuesday.

Chart of Retail & Oil

WorldCom executives Scott Sullivan and Buford Yates were indicted 
by a grand jury on charges of securities fraud and making false 
filings with the SEC.  They are accused of hiding more than $7 
billion in expenses at the phone carrier, a move that created 
false profits and kept investors in the dark about the true 
deteriorating finances of WorldCom.  Conspicuous by his absence 
was former controller David Myers, who was arrested very publicly 
the same morning as Scott Sullivan.  This has led to speculation 
that Myers may be cooperating with prosecutors, who are trying to 
determine whether CEO Bernard Ebbers was also involved in the 
scheme.  In more WorldCom news, Citigroup owned Salomon Smith 
Barney apparently allocated thousands of shares of hot IPOs in 
the 1990s to WorldCom execs. During 1996 and 1997, before 
Citigroup bought Salomon as part of its merger with Travelers, 
the average allocation was 101,500 shares for each officer, with 
a first day payday of $597,570 each.  After November 1997, the 
average allocation was 6,409 shares, for an average first day 
gain of $60,238 each.  Ebbers was allocated more than 800,000 
shares from several IPOS, including Juniper networks, UPS, and 
Qwest Communications. 

The markets will be listening closely tomorrow as Alan Greenspan 
makes remarks at the Kansas City Fed-sponsored economic symposium 
in Jackson Hole, Wyoming.  After four Fed presidents have 
indicated over the last month that they think interest rates are 
currently low enough to promote economic recovery, investors will 
be looking to Greenspan for confirmation.  Similar remarks from 
the Big Cheese will significantly discount any chance of a rate 
cut at the September 24 FOMC meeting. Short-term interest rate 
futures right now reflect about a 25% chance of a rate cut, and 
after tomorrow's speech, it could drop to half that level.  This 
is already a huge reduction from the almost 100% chance the 
futures were showing at the beginning of the month.

Look closely for 8750 to offer continued resistance on any 
rebound attempt tomorrow after release of initial GDP, which is 
expected to come in at 1.1%.  We will also see initial jobless 
claims for the week of August 24, which are expected to be 
385,000.  Either of these numbers could help with a bounce, but 
if nothing extraordinary comes out of them, the next level of 
support in the Dow looks to be just below 8500.   The tide 
certainly appears to have turned, as the Dow has followed the 
Nasdaq into the red.  With September 11 looming, and the 
traditional fall swoon possibly ahead, be very careful with long 
positions, lean short, and keep a few extra puts in your pocket.


By Leigh Stevens

Maybe I should say the Bear is back - its definitely a "sighting" 
and the bull was seen turning tail and running. But we don't know 
if he's (she?) is back for a visit or REALLY back, like Jeff 
(Bailey) was suggesting would be the tendency for September - his 
closing comments on our Market Monitor (6:37) lay out the 
seasonal case quite well - and, the P&F (Point & Figure) charting 

I am not a major user of P&F analysis, but it doesn't mean that 
there is not a lot to it.  But, its like candlesticks or Gann 
charting - it’s a lot about what you get used to and what you 
want to put your time in on. I'm a classics kind of person - 
study of Plato and "classical" chart analysis is my thing.  

And speaking of "classic" patterns - the Bearish rising wedge 
patterns, on both the various indices and sample individually 
chart patterns shown in my weekly Index Trader at 


are looking more and more like they signaled impending downside 
reversals. That and the low volume as prices climbed higher - 
this is also a CLASSIC divergence.

Charles Dow was the first one that I know about that said that 
volume should "confirm" price action - you didn't automatically 
sell because trade volume was not expanding (increasing) in the 
same DIRECTION as the trend, but this secondary indicator put you 
on alert that there were few fewer and fewer buyers pushing a 
market up (or, of course, fewer and fewer sellers pushing prices 

If so, when it got to the point that everyone that was going to 
buy had already bought - who was left to buy then?  At that point 
it doesn't take a HUGE amount of selling to start the market 
rolling down the hill.  And of course it takes a little time for 
the ball to get rolling, but when it does, look OUT below.  This 
dynamic is also the origin of the saying that "bull markets 'die' 
of their own weight". It takes buying to keep em up. 

I know I haven’t spent much time talking about the "funny-
mentals", but Jim & Company always have such a comprehensive and 
informative view on the market news and views that I sometimes 
don't do more than a synopsis of what I thought were the key 
daily market dynamics and fundamental influences.  

What struck me today was the leadership on the way down was back 
to what has been the chief market drag for months - and years now 
- technology stocks.  The Networking sector (NWX) and the 
Wireless group (YLS) were each off over 6% on Nortel's warning of 
a shortfall in revenue. Also, HP (Hewlett-Packard: HPQ) had 
cautionary words on expected IT spending for the coming months.  
And, of course, HPQ is a Dow stock so packs some impact - 
however, the stock was up a bit on the day as their earnings 
squeaked in at expectations.  

Phillip Morris was the noteworthy DJIA stock running up the down 
escalator today, as it increased its dividend by 10% - you 
remember dividends I'm sure.  Those quarterly checks that our 
parents and grandparents used to receive in the mail and, 
sometimes actually lived on! Oh where have you gone Ma Bell? By 
the way ("BTW" as my internet hip friends say), dividends, in 
such a low interest environment, are going to come back as a more 
important consideration in owning certain stocks.  You heard it 
here first.  

Of course, the bulls are saying today that this correction was 
expected and "normal" profit taking after a very substantial 
initial run up. The bears were saying the sky may fall any time - 
or was that Chicken Little?! A big underlying worry for the bears 
centers on what we do regarding Iraq. I don't discount the 
bearish sentiment that the war/invasion prospect engenders in 
investors. Previous times that oil was in the $30 a barrel area, 
have tended to coincide with economic recession so this plays in 
to the "double dip" scenario.  

I suppose it depends on how LONG prices stay up at these levels.  
Our former Texas oil men running the show in Washington are 
probably thinking sooner rather than later - for invasion plans 
seem to be pretty well mapped out by now. I think I'll take a 
long vacation and not by air.  

S&P 100 Index (OEX) - Daily/Hourly charts: 

Near OEX resistance is now at the "neckline" or the trendline 
that connects prior lows at 471 and 468 - the current overhead 
intersection of this line is now in the 466 area. For this 
reason, I suggested on our Market Monitor today, that a tight 
"stop" or exit point for OEX puts would be 467, or just above 
this trendline.  

It's not uncommon for a return rally TO a broken trendline - but, 
its less common for a rebound to above this line, unless the 
trend is reversing back to the upside. 

Key resistance relating to the trend is at 481-482, as it would 
take a move above this prior (up) swing high to suggest that the 
uptrend was resuming.  A bear trend is lower rally highs and 
progressively lower downswing lows. 

Today's break of the "neckline" of the Head & Shoulder's (H&S) 
top, suggests a possible "minimum" downside to the 450-455 area. 

S&P 500 Index (SPX) - Hourly chart:

930, the previous pivotal "line" of support, was broken and now 
becomes key resistance. An hourly, then daily, close above 930 is 
needed to suggest that the S&P 500 had regained its bullish 
footing.  Absent that, I suggest that traders continue to stay 
with a bearish trading strategy. 

920-915 is the next potential support area, but the target 
implied by the H&S top is to around 900.  
DJ Industrial Index (1/100 of INDU) - $DJX - Daily/Hourly charts:

DJX continued to move lower today, following its bearish 
trendline break. Resistance is now at the prior hourly low at 
87.6, then at the previously broken trendline  - at the red 
arrow, currently in the 89 area.  

The same Head & Shoulder's top pattern is apparent on the DJX 
hourly chart - I have not previously outlined, but it is on the 
chart above.  A downside objective implied by the H&S top pattern 
is to the 85 area as noted on the chart.  

The final "confirming" bearish confirming note of a DJX falling 
under its prior swing low at 87.6 happened today, which is now 
confirming further weakness in my estimation.    

Nasdaq Composite Index (COMPX) Hourly chart:

The potential support zone I am focusing on currently is the area 
between the two level (dashed) lines between the prior 1265 low 
and an area around 1287, which also corresponds with my lower 
trading "envelope" line set at 5% above (& below) its 21-hour 
moving average (not shown).  Prior to August, trading swings 
tended to occur within these parameters. 

Key Nasdaq Composite resistance is the downside gap between the 
high of today and the low of yesterday or between 1340 and 1346. 
Rallies up to this area offer a selling opportunity in my opinion. 

Downside price "gaps" tend to act as resistance. However, a move 
above 1346-1350 would suggest a possible bullish turnaround; if 
so, pivotal resistance then is 1360. A bullish trend is not 
really back on track without COMPX regaining 1360 and staying 
above this level.  

Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts:

My projected "minimum" downside objective of 23.00 based on the 
Head & Shoulder's top is now near. Some profit taking on puts and 
short QQQ positions at and under 23.00 looks like a good idea. 

If the Q's get back the prior hourly low at 22.5, especially 
given the oversold reading on the hourly stochastic, a rebound 
would not be surprising.  

Key resistance, as with the Composite, is at the downside gap 
that formed from today's lower opening - in the case of QQQ, this 
is 24-24.15. A close above the gap would suggest covering short 
positions also. 24.60 is the next resistance, at the prior low 
and the "neckline" of the H&S. 

Leigh Stevens
Chief Market Strategist

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Strong Funds

This week, we revisit the Wisconsin-based Strong Funds family at 
the request of one of our readers.  Strong Capital Management, a 
firm with more than $43 billion in assets under management as of 
June 30, 2002, is the investment advisor for the funds.  Richard 
Strong, Chairman, founded the investment firm in 1974, and since 
then its principal business has been providing investment advice 
for individuals and institutional accounts, such as pension and 
profit sharing plans. 

Securities are offered through Strong Investments, an affiliated 
company.  Strong Financial Corporation is the parent company of 
Strong Capital Management and Strong Investments.  Headquarters 
are located in Menomonee Falls, Wisconsin near Milwaukee.  They 
also have offices in Madison, WI; Minneapolis, MN; St. Paul, MN; 
Indianapolis, IN; and Scottsdale, AR.  

As a privately held firm, Strong Capital Management focuses on 
money management without conflict of interest or undue pressure 
from Wall Street, the website touts.  The website states that 
being based in the Midwest has allowed Strong to cultivate an 
independent, entrepreneurial approach that takes them across the 
U.S., visiting the companies they invest in, and conducting what 
they call their own brand on intensive, hands-on research.   

Per Strong's Press Room, assets under management totaled $43.1 
billion as of June 30, 2002, with 1,377 associates serving the 
needs of approximately 480,000 households (1.1 million active 
accounts).  For self-directed individual investors, Strong has 
their family of mutual funds and offers other services such as 
brokerage services, retirement planning, and college planning.  
For individuals that seek advice, Strong offers professionally 
managed portfolios through their "Strong Advisor" and "Private 
Client" programs.

The Strong Funds and the Strong Advisor Funds differ in costs, 
expenses and availability.  The basic difference is their load 
structure.  The Strong Funds are offered on a "no-load" basis, 
while the Strong Advisor Funds have multiple class shares that 
vary in fees and availability.  The Strong funds have a $2,500 
minimum initial investment except for the Strong Balanced Fund 
(STAAX) which costs just $250 to invest initially. 

Today, Strong is one of the industry leaders, ranking in 38th 
place among 647 mutual fund families based on assets, per the 
company website.  In addition, Strong offers a broad range of 
401(k) retirement services aimed to plan sponsors, unions and 
individuals participating in their workplace plan.

Additional Background

The story goes that Richard Strong began operations in August 
1974 (he was 32 at the time), renting a small office in space 
located in Milwaukee.  Strong's ambition was to build a world 
class asset management business.

By the end of the 70s, Strong's business was picking up steam, 
landing two multi-million dollar institutional accounts in 79.  
The website states that by the time 1980 rolled around, Strong 
had moved the firm to new bigger digs, increased his full-time 
staff to six, and hit the $40 million mark for assets managed.

By 1983, Strong had $1 billion in assets under management, and 
was starting to garner some attention from the financial press.  
Asset growth in the 80s led to their move in October 1987 into 
new headquarters in Menomonee Falls, Wisconsin located outside 
Milwaukee.  At that point, the firm had 100 full-time and part-
time associates on staff.

Strong Balanced Fund (STAAX) and Strong Large Cap Growth Fund 
(STRFX) were the firm's first two mutual funds, dating back to 
December 1981.  The fund family's largest fund today with $3.2 
billion in assets, Strong Opportunity Fund (SOPFX) launched in 
December 1985.  Strong Corporate Bond Fund (STCBX), the firm's 
first bond mutual fund, also began operations in December 1985.  
Two other "billion-dollar" bond funds today, Strong Government 
Securities (STVSX) and Strong Short-Term Bond (SSTBX) had their 
respective starts in October 1986 and August 1987.

By the late 80's, Strong was further diversifying his business 
into other core investment disciplines and starting to recruit 
leading money managers to the firm, such as Dick Weiss and Ron 
Ognar.  Weiss joined Strong in 1991 and started the firm's mid- 
and small-cap core equity business, while Ognar came aboard in 
1993 and manages the firm's growth products.  Both of them are 
still with Strong Capital Management in 2002.

Strong reached the $10 billion in assets milestone in February 
1994.  By the end of 1996, assets had more than doubled to $22 
billion.  The website states that at the start of 2001, Strong 
had over 1,400 associates, over 150 separately managed account 
relationships, and offered over 50 mutual funds (some of which 
are offered through variable annuity products).  

Investment Style/Strategy

A variety of actively managed equity strategies and styles are 
offered in the Strong stock funds.  These include growth funds, 
value funds, core funds, sector funds, international funds, as 
well as Advisor Equity funds.  In the management of stock fund 
portfolios, Strong seeks to add value through company-specific 
research, rigorous analysis, and in-depth interviews with firm 

Equity portfolios are managed by teams of "seasoned" investment 
professionals, or specialists, in various asset classes.  They 
are supported by a team of equity analysts covering the various 
industry sectors, as well as the latest technology, the website 
states.  According to Morningstar, Strong's largest stock funds 
today are invested primarily in the mid/large-cap range, and in 
core/growth stocks in terms of style.  In stock selection, they 
favor companies with above-average growth prospects, selling at 
reasonable valuations (GARP-like in style).

Various fixed income strategies are offered via the Strong bond 
funds.  These include taxable and tax-free ("muni") bond funds.  
On the fixed income side, Strong seeks to provide total return 
through investments in higher quality portfolios across a range 
of duration benchmarks.  Their approach emphasizes risk control 
and credit research.  

Like the stock portfolios, Strong's bond portfolios are run by 
teams of specialists in various bond classes.  Five bond funds 
have over $1 billion in net assets, including Ultra Short-Term 
Income (STADX), Government Securities (STVSX), Ultra Short-Term 
Municipal Income (SMUAX), Short-Term Bond (SSTBX) and Corporate 
Bond (STCBX).  According to Morningstar, Strong's largest fixed 
income funds are all "investment-grade" based on average credit 
quality, with three of top five largest bond funds "high-grade" 
quality.  High-grade funds have average credit qualities of AAA 
or AA, representing the top two tiers of the "investment-grade" 

Strong's Life Stage Series is also offered, and is suitable for 
individuals saving for long-term goals such as retirement.  The 
series includes three separate portfolios of Strong Funds, each 
designed to pursue either conservative, moderate, or aggressive 
objectives.  Each Life Stage portfolio invests in a combination 
of stocks, bonds and cash, offering three levels of risk-reward 
tradeoff.  The Conservative Portfolio emphasizes income through 
investment in Strong bond and money market funds, and invests a 
small portion of assets in Strong stock funds to enhance growth 
potential.  The Moderate Portfolio is like a balanced fund, and 
focuses 60% of investments in Strong stock funds, with 40% held 
in Strong bond and money market funds to help manage volatility.  
Growth Portfolio, has the highest Strong stock fund allocation, 
and offers enhanced growth potential.

In the next section, I'll tell you which Strong Funds have done 
the best on a risk-adjusted performance basis relative to other 
funds in their respective category, using data from Morningstar.

Top-Rated Funds

Currently, none of Strong's billion-dollar stock funds are rated 
4 stars or above by Morningstar for risk-adjusted performance in 
relation to their category peers.  Their largest stock funds are 
mostly 3-star (average) rated, including Strong Opportunity Fund 
(SOPFX), Strong Advisor: Common Stock Fund Z (STCSX), and Strong 
Growth Fund (SGROX).  Richard Weiss (Opportunity Fund and Common 
Stock Fund) and Ronald Ognar (Large Cap Growth Fund) are average 
rated under Morningstar's new "category-based" rating system.

Strong Mid-Cap Disciplined Fund (SMCDX) holds Morningstar's best 
5-star rating, but the fund recently had a manager change so you 
can't attribute the fund's performance and rating to the current 
manager.  Strong Advisor: Small Cap Value Fund Z (SSMVX) is also 
5-star rated by Morningstar, but as the Z class designates, this 
fund is closed to new investors.  

Stock funds that have Morningstar 4-star (above-average) ratings 
include Blue Chip (SBCHX), Dividend Income (SDVIX), Asia Pacific 
(SASPX), Value (STVAX), and Large Cap Core (SLCRX).  Strong Life 
Stages Aggressive (SAGGX) is also 4-star rated for risk-adjusted 
performance within its category peer group.  Long-term investors 
may want to look at these above-average performers.  For further 
information, go to the Strong website.

On the fixed income side, Strong's two largest funds are rated 4 
stars or above, per Morningstar.  Strong Ultra Short-Term Income 
(STADX), a $2.6 billion fund, is currently 4-star rated, and has 
an average credit quality of AA (high-grade).  Strong Government 
Securities (STVSX), a $1.9 billion fund, currently owns a 5-star 
rating, and has an average credit quality of AAA (highest-grade).  
Between the two funds, Government Securities Fund offers greater 
total return potential. 

If you seek high current yield, you may want to look at Strong's 
Short-Term High Yield Bond Fund (STHYX), which is also currently 
5-star rated by Morningstar.  The portfolio maintains an average 
credit quality of BB, the highest tier of the speculative-grade 
bond, and a short-term duration benchmark, so its volatility is 
below that of the typical high yield bond fund.


Overall, Strong's stock mutual fund performance has been on par 
with peers, with some funds earning above-average risk-adjusted 
return ratings from Morningstar.  Bond fund performance looks a 
little bit stronger relatively speaking, with the larger Strong 
funds earning above-average or better ratings, per Morningstar.

For more information on the Strong Funds, call 1-800-368-1030 or 
log on to www.strong.com.

Steve Wagner
Editor, Mutual Investor


Odds & Ends From the Land of LEAPS
by Mark Phillips

As we wind down the final week of summer, the wisdom of sitting
out for the last 2 weeks of August is becoming increasingly
clear.  Choppy trade, gap moves and sharp reversals are a
seemingly daily occurrence, while the bulk of Wall Street's
professionals grab a little bit of vacation time before getting
back to work after Labor Day.  For those of you that have been
trading over the past couple weeks, I hope you've found the
insights of the Market Monitor team beneficial.  While I haven't
been actively trading myself (Hey, I'm entitled to a bit of R&R,
right?), I have noticed that they're doing a bang-up job of
helping all who are interested to navigate these volatile markets.

Since I haven't been focused on trading, it has given me the
opportunity to catch up on my backlog of email and get a feel for
some of the questions that seem to be nagging at some of my
readers.  That process guided me to last week's topic on
Collaring, which hopefully many of you found useful before this
latest downward leg in the markets got started.

Monday's Trader's Corner was likewise stimulated by a fresh batch
of questions relating to the difference between Stop and Stop
Limit orders, and how to apply them.  Since I seem to be on a
roll and we only have 2 more days before the long holiday
weekend, I thought I'd round out my August commentary with an
answer to another question that has been cropping up fairly

I've been running the LEAPS column for over 2 years now (Wow!
Has it been that long?) and one of the important changes we made
last year was to start talking more about how to implement
covered calls on LEAPS.  To be fair, it isn't really a covered
call when we write a short-term call against a LEAP in our
account.  It is really a calendar spread (either vertical or
diagonal), at least as far as your broker is concerned.  What
is important here, is that if done properly, the position
behaves exactly like a standard covered call.  But if we don't
initiate the LEAP position and then the covered call against it
in the right way, we end up having to maintain margin in our
account to cover the spread.  

First off, if this strategy sounds interesting to you, but also
new, then let me point you to an introductory article I wrote
last year entitled, Covered Calls on the Cheap.  


That's where I laid out the basic strategy for writing short-
term calls against LEAPS.  As you can see, it is little 
different from writing short-term calls against the underlying 
shares in the standardCovered Call strategy.

The nature of the question I want to address tonight is the fact
that we want to select a different strike LEAP to purchase if we
are planning on selling short-term calls against it to offset
our initial cost.  Let's say that we are looking to buy LEAP
Calls on the QQQ, with it currently trading at $23.48.  If this
is going to be a simple Buy-and-Hold trade, then we would likely
want to target the $25 strike.  That way, we get the benefit of
both Gamma and Delta working in our favor, as the QQQ appreciates
through the strike of our LEAP.

On the other hand, if we intend to sell short-term calls against
our LEAP, then we want to select a different strike, either ATM
or quite possibly ITM for our LEAP.  The reason is that we want
to avoid having to maintain margin in our account to cover the
difference between the strike of the LEAP and the strike of the
sold call.  In the case of the QQQ, if we bought the $25 2004
LEAP Call, then we are limited to selling the $25 strike or
HIGHER for the front month if we want to avoid maintaining
margin on this trade.  The simpler solution is to initially
purchase a lower strike LEAP on the QQQ, one that gives some
flexibility in which short-term call we choose to write.  For
the sake of argument, if we had purchased the $20 LEAP, then we
have the freedom to write calls nearer to the money,
consequently taking in more premium.  Keep in mind that we don't
have to write that call close to the money, but sometimes we
want the flexibility to do so.

If I've lost you in this discourse, then I most humbly apologize.
Let me direct you back to the archives for a couple of Q&A
articles on the subject of Covered Calls on LEAPS.  

Questions on LEAPS Covered Calls - Part 1

Questions on LEAPS Covered Calls - Part 2

That should have given everyone a good enough refresher that
we're all on the same page and now we can proceed to the central
issue that I want to cover.  When we list a new LEAP Call play
in the Watch List on the website, we list 2 strikes for each
expiration year.  That has generated some confusion in the recent
past, as some readers have wondered if that means they should buy
the first LEAP and then sell the one with "** Covered Call **"
next to it.  If you've been following the discussion so far, then
you probably already have the answer figured out, but let's walk
through it, shall we?  

Here's a typical example of the recommended LEAPS listed at the
end of one of the LEAP Call write-ups.

BUY LEAP JAN-2004 $45 LMO-AI **Covered Call**
BUY LEAP JAN-2005 $40 ZMO-AH **Covered Call**

The way to use this information depends on the trading strategy
that you have chosen to employ.  If you are just a simple
Buy-and-Hold LEAPS investor, then you will simply use either the
LMO-AJ or ZMO-AJ LEAPS.  These LEAPS are for the MO LEAP call,
so with the current price of $49.31, you can see that those
strikes are now near-the-money.  But we want to enter the play
back down near the $46 level, at which point, the $50 strikes
will be a bit out of the money.  That will give the standard
Buy-and-Hold investor the ability to profit from both Delta and
Gamma as MO gets headed north again.

But for the trader that wants to write short-term calls against
their long LEAP, the $45 strike makes more sense.  This enables
us to write front-month calls against the LEAP, all the way down
to the $45 strike, which should continue to generate a decent
premium, even if MO temporarily falls down into the $42-43 area,
the site of strong support.  Contrast this to the situation we
would be in, if we bought the $50 LEAP, MO declines to $43 and we
want to write a call against the LEAP.  I don't think I need to
tell you that the premium collected from that transaction would
scarcely cover the commission required to sell the call.  That
would only leave us with the option of writing the $45 front-month
call and then maintaining margin to cover the risk between the

Hopefully, I've made it clear that the additional strikes listed
(those with the **Covered Call** notation), are just there to aid
you in your selection of the appropriate strike, depending on
your chosen trading strategy.

Next week will see us in a new month, volume will be back in
the markets and hopefully rationality will prevail. (ok, I got
a little carried away there...)  At a minimum, I'll dream up
some new and exciting topics for us to share.  In the meantime,
keep those questions coming!

Have a Great Holiday Weekend!


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by Leigh Stevens

The big sector story was on - guess what - WARNINGS on earnings  
and was NOT music to investors ears.  Telecommunications stocks 
retreated en masse on Wednesday in the wake of yet another sales 
warning from Nortel Networks (NT). 

The telecom-equipment maker warned on its Q3 revenues and profits 
and said it will cut 7,000 more jobs to offset weakening sales. 
Nortel's (NT) stock fell 15% to $1.04. Nortel's decline was a 
dead weight on the Networking Index (NWX) fell by 6%.

Ciena (CIEN), and Lucent (LU) both lost over 10%. The companies 
sell hardware to many of the same phone companies as Nortel. 
Nearly all the stocks in the Networking Index (NSX) fell.

Cisco (CSCO), which competes with NT lost over 2%. JDS Uniphase 
(JDSU) dropped nearly 7%.   

The same Nortel news also contributed to the Wireless Telecom 
sector index (YLS) falling by over 6% also. 

Semiconductor sector (SOX) stocks were hit by a Prudential 
downgrade on the sector, which also hurt financial stocks. Pru 
cut Q4 estimates for Intel (INTC) and Advanced Micro (AMD), 
stating that the current level and expected outlook for Taiwan PC 
manufacturing suggested that seasonal growth patterns of more 
than 10% will not be seen.

DOWN (or unchanged) on Tuesday - 

UP (or unchanged) on Tuesday -


The Dow Jones Home Builder's Index (DJUSHB) was unchanged, so 
this was the monster "rally" of today.






Leigh Stevens
Chief Market Strategist

_If you haven_t traded options online _ you haven_t really traded
options,_ claims author Larry Spears in his new compact guide

_7 Steps to Success _ Trading Options Online_.

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and clicking on the link to the book on its home page.



Bulls Go Down Swinging

It was not pretty. The markets dropped at the open 
with bulls being trampled by the bears on continued 
negative news from the chip sector. They managed a 
feeble recovery around noon after breaking 8700 the 
first time but could not hold it. Two buy programs 
at 3:30 gave bulls hope again with another spike 
above 8700 but again sellers appeared and the 
indexes sold off into the close. 

To read the rest of the Swing Trader Game Plan Click here:


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The Option Investor Newsletter                Wednesday 08-28-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:
Stop Loss Updates: MXIM, QLGC, IBM, EBAY, GS
Dropped Calls: None
Dropped Puts: None
Play of the Day: Put - ADI
Big Cap Covered Calls & Naked Puts: Sell-Off In Progress!

Updated on the site tonight:
Market Watch
Market Posture

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MXIM - adjust down from  36.50  to  34.00
QLGC - adjust down from  39.00  to  36.00
IBM -  adjust down from  81.50  to  78.00
EBAY - adjust down from  60.00  to  57.50
GS -   adjust down from  80.00  to  78.50





_If you haven_t traded options online _ you haven_t really
traded options,_ claims author Larry Spears in his new compact
guide book:

_7 Steps to Success _ Trading Options Online_.

Order today and save 25% (only $15) by clicking on PreferredTrade
and clicking on the link to the book on its home page.



ADI - Analog Devices, Inc. - $25.96 -1.66 (-0.54 for the week)

Company Summary:

Analog Devices is a leading manufacturer of precision high-
performance integrated circuits used in analog and digital signal 
processing applications. The company is headquartered in Norwood, 
Massachusetts and employs approximately 8,800 people worldwide. 
It has manufacturing facilities in Massachusetts, California, 
North Carolina, Ireland, the Philippines, Taiwan and the United 
Kingdom. Analog Devices' stock is listed on the New York Stock 
Exchange and the company is included in the S&P 500 Index. 

Most Recent Write-up

ADI made a run following its earnings release on August 15.  This 
was actually more due to Dell's initially positive spin on its 
own profit outlook the same day. ADI's forecast was actually 
quite bearish.  They experienced a fiscal third quarter drop in 
both revenue and profits.  Although the third quarter numbers met 
expectations, ADI warned, saying its profits for the current 
quarter were likely to fall short of expectations. In a classic 
case of the rising tide lifting all boats, ADI followed the 
recent surge of the Semiconductor Index (SOX.X) on its 28%, 79-
point surge from August 5 to August 19. The semiconductor surge 
was not accompanied by any change in basic fundamentals, or 
increased sales projections.
Salomon Smith Barney downgraded the sector on Thursday, reducing 
growth expectations from 4% for 2002, to only 0.5%.  They also 
reduced forecasts for 2003 growth from 21% to 12% and projected 
2004 at 17%.  The truth is, there is no way to tell just how long 
the lack of IT spending will continue.  We were originally told 
to look for the beginning of 2002 for a recovery; then the second 
half; then the first half of 2003. Now projections are for 2004.  
We see a pattern developing here, and it is not a bullish one.

As ADI was the beneficiary of a sector run, it looks like one of 
the first to fall.  As some of the sector wide enthusiasm wore 
off, ADI's forecast has begun to catch up with the stock. It 
managed to peek over its 50-dma for a few days, but could not 
complete a daily trading range over this level.  Now it has 
dropped back below and we can expect to see this level as 
resistance to the upside. As the stock attempted to break out 
above $28, it also saw bearish PnF resistance at $30.  The 
stochastics have recently turned and given a sell signal, to 
confirm what we are seeing on the daily chart.  We will target 
$20 on the play, which is its recent low, just before the market 
rally following August 5th. Place stops at $28.50, above the 
recent highs from which the stock was turned away, as this would 
signal renewed strength.

Why This is Our Play of the Day:

ADI gapped down to start the day, and the rest of the tech sector 
went along with it.  Nortel's announcement that it would miss 
estimates and was laying off 7,000 workers, combined with Hewlett 
Packard's comments about the slow IT spending environment doomed 
the techs.  The Semiconductor Index (SOX.X), now trading 303.80, 
has now given up 75% of its recent gains and ADI will suffer with 
it, as it approaches support of 300.  AS the overal market 
rebounded slightly this afternoon, ADI had a difficult time.  it 
found temporary support at $24.00, however a look at the 5 minute 
chart shows its rebound efforts were met with plenty of supply at 
$24.50.  The stock ended the day on the way down and we will look 
for a break in $24 support on Thursday.  

BUY PUT SEP-30 ADI-UF OI=1054 at $6.00 SL=3.00
BUY PUT SEP-25*ADI-UE OI=1992 at $2.05 SL=1.00

Average Daily Volume = 3.30 mil

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Sell-Off In Progress!
By Ray Cummins

The major equity averages extended their recent losses today amid
renewed weakness in technology, energy and financial issues.

The Dow Jones Industrial Average retreated 130 points to 8,694
with Alcoa (NYSE:AA), Walt Disney (NYSE:DIS), Citigroup (NYSE:C),
Exxon Mobil (NYSE:XOM), and International Business Machines
(NYSE:IBM) pacing the decline for the popular blue-chip gauge.
The technology-laced NASDAQ Composite dropped 33 points to 1,314
as the networking segment tanked in the wake of a negative report
from Nortel Networks (NYSEL:NT).  The familiar networking firm
warned of a shortfall in revenues and a meager outlook for product
demand.  A downbeat analyst call on Sun Microsystems (NASDAQ:SUNW)
also weighed on hi-tech stocks and additional pressure came from
a downgrade of the chip sector.  The broader S&P 500-stock index
lost 16 points to 917 as airlines, finance, and energy stocks led
a widespread slump in share values.  Trading volumes were mediocre
with a lack of interest pervading the market ahead of Monday's
Labor Day holiday.  Only 1.3 billion shares exchanged hands on
the NASDAQ while 1.1 billion shares were traded on the New York
Stock Exchange.  Breadth was strongly negative with losers more
than doubling winners on both the Big Board and the technology
exchange.  The sell-off in equities had an uplifting effect on
the bond market, which rose across the board after a wrenching
retreat on Tuesday.  The 10-year Treasury note climbed 14/32 to
yield 4.22% while the 30-year government bond gained 24/32 to
yield 5.01%.


(As of 08-27-02)

Naked Puts

Stock  Strike Strike  Cost Current  Gain  Potential
Symbol  Month  Price Basis  Price  (Loss) Mo. Yield

PLMD     SEP    22.5 21.85  23.15   $0.65    5.39%
AMGN     SEP    35   34.40  45.21   $0.60    4.26%
CCMP     SEP    25   24.45  41.98   $0.55    4.44%
AMGN     SEP    37.5 37.00  45.21   $0.50    4.11%
CCR      SEP    45   44.35  52.35   $0.65    4.15%
CEPH     SEP    35   34.05  44.80   $0.95    7.61%
CHIR     SEP    32.5 32.05  39.67   $0.45    4.03%
CVTX     SEP    20   19.65  24.64   $0.35    4.87%
IDPH     SEP    35   34.30  41.30   $0.70    5.84%
IVGN     SEP    30   29.40  36.21   $0.60    5.66%
OSIP     SEP    23   21.65  16.16  ($2.25)+  0.00%
OSIP     SEP    20   19.55  16.16  ($0.65)+  0.00%

OSI Pharmaceuticals (NASDAQ:OSIP) lost more than half its
value last week when a rival's setback raised concerns about
the company's anti-cancer drug.  The stock declined because
a U.K.-based pharmaceutical company, AstraZeneca (NYSE:AZN),
announced disappointing testing results for its anti-cancer
drug, Iressa.  Iressa and OSI's key experimental compound,
Tarceva, both belong to the same class of drugs known as
epidermal growth factor inhibitors.  These unique drugs are
used to interfere with the uncontrolled growth of cancerous
cells.  Analyst Meirav Chovav at UBS Warburg argued that the
Iressa disappointment wasn't necessarily bad news for OSI
because the company could gain a competitive advantage if
Tarceva turns out to be a success in clinical trials.  But,
investors didn't agree with that optimistic outlook and after
the pre-market announcement (8/19), they sold the issue down
to levels not seen for two years.  The high for that day was
$23 and traders who exited our bullish plays in the morning
paid a large premium to close the positions, despite the fact
that both (sold) options were "out-of-the-money."  We will
record the losses in our portfolio but this is one issue that
may be worth a recovery attempt as the company's product has
yet to have its day in court.

Put-Credit Spreads

Stock                                              Gain
Symbol  Pick   Last  Month L/P S/P Credit   C/B   (Loss) Status

PII     67.90  74.35  SEP   50  55  0.60   54.40  $0.60   Open
BSC     65.44  65.56  SEP   55  60  0.55   59.45  $0.55   Open
CCMP    41.50  41.98  SEP   25  30  0.40   29.60  $0.40   Open
SCHL    44.00  42.60  SEP   35  40  0.50   39.50  $0.50   Open

Scholastic (NASDAQ:SCHL) is on the "watch-list" for further
downside activity.  Traders should monitor the issue for an
early exit as it approaches the sold strike at $40.

Call-Credit Spreads

Stock                                             Gain
Symbol  Pick   Last  Month L/C S/C Credit   C/B  (Loss) Status

AAP    45.95   53.49  SEP   60  55  0.70   55.70  $0.70  Open?
AIG    62.08   64.57  SEP   75  70  0.65   70.65  $0.65  Open
INTU   41.04   45.17  SEP   55  50  0.60   50.60  $0.60  Open
AVE    63.62   61.54  SEP   75  70  0.55   70.55  $0.55  Open
EASI   47.68   50.49  SEP   60  55  0.60   55.60  $0.60  Open?
HI     38.09   37.70  SEP   50  45  0.65   45.65  $0.65  Open

Advance Auto Parts (NYSE:AAP) rallied with stocks in the Auto
Parts Stores group and the close above near-term resistance at
$52 was a potential "early-exit" signal for the position.  A
change in character has also taken place in Engineered Support
Systems (NASDAQ:EASI) and further upside activity will signal
an exit or adjustment in the position.

Synthetic Positions:

Stock  Pick     Last    Position   Credit   C/B    M/V   Status

AXP    35.26   37.09   SEP40C/30P   0.10   29.90   0.20   Open
CCR	 50.81   52.35   SEP55C/45P   0.20   44.80   1.20  Closed
INVN   27.25   32.05   SEP35C/20P   0.00   20.00   1.25  Closed
BLL    45.60   47.51   NOV55C/35P  (0.10)  35.10   0.30   Open
GS     78.50   79.10   SEP85C/70P   0.10   69.90   1.00   Open?
IBM    74.92   77.96   SEP85C/60P   0.10   59.90   1.75  Closed

Countrywide Credit (NYSE:CCR), InVision Technologies (NASDAQ:INVN)
and International Business Machines (NYSE:IBM) have achieved the
target exit points in our bullish plays.  Goldman Sachs (NYSE:GS)
has also yielded a favorable "early-exit" profit.

Questions & comments on spreads/combos to Contact Support


This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (I monitor the positions marked with ***).


BULLISH PLAYS - Premium Selling

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

AMGN - Amgen  $45.18  *** New Drug Approvals! ***

Amgen (NASDAQ:AMGN) is a biotechnology company that discovers,
develops, manufactures and markets human therapeutics based on
advances in cellular and molecular biology.  Amgen manufactures
and sells human therapeutic products, including Epogen, Neupogen,
Aranesp, Neulasta and Kineret.  Amgen focuses its research and
development efforts on therapeutics delivered in the form of
proteins, monoclonal antibodies and small molecules in the areas
of nephrology, cancer, inflammation and neurology and metabolism.
The company has research facilities in the United States as well
as clinical development staff in the United States, the European
Union, Canada, Australia and Japan.  The company recently bought
Immunex, a biopharmaceutical company dedicated to developing new
immune system sciences to protect human health.  Immunex had
successfully developed two products, Enbrel and Leukine, and was
marketing four products treating multiple indications, Enbrel,
Leukine, Novantrone and Thioplex.

AMGN - Amgen  $45.18

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  SEP 37.5 AMQ UU   5,448     0.35    37.15      4.3% "TS"
SELL PUT  SEP 40   AMQ UH   4,105     0.60    39.40      5.9% ***
SELL PUT  SEP 42.5 AMQ UV   1,848     1.05    41.35      8.5%

GDT - Guidant  $35.50  *** Bullish Earnings Guidance! ***

Guidant Corporation (NYSE:GDT) pioneers lifesaving technology for
cardiac and vascular patients.  The firm develops, manufactures
and markets a broad array of products and services that enable
less-invasive care for most threatening medical conditions.  The
company offers stent systems, implantable defibrillator systems,
implantable pacemaker systems as well as cardiac resynchronization
therapy, products for use in less-invasive endovascular procedures,
including the treatment of abdominal aortic aneurysms, products to
help perform cardiac surgery procedures such as Off-Pump Coronary
Revascularization with EndoScopic vessel harvesting as well as
intravascular radiotherapy systems for artery disease.

GDT - Guidant  $35.50

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  SEP 30   GDT UF     939     0.30    29.70      4.4% ***
SELL PUT  SEP 35   GDT UG   2,104     1.40    33.60     12.3%

IDPH - IDEC Pharmaceuticals  $41.41  *** Analyst "Buy" Rating! ***

IDEC Pharmaceuticals (NASDAQ:IDPH) is a biopharmaceutical company
engaged primarily in the research, development, manufacture and
commercialization of targeted therapies for the treatment of many
cancer and autoimmune and inflammatory diseases.  The company's
two primary commercial products, Rituxan and Zevalin (ibritumomab
tiuxetan), are for use in the treatment of B-cell non-Hodgkin's
lymphomas.  The company is also developing new products for the
treatment of cancer and various other autoimmune diseases such
as rheumatoid arthritis, psoriasis, allergic asthma and allergic
rhinitis.  Rituxan, the company's first product, and Zevalin, its
second product approved for marketing in the United States, as
well as its other primary products under development, address
immune system disorders such as lymphomas, autoimmune and many
inflammatory diseases.  In addition, the company has discovered
other product candidates through the application of its unique
technology platform.

IDPH - IDEC Pharmaceuticals  $41.41

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  SEP 35   IDK UG   1,298     0.65    34.35      8.0% ***
SELL PUT  SEP 40   IDK UH   3,544     1.85    38.15     14.4%

INVN - InVision Technologies  $32.51  *** Bomb Detection ***

InVision Technologies (NASDAQ:INVN) is a provider of Federal
Aviation Administration certified explosives detection systems
used at airports for screening checked passenger baggage.  The
company's EDS products are based on complex computer tomography,
which is the only technology for explosives detection that has
met the FAA certification standards.  InVision was the first
manufacturer, and is one of only two manufacturers, whose EDS
products have been certified by the FAA for screening checked

INVN - InVision Technologies  $32.51

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  SEP 25   FQQ UE   1,272     0.25    24.75      4.9% ***
SELL PUT  SEP 30   FQQ UF     883     0.95    29.05     10.9%

IVGN - Invitrogen  $35.96  *** Solid Technicals! ***

Invitrogen (NASDAQ:IVGN) develops, manufactures and markets more
than 10,000 products for the life sciences markets.  Invitrogen's
products are principally research tools in reagent and kit form,
biochemicals, sera, media, and other products and services, which
the company sells to corporate, academic and government entities.
The company focuses its core business on two principal segments,
Molecular Biology Products and Cell Culture Products.

IVGN - Invitrogen  $35.96

PLAY (sell naked put):

Action    Month &  Option    Open    Closing  Cost     Target
Req'd     Strike   Symbol    Int.    Price    Basis    Mon. Yield

SELL PUT  SEP 30   IUV UF      90     0.35    29.65      5.3% ***
SELL PUT  SEP 32.5 IUV UZ     329     0.75    31.75      8.5%
SELL PUT  SEP 35   IUV UG      28     1.50    33.50     13.3%


BULLISH PLAYS - Credit Spreads

There are relatively few favorable issues to choose from for this
strategy and the near-term outlook for equities does not support
a bullish bias.  However, traders who are optimistic about a
continuation of the recent recovery rally should consider these
limited-risk positions.

CCR - Countrywide Credit  $52.87  *** Mighty Mortgager! ***

Countrywide Credit Industries (NYSE:CCR) is a holding company that
originates, purchases, sells and services mortgage loans through
its principal subsidiary, Countrywide Home Loans.  The company's
mortgage loans are principally prime credit first-lien mortgage
loans secured by single family residences (prime credit first
mortgages).  Countrywide Credit also offers home equity loans and
sub-prime credit loans.  Countrywide, through its other wholly
owned subsidiaries, offers products and services that are largely
complementary to its mortgage banking business, including primary
underwriting of lender-placed mortgage insurance, insurance policy
brokerage, mortgage-backed securities brokerage and underwriting,
brokerage of bulk servicing transactions, loan processing and also
servicing in foreign countries, and retail banking.  The company
conducts its business through four segments: Insurance Segment,
Capital Markets Segment, Global Segment and Banking Segment.

CCR - Countrywide Credit  $52.87

PLAY (moderately aggressive - bullish/credit spread):

BUY  PUT  SEP-45  CCR-UI  OI=2525  A=$0.45
SELL PUT  SEP-50  CCR-UJ  OI=1371  B=$1.10
POTENTIAL PROFIT(max)=15% B/E=$49.35

EASI - Engineered Support  $52.40  *** Character Change! ***

Engineered Support Systems (NASDAQ:EASI) along with its various
subsidiaries, designs and manufactures military support equipment
and electronics for the United States armed forces.  The company
also engineers and manufactures air handling and heat transfer
equipment, material handling equipment and custom molded plastic
products for commercial and industrial users. Engineered Support
Systems' six wholly owned subsidiaries are Systems & Electronics
(SEI), Engineered Air Systems (Engineered Air), Keco Industries,
(Keco), Engineered Coil Company (d/b/a Marlo Coil), Engineered
Electric Company (d/b/a Fermont) and Engineered Specialty

EASI - Engineered Support Systems  $52.40
PLAY (aggressive - bullish/credit spread):

BUY  PUT  SEP-45  UFE-UI  OI=80  A=$0.55
SELL PUT  SEP-50  UFE-UJ  OI=10  B=$1.40
POTENTIAL PROFIT(max)=22% B/E=$49.10



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.

HIT - Hitachi  $54.68  *** Another Leg Down? ***

Hitachi (NYSE:HIT) is a global electronics company that makes and
markets a range of products, including computers, semiconductors,
consumer products, and power and industrial equipment.  The firm's
business is very diversified, and is classified into five industry
segments: Information Systems and Electronics, Power and Industrial
Systems, Consumer Products, Materials, and Service and Other.

HIT - Hitachi  $54.68

PLAY (aggressive - sell naked call):

Action    Month &  Option   Open   Closing  Cost       Target
Req'd     Strike   Symbol   Int.   Price    Basis    Mon. Yield

SELL CALL  SEP 60  HIT IL    38     0.60    60.60       4.6% ***
SELL CALL  SEP 55  HIT IK    36     2.05    57.05      11.5%

MUR - Murphy Oil  $82.87  *** Failed Rally? ***

Murphy Oil Corporation (NYSE:MUR) is a worldwide oil and gas
exploration and production company with refining and marketing
operations in the United States and the United Kingdom.  The
company's operations are classified into two primary businesses:
Exploration and Production; and Refining and Marketing.  The
company's principal exploration and production activities are
conducted in the United States, Ecuador and Malaysia by wholly
owned Murphy Exploration & Production and its subsidiaries; in
western Canada and offshore eastern Canada by Murphy Oil Ltd.
and its subsidiaries; and in the U.K. North Sea/Atlantic Margin
by wholly owned Murphy Petroleum Limited.  Murphy Oil USA, a
wholly owned subsidiary, owns and operates two refineries in
the United States.  MOUSA markets refined products through a
network of retail gasoline stations and branded and unbranded
wholesale customers in a 23-state area of the southern and
Midwestern United States.

MUR - Murphy Oil  $82.87

PLAY (aggressive - sell naked call):

Action    Month &  Option   Open   Closing  Cost       Target
Req'd     Strike   Symbol   Int.   Price    Basis    Mon. Yield

SELL CALL  SEP 90  MUR IR   419     1.05    91.05       5.1% ***
SELL CALL  SEP 85  MUR IQ   438     2.40    87.40       9.5%

OMC - Omnicom Group  $59.45  *** Premium Selling! ***

Omnicom (NYSE:OMC) is a marketing and corporate communications
company.  Omnicom has grown its strategic holdings to over 1,500
subsidiary agencies operating in more than 100 countries.  The
company's wholly and partially owned businesses provide various
communications services to clients on a global, pan-regional and
national basis.  The firm's agencies provide an extensive range
of marketing and corporate communications services, including
advertising, brand consultancy, crisis communications, custom
publishing, database management, digital-interactive marketing,
direct marketing, directory and business-to-business advertising,
employee communications and environmental design.  Omnicom also
provides field marketing, healthcare communications, marketing
research, media planning and buying, multi-cultural marketing,
non-profit marketing, promotional marketing, public affairs,
public relations, recruitment and specialty communications, and
sports and event marketing.

OMC - Omnicom Group  $59.45

PLAY (aggressive - sell naked call):

Action    Month &  Option   Open   Closing  Cost       Target
Req'd     Strike   Symbol   Int.   Price    Basis    Mon. Yield

SELL CALL  SEP 70  OMC IN   1,468   0.60    70.60       5.7% ***
SELL CALL  SEP 65  OMC IM   1,578   1.60    66.60      10.7%
SELL CALL  SEP 60  OMC IL   4,825   3.20    63.20      16.0%

QLGC - QLogic  $34.68  *** Sector Slump! ***

QLogic Corporation (NASDAQ:QLGC) designs and supplies storage
network infrastructure components and software for server and
storage subsystem manufacturers.  The company's products are
based on SCSI, iSCSI, Fibre Channel and Infiniband standards.
The company is the only end-to-end supplier of Fibre Channel
network infrastructure components that aid in the transfer and
acquisition of data within the SAN.  Their products include its
SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool
Kit management software.  QLogic is the only HBA vendor that
supports SCSI, Internet Protocol, Virtual Interface and FICON
protocols with the same Fibre Channel HBA.  In addition, the
company designs and supplies controller chips used in a variety
of hard drives and tape drives as well as enclosure management
and baseboard management chip solutions that monitor the health
of the physical environment within a server or storage enclosure.

QLGC - QLogic  $34.68

PLAY (aggressive - sell naked call):

Action    Month &  Option   Open   Closing  Cost       Target
Req'd     Strike   Symbol   Int.   Price    Basis    Mon. Yield

SELL CALL  SEP 40  QLC IH   4,944   0.45    40.45       6.6% ***
SELL CALL  SEP 37  QLC IU     975   1.05    38.55      11.5%
SELL CALL  SEP 35  QLC IG   5,960   2.10    37.10      17.7%


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.

AET - Aetna  $41.89  *** Rolling Over? ***

Aetna (NYSE:AET) is a health benefits company whose business
operations are conducted in the Health Care, Group Insurance and
Large Case Pensions segments.  The company was spun off with the
remaining entity merged into a subsidiary of ING Groep N.V.  The
Health Care group consists of health and dental benefit products,
including health maintenance organization, point-of-service,
preferred provider organization and indemnity products, and group
insurance products, including life, disability and long-term care
insurance products.  The Group Life Insurance segment consists
principally of renewable term coverage, the amounts of which may
be fixed or linked to individual employee wage levels.  The Large
Case Pensions group manages a wide variety of retirement products,
including pension and annuity products, offered to qualified
defined benefit and contribution plans.

AET - Aetna  $41.89

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-50  AET-IJ  OI=265   A=$0.20
SELL CALL  SEP-45  AET-II  OI=7240  B=$0.70
POTENTIAL PROFIT(max)=12% B/E=$45.55

COF - Capital One  $35.33  *** A Necessary Consolidation! ***

Capital One Financial (NYSE:COF) is a holding company whose major
subsidiaries market a variety of financial products and services
to consumers using its proprietary information-based strategy.
The company's primary business is consumer lending, with a focus
on credit cards, but including other consumer lending activities
such as unsecured installment lending and automobile financing.
The company's principal subsidiary, Capital One Bank, a limited
purpose, state-chartered credit card bank, offers credit card
products.  Capital One, F.S.B., a federally chartered bank, offers
consumer lending and deposit products.  Capital One Services, the
other major subsidiary, provides various operating, administrative
and business services to the company and its subsidiaries.

COF - Capital One  $35.33

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-42.50  COF-IV  OI=1433  A=$0.30
SELL CALL  SEP-40.00  COF-IH  OI=2619  B=$0.55
POTENTIAL PROFIT(max)=12% B/E=$40.30

LEH - Lehman Brothers  $56.22  *** Brokerage Downgrade! ***

Lehman Brothers Holdings (NYSE:LEH) is a global investment bank
serving institutional, corporate, government and high-net-worth
individual clients and customers.  The firm is engaged primarily
in providing financial services and operates in three business
segments: Investment Banking, Capital Markets and Client Services.
Other businesses in which the firm is engaged represent less than
10% of consolidated assets, revenues or pre-tax income.  Lehman's
business includes capital raising for clients through securities
underwriting and direct placements, corporate finance and other
strategic advisory services, private equity investments, stock
sales and trading, research and the trading of foreign exchange
and derivative products and certain commodities.  The firm acts
as a market-maker in all major equity and fixed-income products
in both the domestic and international markets.

LEH - Lehman Brothers  $56.22

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-65  LEH-IM  OI=3129  A=$0.20
SELL CALL  SEP-60  LEH-IL  OI=4597  B=$0.65
POTENTIAL PROFIT(max)=11% B/E=$60.50


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