Option Investor

Daily Newsletter, Wednesday, 09/11/2002

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The Option Investor Newsletter                Wednesday 09-11-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Nothing Bad Happened
Index Trader Wrap: Somber session ends mixed
Weekly Fund Family Profile: Fred Alger Management: A Year Later
Options 101: Managing Risk

Updated on the site tonight:
Swing Trader Game Plan: Surprise, Surprise

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
09-11-2002                High    Low     Volume Advance/Decl
DJIA     8581.17 - 21.44 8726.90  8570.22  987 mln   549/430
NASDAQ   1315.45 -  4.64 1347.27  1314.96 1068 mln   663/384
S&P 100   455.41 -  0.48  464.02  454.73   totals   1212/814
S&P 500   909.45 -  0.13  924.02  908.47
RUS 2000  393.37 -  0.79  397.55  393.20
DJ TRANS 2297.32 +  9.72 2326.39  2285.87
VIX        37.23 +  0.27   38.45  35.92
VIXN       54.00 +  0.93   54.00  52.52
Put/Call Ratio 0.69

Nothing Bad Happened
by Steven Price

It is very difficult to gauge overall market direction on a day 
when many traders either didn't come to work, started late or 
went home early.  We opened the day with a triple digit rally in 
the Dow. However, as the rally faded there were a couple of 
significant technical developments.  First, the Dow crossed back 
above the 50-dma (currently 8614) for the first time since 
closing below that level on August 28.  For the second, let's 
look at the Fibonacci retracement levels of the rally from July 
24 to August 22.  The 50% retracement provided support on 5 
straight trading sessions last week, giving the Dow a 
consolidation point, from which it broke out above the 38.2% 
level.  Today that rally ran out of steam just below the next 
level of 19.1% at 8782. A hold above the 50-dma could have been 
seen as bullish, with the group finding another level of support 
from which to rally, as it did following the last 50-dma breakout 
on August 19.  That previous breakout brought the Dow over 9000, 
to the recent high of 9077 on August 22.  But in this case, the 
group could not hold on, dropping back below that level.  So, 
what looked to be a significant move up, instead turned into 
failure at the 50-dma.

Chart of the Dow 50-dma


The failure at the 19.1% retracement level also looks bearish. If 
you extend this level backward, it also provided resistance 
during that rally from July 24 to August 22.   This level of 
resistance, on both sides of the August 22 high, appears as 
though it may be acting as the shoulder level in the possible 
development of a bearish head and shoulders pattern.  A look at 
the graph below shows the possibility of a neckline forming at 
the 50% retracement level, depending on how long it takes to fall 
back to that level.

Chart of Dow Head and Shoulders


So here we are between a couple of significant points, and we 
also have different forces at work pulling on the markets.  On 
one hand, there are sure to be investors who have remained on the 
sidelines, waiting for the 9/11 anniversary to pass before 
feeling comfortable putting money back into the market, knowing 
how badly stocks tanked after last year's attacks.    The fact 
that they all did not return on the one-year anniversary does not 
necessarily mean that they won't.  Is this factor enough to get 
the markets rolling again?  More buyers, meaning more demand, can 
certainly lead to a sustained rally.  However, no matter how many 
potential buyers are out there, they still need a reason to buy.  
With 9/11 out of the way, we may have a seen a reason "not to 
buy" removed from the equation, but the news has still been 
consistently negative.  We have seen nothing but downgrades from 
the tech sector.  Just a couple of days ago, forecasting firm IDC 
lowered growth estimates for the semiconductor stocks from 4.7% 
to 1.1% in 2002 and from 11.1% to 8.4% in 2003.  This followed 
Intel's lower guidance and warnings from a host of other techs on 
an almost weekly basis over the last several months.  If you had 
been saving your money to invest in the market after 9/11, you 
would still want a reason to put it back in.  

Right now, all we are hearing is that IT spending is still 
declining.  ISM reports have showed that manufacturing and non-
manufacturing sectors are slowing and this morning's Beige book 
did nothing to allay fears of an overall economic slowdown. The 
report suggested the growth of economic activity has slowed in 
recent weeks.  There was little or no gain in employment in July 
and August and there was widespread concern that rising health 
care costs will affect labor costs negatively. Manufacturing 
activity was also sluggish.  The report noted that manufacturers 
have become less optimistic than they were earlier in the year.  
Although residential real estate sales remain strong, commercial 
real estate markets are weak.  Residential mortgages and lending 
are still at high levels, but business lending was light across 
the board. Contacts in Philadelphia, according to the report, 
expressed concern about the sustainability of real estate lending 
in the absence of growth in other sectors. Retailers have pared 
their inventories, expecting fall sales to be flat or only 
slightly up from 2001. The golden goose of residential real 
estate is still going strong, but everything else is heading the 
other way, and with foreclosures at all-time highs, the cracks in 
the housing market may be starting.  

A look at the bullish percentage figures shows a significant drop 
from just a couple of weeks ago. Bullish percentage measures the 
percentage of stocks in a sector that are currently giving point 
and figure buy signals.  The Nasdaq-100 (NDX) has fallen from 50% 
down to 36%.  The Dow has fallen from 60% to 50%.  The S&P 500 
has fallen from 58% to 52%.  These drops, when combined with 
today's market weakness, appear to be foreshadowing a negative 
immediate future.  

The semiconductor sector, which has been a bastion of bad news, 
is attempting a comeback.  After setting 52-week lows in the 
Semiconductor Sector Index (SOX.X) last week, it has moved above 
resistance at 300. Although it pulled back yesterday after 
breaking that mark, it made it back above that level and held 
today. A look at the descending channel it has been in since the 
beginning of the year shows that although it set that new low, it 
actually rebounded from a higher point in the channel than it did 
during previous bounces on the way down. The last effort to break 
out of the channel at the end of August was turned back by the 
50-dma.  The descending 50-dma could once again provide 
resistance if the SOX breaks the channel, and it appears to be 
trying to break the channel once again.  As the failure at the 
previous 50-dma, in contrast to the major averages breaking 
through theirs, seemed to lead us back down, a break above that 
level could be the foundation for a turnaround to the upside. One 
thing that will have to improve first, however, is the sector 
bullish percent, which is still a paltry 20%.  The 20% does 
indicate the group is oversold, which coincides with the daily 
oscillators, which appear to be turning up from oversold 
territory and giving buy signals.

Chart of the SOX


After yesterday's heightened security alert, investors remained 
jittery as reports of incidents on two separate airplanes, and a 
ship trickled out through the news wires.  The plane incidents 
turned out to be three men locking themselves in a bathroom, and 
a suspicious comb.  The ship, on the other hand, was a Liberian 
container ship, which gave off traces of radioactivity and was 
re-directed to a safe area several miles offshore.

It is hard to take any real conviction from a shortened trading 
day, where less than a billion shares were traded on the NYSE, 
and traders minds were undoubtedly focused on the ceremonies 
surrounding ground zero just a couple of blocks away.  The 
Nasdaq, which opened earlier than the NYSE, but still later than 
usual, saw barely a billion shares change ownership.  The last 
three Septembers have been brutal for the Dow, so today's failed 
rally seems to be following the script.  With the 9/11 
anniversary behind us, some of those buyers still may creep in, 
but I suspect we'll need some positive economic news to find any 
real commitment.  

President Bush will address the United Nations tomorrow and make 
his case against Iraq.  In today's memorial speech he made sure 
to include "dictators" in the same sentence as "terrorists" that 
plot against us, so there is little doubt how he intends to 
characterize Saddam Hussein.  The effect an Iraqi invasion will 
have on our economy has been debated, but one thing is clear - we 
will see oil prices rise.  This may be a small price to pay for 
long-term security, but it is something the markets will pay 
attention to, as it will affect many businesses and consumers.  
Alan Greenspan also testifies before the House Budget Committee 
tomorrow, so we will get a peak at the likelihood of interest 
rates being cut further this year.  His comments on the economic 
recovery will also cause some jumpiness as he speaks.  In 
addition we will see Initial Claims for last week and August 
Import/Export Prices.  After layoffs increased, but unemployment 
for August decreased, the Initial Claims should give us a sense 
of direction for employment.  

With these speeches from the President and Fed Chairman, normal 
trading hours, and higher volume, tomorrow should be a better 
indication of which way we will head, with 9/11 behind us. We 
could still see a post-9/11 rally, without any major events 
scaring investors away.  My guess, however, is that it will be 
temporary, until the buyers have a better reason than "nothing 
bad happened." 


Somber session ends mixed

Today's shortened trading session started out bullish, but as the 
session progressed, bulls lost their enthusiasm, as most of the 
major market averages finished fractionally lower.

Volume wasn't expected to be heavy and it wasn't, as the NASDAQ 
Composite (COMPX) 1315 -0.35% was pressed to trade just over 1 
billion shares, while the NYSE Composite (NYA) 492 +0.10% traded 
a more modest 852 million shares.  In all, this would be just 
about average volume considering the shortened session.

Each day I try to post market breadth for the NASDAQ and NYSE to 
give traders a shorter-term view of what type of bid or lack 
thereof is taking place in the markets.  While breadth was 
marginally positive on both the NYSE and NASDAQ with an hour left 
in trading, the NASDAQ breadth faded to unchanged, while the NYSE 
breadth finished marginally positive with 17 stocks advancing for 
every 14 stocks declining.  In essence, it was a rather 
"hodgepodge" session and no real sense of direction was found.

While I generally see some similarity from advance decline 
breadth on a daily basis, I continue to see some major divergence 
in the new highs versus new low category when comparing the NYSE 
versus NASDAQ composites.  The NYSE does show some hints that 
there are stocks trying to lead or at least continuing to attract 
capital as 47 stocks hit new highs, versus just 18 stocks hitting 
new lows.  In today's 03:00 EST update, I described the NASDAQ as 
a soggy cardboard box as the new lows continued to outweigh new 
highs with today's tally showing 56 stocks at new lows versus 
just 22 four and five-lettered stock symbols trading new highs.

While one could argue that the NASDAQ is so littered with stocks 
trading under $1.00 that seemingly hit new lows on a daily basis, 
a fresh 52-week low from Sun Microsystems (NASDAQ:SUNW) $3.37 
-3.98% is no laughing matter for a bull.

As a QQQ bear that was looking for a rally just above $24.50, I 
was disappointed with Merrill Lynch's timing and negative 
comments regarding the computer hardware sector and listing off 
about 6 different reasons for bulls to be cautious in the group.  
The QQQ rallied to an early morning high of $24.35 and faded as 
the day went on to close just 3 cents off its low at $23.42.  
With the QQQ failing to close back above its 21 and 50-day simple 
moving averages, the Q's look short with a stop just above 

Tonight, I'm going to add a retracement bracket to the daily 
interval chart, and the levels help define a trader's stop and 
target for initiating a trade.  Some traders may have shorted 
intraday today as bullishness started to fade, so I'll stick with 
similar levels as described last night.

NASDAQ-100 Index Tracking stock (QQQ) - Daily Interval


Two bearish trade strategies can be taken in a short of the QQQ.  
Traders that have traded the QQQ understand that some rather 
extreme volatility can be had at times and giving a trade in the 
QQQ some room is needed.  A 1/2 position short at current levels 
and a stop just above $24.50 gives a less aggressive bear some 
time to monitor a bearish trade in the first couple of days.  A 
more aggressive bear that likes to only short full positions most 
likely follows with a tighter stop just above downward 
regression's $24.50 level.  While a target of $21.30-$21.35 is 
"only" a $2.00 gain, in percentage terms, a decline to that near-
term target is roughly 8.9%.  I like to set my retracement levels 
just "inside" of targets as I can then set alerts at those levels 
and be at the ready and monitoring exit points on an intraday 
basis should alerts be triggered.

I'm "classifying" the QQQ as the weakest of the major market 
averages we cover here.  As such, if a bearish QQQ trade is 
placed, then I want to get some help from a stronger index and 
downside action to act like a sledge hammer driving a post into 
the ground.

This is where I'd turn to the S&P 500 Index (SPX.X) 909 -0.01%, 
key off the same 21-day and 50-day SMAs.  A bear in the QQQ's 
wants the SPX to be the sledge hammer that breaks below its 50-
day MA and act like a wet blanket that smothers any type of 
"rally flame" in the Q's.

S&P 500 Index Chart (SPX) - Daily Interval


I don't like to put on a bunch of bearish index trades in one 
session, but will use the different indexes like a chain of 
dominos.  I like to establish a bearish trade in a weaker index 
first, then if/as the trade works in my favor, I begin to seek 
out further weakness in an index that could do some catching up 
to the downside.  

I wouldn't say today's fractional loss in the SPX is anything for 
a bear to be cheering about, but the inability to hold a close 
above the starting-to-round 21-day MA and my 912 level of 
horizontal resistance hints that there's some lacking of 
bullishness.  Not every trader likes to trade the Q's due to 
higher volatility and a similar strategy of 1/2 or full position 
short in the SPX could be taken.  I like an aggressive bear's 
short for full position in the SPX or SPY at current levels and a 
stop in the SPY just above today's high should keep risk at a 
minimum (say $0.25 above today's SPY high of $93.33).

There was no net change in the S&P 500 Bullish % ($BPSPX) from 
www.stockcharts.com and this group of 500 stocks just reversed 
back into bear confirmed status at 52%.

Dow Diamonds (DIA) Chart - Daily Interval


Dow component Honeywell (NYSE:HON) $28.49 -5.56% was today's 
biggest component loser and most likely the stock that had both 
the Dow Industrials (INDU) 8,581 -0.24% and the Diamonds (DIA) 
$85.68 -0.93% closing below the trending lower 50-day SMA.

Other components had Microsoft (NASDAQ:MSFT) $48.56 -2.47% 
selling off into the close of trading and a sector bear in the 
QQQ, SPX and DIA would like nothing more than continued weakness 
in Microsoft.  Particularly QQQ bears, as MSFT accounts for a 
13.4% weighting in the QQQ, which is rather sizeable considering 
the next most heavily weighted stock is Intel (NASDAQ:INTC) 
$16.58 +0.91% at a 5.57% weighting and Cisco Systems 
(NASDAQ:CSCO) $13.50 +1.04% a close third at 5.07% weighting.

Economic data

Trader's thinking about some bearish trades in the indexes will 
perhaps get an early morning pulse on things as most eyes will be 
on weekly jobless claims for the week just ended September 7.  
Economists are looking for a reading of 400,000.  The 400,000 
level is somewhat of a "waterline" in most economist's minds.

Precious metals stocks as depicted by the Gold/Silver Index 
(XAU.X) 72.95 +1.31% traded just about inverse to the market.  
After a gap lower at the open, bullishness built into the close.  
Undoubtedly sector bears that were caught off-guard after the 
recent break above bearish resistance trend and triple-top buy 
signal at 68.00 (on the $1 box point and figure chart) may have 
been looking to get flat ahead of tomorrow morning's current 
account deficit report for the second quarter.  Economists are 
looking for a -$125.0 billion deficit on average.


The earning's calendar is light the remainder of the week.  
Technology traders will note that software maker Adobe Systems 
(NASDAQ:ADBE) $19.18 -0.57% is scheduled to release earnings 
after the close of trading tomorrow.  The stock was hammered 
lower on August 1 after reducing Q3 revenue guidance to $270-$290 
million from a previously stated guidance of $300 to $320 
million, and guided EPS for the quarter lower at $0.18.  Current 
consensus among analysts (based on ADBE guidance) are for the 
company to report EPS of $0.19.  The lowered EPS guidance has 
been factored into the stock, but what the company's near-term 
outlook and recent business trends have been will be what traders 
focus on most in the conference call.

The ADBE conference call may then set the stage for future 
trading in Microsoft (MSFT) and set up some potentially 
meaningful impact in the QQQ, SPX and Dow Industrials.

Questions for subscribers

For the most part, I've always traded the S&P 100 (OEX.X) 455 
-0.1% in correlation with the S&P 500 (SPX.X).  Since I will be 
writing and analyzing the major indexes in the near future, I 
don't want to NOT show charts of the OEX if you the subscriber 
feels a need for it.

If you want an OEX review each night, please e-mail me at 
jeff@OptionInvestor.com with a "subject heading" of OEX Trader.  
Then I can sort my e-mail by subject and get a pulse on how many 
traders are looking for more specific OEX comments.

Jeff Bailey

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Fred Alger Management: A Year Later

A year ago, Fred Alger Management lost its president, CEO and 
chief investment officer, David Alger in the tragic events of 
September 11, 2001.  This week, we look to see what portfolio 
management team changes were made in the aftermath of the U.S. 
terrorist attacks and assess how well the firm's mutual funds 
have performed over the past year compared to category peers.

Our mission here is not to find fault with anything that Fred 
Alger Management has done but rather to show how one firm has 
dealt with the grave consequences of losing key team members.  
David Alger defined that organization's pro-growth philosophy, 
and was actively involved in the day-to-day management of all 
Alger equity fund portfolios.

A number of past and present star managers at the Denver-based 
Janus Funds developed their growth stock investing style while 
employed by Fred Alger Management.  Among them was Tom Marsico, 
who before helping to put Janus on the map managing the highly 
popular Janus Twenty Fund (JAVLX) served as a senior portfolio 
manager with Fred Alger.  Helen Young Hayes, Janus' managing 
director of investments and co-portfolio manager of two highly 
popular Janus funds - Worldwide (JAWWX) and Overseas (JAOSX) - 
served as an analyst with Fred Alger before coming to Janus in 

Like Helen Young Hayes, Jim Goff was an analyst at Fred Alger 
before joining Janus Capital Corporation in 1988.  Today, the 
magna cum laude graduate of Yale University is Janus' head of 
research.  He was portfolio manager of Janus Enterprise Fund 
(JAENX) from its inception in September 1992 to February 2002, 
and co-managed Janus Venture (JAVTX) from December 1993 until 
February 1997.  

In addition to spawning some of the industry's leading equity 
fund managers, Fred Alger today ranks among the top 200 money 
managers with approximately $11 billion in total assets under 
management.  The New York-based firm was founded in 1964, and 
registered as an investment advisor with the SEC in 1970.  It 
remains an independent investment management firm today, wholly 
owned by its principals.

Portfolio Management Team

If you go to the Fred Alger website (www.fredalger.com), they 
state their belief that the firm's successful track record is 
evidence of the superior judgment and ability of Fred Alger's 
professional investment team.  This portfolio management team 
consists of five senior members of the company including Fred 
Alger, who founded the firm and serves as chairman, president, 
and chief market strategist today.

Other key members of Alger's team include Dan Chung, Dave Hyun, 
Alison Barbi and Jill Greenwald.  Chung joined Alger in May 1994 
as a research associate, and through Alger's in-house training 
process and participation in the CFA program, advanced through 
the ranks to become an analyst, then a senior analyst/portfolio 
manager.  Chung assumed his current position of chief investment 
officer after the September 11 terrorist attacks that killed 35 
out of 40 Alger employees working at the WTC, including manager 
and chief investment officer, David Alger.

Following the attacks, several former portfolio managers were 
persuaded to come back to the company.  Two of them were Dave 
Hyun and Jill Greenwald, current members of Alger's portfolio 
management team.    

Hyun joined Alger in January 1991, and like Chung used Alger's 
training program and the CFA program to move up the ranks.  By 
December 1997, Hyun was promoted to senior vice president and 
portfolio manager.  In June 2000, Hyun joined OppenheimerFunds 
and served as portfolio manager of the Oppenheimer Enterprise 
Fund.  He returned to Fred Alger in September 2001 and resumed 
primary responsibility for the management of Alger's separately 
managed accounts.  Further, Hyun holds primary responsibility 
today for Alger's all-cap growth funds, which include Spectra 
Fund, Alger Capital Appreciation Portfolio and Alger American 
Asset Growth Fund, Alger's three largest mutual fund products.

Jill Greenwald rejoined Fred Alger in November 2001 as senior 
vice president and senior analyst/portfolio manager.  She has 
responsibility for managing Fred Alger's small-cap portfolios.    
Before returning to Alger, Greenwald was senior vice president 
and investment officer with J&W Seligman and Company, and co-
portfolio manager of the Seligman Emerging Growth Fund.  From 
1993 until 1999, she held numerous positions with Chase Asset 
Management, including managing director and senior portfolio 
manager.  Greenwald began her career as an analyst with Alger, 
and stayed with the firm until May 1992 (returning in November 

Rounding out Alger's portfolio management team is Alison Barbi, 
senior vice president and analyst/portfolio manager with Alger.  
Previously, Barbi was vice president at Nationsbanc Montgomery 
Securities LLC (1990-1998) as well as at Drexel Burnham Lambert 
Government Securities, Inc. (1986-1990).

Investment Performance

As one recent article in Kiplinger's Personal Finance commented, 
"those returning investment specialists haven't been able to stop 
most of Alger's equity funds from falling even further than their 
growth-oriented peers recently."  They say that on a YTD basis 
through August 31, 2002, four of the firm's five equity funds 
reported higher-than-average declines within their respective 
categories.  It would be five of six Alger funds with greater-
than-average losses within their category if you included the 
Alger Balanced Fund, a partial equity fund.  

The Wall Street Week with Forbes article also noted that Alger 
mutual fund assets have declined by about $800 million between 
last September and July 2002 with approximately a third of the 
decline attributable to fund withdrawals.  

For the 1-year period as of September 10, 2002, Alger's growth 
oriented funds reported higher-than-average losses relative to 
the S&P 500 index and category peers.  Alger Balanced Fund and 
Alger Large-Cap Growth Fund both ranked in the bottom quartile 
within their relative categories per Morningstar.  Spectra Fund 
and Alger Capital Appreciation Fund both ranked near the break 
point between the third and fourth (bottom) quartiles based on 
category performance.

Using the class A shares, here's how the Alger equity funds did 
over the past 12 months through September 10, 2002 versus their 
respective category peer groups:

 Domestic Hybrid Funds:
 Alger Balanced (ALBAX) -10.7% (86th percentile)
 Category Average: -6.5%

 Large-Cap Growth Funds:
 Alger Capital Appreciation (ACAAX) -22.1% (73rd percentile)
 Alger Large Cap Growth (ALGAX) -23.2% (81st percentile)
 Spectra (SPEAX) -22.5% (75th percentile)
 Category Average: -19.0%

 Mid-Cap Growth Funds:
 Alger MidCap Growth (AMGAX) -20.5% (56th percentile)
 Category Average: -18.7%
 Small-Cap Growth Funds:
 Alger Small Capitalization (ALSAX) -19.5% (52nd percentile)
 Category Average: -18.1%

You can see that all six Alger equity funds, including Alger 
Balanced, rank in the bottom two quartiles of their relative 
Morningstar category based on trailing 1-year total return so 
indeed it has been a bit of a struggle for Fred Alger's team.  
How much of Alger's underperformance in the last year results 
from management changes is hard to quantify.

Still, if you look at Alger's long-term track record, there's 
reason to be optimistic.  Spectra's 10-year average return of 
13.5% through August 2002 still ranks it in the top 1% of the 
large-cap growth category per Morningstar.  That includes the 
volatile last three years in which Spectra Fund fell by 18.2% 
(annualized basis).  


Alger Balanced Fund's trailing 5-year annualized return of 6.2% 
through September 10, 2002 was 4.9% more than the S&P 500 index 
and solid enough to rank the fund in the U.S. hybrid category's 
top decile per Morningstar.  It does not have a 10-year record.  
Compared to its category peers, Alger Balanced has "high" risk.

Alger MidCap Growth Fund's trailing 5-year average return (5.6%) 
was 4.4% better than the S&P 500 large-cap index and good enough 
to rank the fund in the 11th percentile (near top decile) of the 
Morningstar mid-growth category.  Like Alger Balanced Fund, this 
fund hasn't been around for 10 years.  Versus its category peers, 
Alger MidCap Growth has "below average" volatility, according to 
Morningstar.  It's the only Alger fund currently 4-star rated or 
better by Morningstar.


If I was an Alger fund shareholder and believed in their growth 
investment philosophy and process, I would probably be inclined 
to stay the course and ride out the storm with them.  If you're 
considering Alger's growth-style funds for the first time, then 
you may prefer to wait and see if this new portfolio management 
team can get things turned around.

While Alger's equity funds have lagged their category peers for 
the past year, we believe that to be due more to Alger's growth 
style (more aggressive than most growth managers) than the team 
management changes that occurred over the past year.  The other 
thing not to forget is the potential for Alger's stock funds to 
lead in market advances.  

David Alger's baby, Spectra Fund, was the top performing mutual 
fund on the 1990's decade, I believe.  It operated as a closed-
end fund until February 12, 1996, when it adopted the open-end 
format.  If you want the Fidelity Magellan-equivalent of stock 
fund with Fred Alger Management, Spectra Fund may fit the bill.

For more information on the Spectra Fund and other Alger Group 
mutual funds, log on to www.alger.com.  You can also go to the 
Fred Alger Management website located at www.fredalger.com for 
more information on the firm and its portfolio management team.

Steve Wagner
Editor, Mutual Investor


Managing Risk
by Mark Phillips

Balancing risk and reward is at the core of what we do as
traders.  In the search for trades that provide a favorable
potential return vs. the attendant risk, we employ a seemingly
endless array of technical indicators, studies and empirical
parameters.  Each of us have a different approach to managing
risk, so proposing a method of managing that risk that is
applicable to all (or even most) traders is a practical
impossibility.  But there are some basic tools that all traders
can use to better control their risk in these volatile markets.

The first and most important tool (in my opinion) is the
disciplined use of stop losses.  Frequently emotions can interfere
with rational decision making once a trade is entered and having
a stop loss in place helps to take the emotion out of the
equation.  Whenever I write about stop losses, I invariably get
a series of questions on what type of stop loss order to use and
what are the differences between them.  I recently wrote an
article on that topic, so if you have questions along those
lines, I would encourage you to read that article at Managing Risk
With Stop Orders.  Another way to control the emotional aspect of
a trade is to make sure that you aren't trading too large of a
position size.  If you find yourself controlled by emotions on a
specific trade, then it is a safe bet your position size is too
large.  Experienced traders will recognize that feeling and
immediately trim the size of the trade as a method of bringing
their emotions back under control.

While stop orders are an essential tool for risk management after
a trade is opened, what I want to talk about is controlling your
risk before the trade is opened.  In my experience, traders
essentially fall into one of two categories.  Momentum traders
prefer to trade breakouts or breakdowns on the theory that once
an important support or resistance level is penetrated, the move
that created that penetration will likely continue.  In the other
camp, we have the dip buyers, who prefer to initiate new bullish
positions on a rebound from support or new bearish positions on
a failure to penetrate resistance.  I'm not here to promote or
denigrate either approach.  Either one will likely work equally
well, provided the trade has been well-considered in 
advance of entry.

Momentum traders will manage their risk with stop losses set just
below resistance on a breakout or just above support on a
breakdown.  If the breakout falls back under the broken resistance
level, it is usually a sign that there is insufficient buying
pressure to keep the stock rising.  Similarly, if a stock breaks
down through strong support and then rallies back above that
support level, the market is telling us that the stock is not as
weak as the initial breakdown would have led us to believe.

I personally tend to favor buying dips and selling rallies
because of the way I like to manage risk.  There have been a lot
of failed breakouts and breakdowns recently, as once the primary
move through resistance or support has taken place, there is
frequently insufficient buying or selling to keep the move going.
Buying a rebound from support allows me to place a stop just
below that support level, keeping risk manageable.  Likewise,
selling at resistance provides the ability to place a stop just
above that resistance level, as a rally that takes the stock
above that resistance level gives a clear indication that my
rationale for the trade is in error.

To help clarify the differences in these two strategies, let's
take a look at a daily chart of IBM, which has provided solid
entries of both flavors in recent weeks.

IBM Daily Chart


After bouncing along the $65-66 support level for a solid month,
those bounces from that level in late July and early August
provided attractive entries to the long side for those (like
myself) that tend to favor buying bounces from support.  Risk
could have been managed with a fairly tight stop at $64.50,
which was just below the lowest intraday levels of the prior
month.  By mid-August, the momentum traders got their chance, as
IBM blasted through the $74 resistance level.  Traders that took
that entry were able to manage their risk with a stop at $72,
just below the level of resistance that had been holding Big Blue

That rally ran its course within a week, as IBM ran into a
veritable brick wall at $83.  That gave the bears their
opportunity to pile back on as the rally failed.  Risk was simple
to manage here as well with a stop at $84, just above the highs
posted on the preceding rally.  And then last week, eager bulls
were back in the driver's seat, nibbling on the stock near the
$72 level.  Note that the stock found support at prior resistance
in the $71-72 area, as prior resistance became new-found support.
Positions taken near the bottom of the most recent pullback would
have been protected with a stop near $71.

Hopefully this discussion has given you a better picture of how
both types of traders can manage their risk in an uncertain and
volatile market environment.

There is another aspect of risk management that I think is
frequently overlooked.  As option traders, we frequently find
ourselves buying at the Ask price and selling at the Bid.  The
difference between these prices is the spread that the Market
Maker collects as his fee for making a market in a given security.
The magnitude of that spread is directly related to the Open
Interest and Daily Volume in the option in which we are
considering a position.  The term "Liquidity" is used to refer
to the ease with which we can enter or exit a given position,
and prudent option traders will take this factor into
consideration in their trading plans.

We can use a couple of stocks currently on the OI Call list as
an example of how to manage this risk.  MSFT is currently trading
just south of $49 and normally sees from 40-50 million shares
traded on a daily basis.  This heavy volume translates into the
options market, with front-month ATM options trading between 1000
to 12,000 contracts on a daily basis.  The open interest on the
SEP $50 Calls is currently more than 42,000 contracts.  This is
a perfect example of a highly liquid option contract and a
measure of this liquidity is seen in the narrow spread between
the Bid ($0.80) and Ask ($0.90) prices.

In contrast, SPW (currently trading near $112) trades less than
1 million shares on a daily basis, and even the ATM (actually
slightly OTM) SEP $115 Call only traded 50 contracts on Wednesday.
Total Open interest on this option is a measly 214 contracts, and
that translates directly into a much wider spread.  As of
Wednesday's close, the Bid on this contract is $1.55, while the
Ask is $2.05.  That is a spread of $0.50 vs. a mere $0.10 spread
for the MSFT ATM call listed above.

Since we frequently have to buy at Ask and sell at the Bid, this
spread must be factored into our risk assessment for the trade.
Let's assume that we buy the MSFT calls and later decide to exit
the trade due to nonperformance.  If the price of the underlying
hasn't changed appreciably, the price of the option will likely
be unchanged as well.  So the option that we purchased for $0.90
should fetch $0.80 when we go to sell, amounting to a $0.10 loss.
Conversely, if we go to exit the calls on SPW shortly after entry
due to no appreciable price movement, exiting that call option
will lock in a loss of $0.50, even though the stock has not yet
moved against us.  At its inception, any long option purchase
will be subjected to a loss equal to the difference between the
price paid for that option and what price that option would fetch
if we were to turn right around and sell it back into the market.
The larger that spread, the larger the risk.

As you can see, looking at liquidity via the spread on an option
is just one more piece of the puzzle we need to assemble in our
pursuit of trading profits.  Hopefully this discussion helps you
to better define your own approach to risk management.

Questions are always welcome.


If you trade options online, then you need an online broker that:
offers true direct access to each option exchange offers stop and 
stop loss online option orders offers contingent option orders 
based on the price of the option or stock offers online spread 
order entry for net debit or credit offers fast option executions

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more; call 1-888-889-9178 or click for more information.



Surprise, Surprise

Retail investors stayed home from work and stayed out of the 
market. The expected post 9/11 relief rally turned into a pity 
party instead. The volume was light as expected at 2.1 billion 
shares but was increasing dramatically to the downside at the 

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

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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.



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Contact Support
The Option Investor Newsletter                   Monday 09-11-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Stop Loss Updates: LLL, OMC
Dropped Calls: None
Dropped Puts: None
Play of the Day: Call - LLL
Big Cap Covered Calls & Naked Puts: A Short-Lived Patriotic Rally

Updated on the site tonight:
Market Watch: Post 9/11 Rally?
Market Posture: Afraid to Commit

Tired of waiting on trades to execute?
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Stop Losses based on the option price or the stock price.
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LLL - call
Adjust from $51.00 up to $52.00

OMC - call
Adjust from $59.00 up to $61.00





”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.



LLL - L-3 Communications - $55.81 +0.86 (+2.97 for the week)

As a leading supplier of sophisticated secure communication 
systems and specialized communication products, LLL provides 
critical elements of virtually all major communication, command 
and control, intelligence gathering and space systems. The 
company's high data rate communication, avionics, telemetry and 
instrumentation systems and components are used to connect a 
variety of airborne, space, ground-based and sea-based 
communication systems.

Most Recent Write-Up

As the 9/11 anniversary and President Bush's speech to the UN 
loom large in our immediate future, Defense stocks have continued 
to trade well.  While the DFI index was unable to gain 
significant ground on Tuesday, this is likely due to a lack of 
conviction ahead of a couple of important events.  Note that the 
index managed a technical breakout over the $574 level on Monday 
and appears ready to push up towards the next major obstacle near 
$595-600.  Giving a hint of the bullishness in the sector is LLL, 
which rallied through $55 and briefly pushed through the $56 
level on Tuesday before settling back near the $55 level at the 
close.  This looks like simple consolidation ahead of the next 
bullish move.  There are a couple of levels to look at for new 
entries on a pullback.  First is intraday support near $54.60 and 
then down near $52.50-53.00,which is supported by the 200-dma at 
$52.54.  Catching an entry on a dip is preferable, but should a 
momentum move develop, new entries can be considered on a push 
through Tuesday's high($56.05) on strong volume and sector 
participation.  Note that our stop is now set at $51.


With President Bush set to address the U.N. tomorrow, he will 
undoubtedly push for action against Iraq.  Vice President Cheney 
has indicated Bush will present evidence of Iraq's attempts to 
build a nuclear arsenal.  In his 9/11 memorial speech, he 
referred to terrorists and dictators in the same sentence, 
regarding those who plot against the U.S., making an obvious 
reference to Saddam Hussein.   The plan to address the U.N. a day 
after the anniversary is no accident either. This defense related 
stock should benefit from tough rhetoric and build on the week's 
gains.  The stock has consolidated each day at a higher level and 
seems headed toward $60.  Note we have raised our stop loss to 
$52, just below Monday's low.  

BUY CALL SEP-50 LLL-IJ OI=1886 at $6.30 SL=3.50
BUY CALL SEP-55 LLL-IK OI=1923 at $2.10 SL=1.05
BUY CALL OCT-55*LLL-JK OI=2033 at $3.90 SL=2.00
BUY CALL OCT-57 LLL-JY OI=1024 at $2.55 SL=1.30

Average Daily Volume = 2.00 mln

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offers true direct access to each option exchange
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option or stock
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more; call 1-888-889-9178 or click for more information.



A Short-Lived Patriotic Rally
By Ray Cummins

Stocks finished lower today after a solemn session despite an
optimistic morning rally that lifted equity values to recent

The major exchanges delayed opening while thousands of people
converged at the site of the World Trade Center for memorial
ceremonies.  After the somber activities ended, there was little
interest in the financial markets.  The blue-chip Dow industrial
average lost 21 points to 8,581 after rising almost 1% in early
trading.  The tech-heavy NASDAQ Composite index slid 4 points to
1,315 after hitting a session high near 1,347.  The broader S&P
500-stock index closed little changed at 909.  Trading volume
was light with only 849 million shares traded on the New York
Stock Exchange and just over 1 billion changing hands on the
NASDAQ.  Winners equaled losers on the Big Board while NASDAQ
issues saw winning stocks lead losing issues 5 to 4.  Treasury
prices slumped in light trade, losing gains from Tuesday.  The
10-year note lost 20/32 to 102-15/32, driving its yield up to
4.07%.  The 30-year bond slid 27/32 to 107-11/32, yielding 4.89%.



(As of 09-10-02)

Naked Puts

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

PLMD     SEP    22   21.85  25.00   $0.65    5.39%
AMGN     SEP    35   34.40  46.05   $0.60    4.26%
CCMP     SEP    25   24.45  46.23   $0.55    4.44%
AMGN     SEP    38   37.00  46.05   $0.50    4.11%
CCR      SEP    45   44.35  53.30   $0.65    4.15%
CEPH     SEP    35   34.05  43.33   $0.95    7.61%
CHIR     SEP    32   32.05  37.77   $0.45    4.03%
CVTX     SEP    20   19.65  20.79   $0.35    4.87%
IDPH     SEP    35   34.30  43.33   $0.70    5.84%
IVGN     SEP    30   29.40  36.16   $0.60    5.66%
AMGN     SEP    40   39.40  46.05   $0.60    5.88%
GDT      SEP    30   29.70  36.40   $0.30    4.41%
IDPH     SEP    35   34.35  43.33   $0.65    7.96%
INVN     SEP    25   24.75  31.85   $0.25    4.91%
IVGN     SEP    30   29.65  36.16   $0.35    5.28%
INVN     SEP    30   29.60  31.85   $0.40    7.34%
IVGN     SEP    30   29.65  36.16   $0.35    7.39%
MIK      SEP    40   39.60  48.65   $0.40    6.00%
UOPX     SEP    25   24.75  31.21   $0.25    6.56%
AMGN     OCT    35   33.15  46.05   $0.85    6.08%
CHTT     OCT    35   34.50  39.60   $0.50    4.27%
CCMP     OCT    30   28.90  46.23   $1.10    8.06%

Previously closed: OSI Pharmaceuticals (NASDAQ:OSIP)

Naked Calls:

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

HIT      SEP    60    60.60  53.86   $0.60   4.63%
MUR      SEP    90    91.05  86.92   $1.05   5.13%
OMC      SEP    70    70.60  62.94   $0.60   5.74%
QLGC     SEP    40    40.45  35.22   $0.45   6.61%
ERTS     SEP    65    65.66  64.68   $0.55   5.30%
MMM      SEP    125  126.75  125.19  $1.56   6.50%
MUR      SEP    90    91.00  86.92   $1.00   6.74%
QLGC     OCT    40    41.20  35.22   $1.20   9.74%

3M Corp. (NYSE:MMM) is on the "early exit" watch-list.

Put-Credit Spreads

Stock                                              Gain
Symbol  Pick   Last  Month L/P S/P Credit   C/B   (Loss) Status
PII     67.90  75.50  SEP   50  55  0.60   54.40  $0.60   Open
BSC     65.44  62.25  SEP   55  60  0.55   59.45  $0.55   Open
CCMP    41.50  46.23  SEP   25  30  0.40   29.60  $0.40   Open
SCHL    44.00  45.45  SEP   35  40  0.50   39.50  $0.50   Open
CCR     52.47  53.30  SEP   45  50  0.65   49.35  $0.65   Open
EASI    52.40  57.63  SEP   45  50  0.90   49.10  $0.90   Open
EASI    55.00  57.63  SEP   45  50  0.55   49.45  $0.55   Open

Call-Credit Spreads

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

AAP    45.95   53.30  SEP   60  55  0.70  55.70  $0.70   Open
AIG    62.08   61.00  SEP   75  70  0.65  70.65  $0.65   Open
INTU   41.04   48.09  SEP   55  50  0.60  50.60  $0.60   Open
AVE    63.62   57.07  SEP   75  70  0.55  70.55  $0.55   Open
HI     38.09   35.15  SEP   50  45  0.65  45.65  $0.65   Open
AET    41.89   41.26  SEP   50  45  0.45  45.45  $0.45   Open
COF    35.33   38.95  SEP   42  40  0.25  40.25  $0.25   Open
LEH    56.22   55.95  SEP   65  60  0.40  60.40  $0.40   Open
ATH    60.41   64.48  SEP   70  65  0.60  65.60  $0.60   Open
GSK    37.73   38.68  SEP   42  40  0.30  40.30  $0.30   Open
EBAY   55.59   59.84  SEP   65  60  0.55  60.55  $0.55   Open

Capitol One (NYSE:COF), Anthem (NYSE:ATH), and Advanced Auto
Parts (NYSE:AAP) are on the "early exit" watch-list.

Previously closed: Engineered Support Systems (NASDAQ:EASI)

Credit Strangles:

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

INTU     OCT     50C    51.50   48.09   $1.50    6.80%
INTU     OCT     40P    38.60   48.09   $1.40    6.87%

Synthetic Positions:

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

AXP    35.26   33.34   SEP40C/30P   0.10   29.90   0.20  Closed
CCR	 50.81   50.33   SEP55C/45P   0.20   44.80   1.20  Closed
INVN   27.25   32.39   SEP35C/20P   0.00   20.00   1.25  Closed
BLL    45.60   50.93   NOV55C/35P  (0.10)  35.10   2.25  Closed
GS     78.50   73.75   SEP85C/70P   0.10   69.90   1.00  Closed
IBM    74.92   72.35   SEP85C/60P   0.10   59.90   1.75  Closed
PDX    34.15   34.50   NOV40C/30P   0.40   29.60   0.20   Open

Ball Corporation (NYSE:BLL) continued to rally after we exited
the play, offering up to a $2.25 closing credit.  Countrywide
Credit (NYSE:CCR), InVision Technologies (NASDAQ:INVN) and
International Business Machines (NYSE:IBM) achieved the target
exit points in our bullish plays.  Goldman Sachs (NYSE:GS) also
yielded a favorable early-exit profit.  American Express was
closed to prevent losses.

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 relatively
favorable technical indications.  However, current 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.

COF - Capital One  $41.00  *** Change Of Character! ***

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  $41.00

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 COF UU     307     0.45    37.05      11.4%
SELL PUT  OCT 30   COF VF   3,624     0.70    29.30       6.5% ***
SELL PUT  OCT 35   COF VG   1,928     1.40    33.60       9.8%

CTSH - Cognizant Technology  $63.68  *** New High! ***

Cognizant Technology Solutions (NASDAQ:CTSH) delivers full life
cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business.
These information technology (IT) services are delivered through
the use of a seamless on-site and offshore consulting project
team.  The company's solutions include application development
and integration, application management and re-engineering
services.  The company's customers include ACNielsen Corporation,
ADP, Incorporated, Brinker International, Incorporated, Computer
Sciences Corporation, The Dun & Bradstreet Corporation, First
Data Corporation, IMS Health Incorporated, Metropolitan Life
Insurance Company, Nielsen Media Research, Incorporated, PNC Bank
and Royal & SunAlliance USA.

CTSH - Cognizant Technology  $63.68

PLAY (sell naked put):

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

SELL PUT  SEP 60   UPU UL     276     1.20    58.80      17.6%
SELL PUT  OCT 50   UPU VJ     426     0.75    49.25       4.6% ***
SELL PUT  OCT 55   UPU VK     193     1.60    53.40       7.2%

EASI - Engineered Support  $57.61  *** The Rally Continues! ***

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  $57.61

PLAY (sell naked put):

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

SELL PUT  SEP 55   UFE UK     366     0.85    54.15      13.5%
SELL PUT  OCT 50   UFE VJ      27     1.00    49.00       5.0% ***
SELL PUT  OCT 55   UFE VK      18     2.25    52.75       8.2%

INVN - InVision Technologies  $33.06  *** Aviation Security ***

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  $33.06

PLAY (sell naked put):

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

SELL PUT  SEP 30   FQQ UF    1,097    0.30    29.70      9.7%
SELL PUT  OCT 25   FQQ VE    1,253    0.55    24.45      6.3% ***
SELL PUT  OCT 30   FQQ VF    1,217    1.50    28.50     10.6%

LLL - L-3 Communications  $55.81  *** On The Rebound! ***

L-3 Communications Holdings (NYSE:LLL) is a merchant supplier of
sophisticated secure communication systems and other specialized
products.  The company derives all of its operating income and
cash flow from its wholly owned subsidiary, L-3 Communications.
The company produces secure, high-data-rate communication systems,
training and simulation systems, engineering development and
integration support, avionics and ocean products, fuzing products,
telemetry, instrumentation, space & guidance products and various
microwave components.  These systems and products are critical
elements of virtually all major communication, command and control,
intelligence gathering and space systems.  The company's systems
and specialized products are used to connect a variety of airborne,
space, ground- and sea-based communication systems, and are used
in the many transmission, processing, monitoring and dissemination
functions of these communication systems.

LLL - L-3 Communications  $55.81

PLAY (sell naked put):

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

SELL PUT  SEP 55   LLL UK     323     1.10    53.90      16.4%
SELL PUT  OCT 47.5 LLL VW   1,501     0.85    46.85       4.7% ***
SELL PUT  OCT 50   LLL VJ   2,167     1.25    48.75       5.8%
SELL PUT  OCT 52.5 LLL VX   1,633     1.90    50.60       7.5%

MIK - Michaels Stores  $48.59  *** Retail Rally Continues! ***

Michaels Stores (NYSE:MIK) is the world's largest retailer of
arts, crafts, framing, floral, decorative wall decor and seasonal
merchandise for the hobbyist and do-it-yourself home decorator.
The vompany owns and operates 734 Michaels stores in 48 states
and Canada, 148 Aaron Brothers stores, located primarily on the
West Coast, and 1 wholesale operation located in Dallas, Texas.

MIK - Michaels Stores  $48.59

PLAY (sell naked put):

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

SELL PUT  SEP 45   MIK UI     501     0.35    44.65       7.3%
SELL PUT  OCT 40   MIK VH     278     0.65    39.35       4.6% ***
SELL PUT  OCT 45   MIK VI     192     1.65    43.35       7.8%

ROOM - Hotels.com  $48.01  *** On The Move! ***

Hotels.com (NASDAQ:ROOM) is a provider of discount hotel rooms
and other lodging accommodations, allowing customers to select
and book hotel rooms in major cities through the firm's Websites
and its toll-free call centers.  Hotels.com contracts with hotels
in advance for volume purchases and guaranteed availability of
hotel rooms and vacation rentals at wholesale prices and sells
these rooms to consumers, often at discounts to published rates.
In addition, its hotel supply relationships often allow Hotels.com
to offer its customers accommodation alternatives for otherwise
unavailable dates.  The company currently has room agreements with
approximately 4,500 lodging properties in 178 major markets in
North America, the Caribbean, Western Europe and Asia.

ROOM - Hotels.com  $48.01

PLAY (sell naked put):

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

SELL PUT  SEP 45   URD UI     600     0.80    44.20      15.9%
SELL PUT  OCT 40   URD VH     299     0.75    39.25       5.2% ***
SELL PUT  OCT 45   URD VI   1,380     2.10    42.90       9.4%


BULLISH PLAYS - Credit Spreads

HRB - H&R Block  $51.30  *** Low Risk = Low Reward ***

H&R Block (NYSE:HRB) is a diversified company with subsidiaries
that deliver tax services and financial advice, investment and
mortgage products and services, and business accounting and
consulting services.  As the world's largest tax services firm,
H&R Block served nearly 23 million clients during fiscal year
2002.  Clients were served at the approximately 10,400 H&R Block
retail offices worldwide and through the company's award-winning
software, TaxCut, and its online tax services.  The company's
investment services and securities products are offered through
H&R Block Financial Advisors, member NYSE, SIPC.  H&R Block is
not a registered broker-dealer.  H&R Block Mortgage offers retail
mortgage products.  Option One Mortgage offers wholesale mortgage
products and a wide range of mortgage services.  RSM McGladrey
serves mid-sized businesses with accounting, tax and consulting

HRB - H&R Block  $51.30
PLAY (very conservative - bullish/credit spread):

BUY  PUT  OCT-40  HRB-VH  OI=4182  A=$0.35
SELL PUT  OCT-45  HRB-VI  OI=2495  B=$0.70
POTENTIAL PROFIT(max)=9% B/E=$44.55

LOW - Lowe's Companies  $45.20  *** Home Improvement Rally ***

Lowe's Companies (NYSE:LOW) is the world's second largest home
improvement retailer.  Headquartered in Wilkesboro, N.C., Lowe's
is the 14th largest retailer in the United States as well as the
30th largest retailer worldwide.  With over 100,000 employees,
Lowe's is "Improving Home Improvement" for over seven million
do-it-yourself retail and commercial business customers each week.

LOW - Lowe's Companies  $45.20

PLAY (aggressive - bullish/credit spread):

BUY  PUT  OCT-35  LOW-VG  OI=1171  A=$0.40
SELL PUT  OCT-40  LOW-VH  OI=5809  B=$0.90
POTENTIAL PROFIT(max)=11% B/E=$39.45


Neutral Plays - Credit Strangles

GILD - Gilead Sciences  $32.67  *** Range-bound? ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a unique drug for
treating cytomegalovirus (or CMV) retinitis in AIDS patients, and
DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma.

GILD is an excellent candidate for speculative "premium-selling,"
based on the underlying issue's technical background.  GILD has a
relatively stable trading range and no (expected) upcoming events
that will substantially change its technical character prior to
the October expiration.   From a charting viewpoint, GILD is in
a lateral pattern with a near-term trading range from $28 to $38.
The recent indications suggest the current trend will continue,
however current news and market sentiment will have an effect on
the position, so review the position thoroughly and make your own
decision about its outcome.

GILD - Gilead Sciences  $32.67

PLAY (very aggressive - neutral/credit strangle):

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

SELL PUT  OCT 30   GDQ VF   181      1.50    28.50      10.4%
SELL CALL OCT 35   GDQ JG   948      1.45    36.45       9.8%



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.

EBAY - eBay Inc.  $58.43  *** Trading Range? ***

eBay (NASDAQ:EBAY) is a Web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

EBAY - eBay Inc.  $58.43

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   QXB IL   8,898   0.95    60.95      14.1%
SELL CALL OCT 60   QXB JL   5,657   3.00    63.00       9.9%
SELL CALL OCT 65   QXB JM   6,483   1.20    66.20       5.5% ***

QLGC - QLogic  $35.42  *** Pure Premium Selling ***

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  $35.42

PLAY (aggressive - sell naked call):

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

SELL CALL OCT 37.5  QLC JU     342   2.30    39.80      13.1%
SELL CALL OCT 40    QLC JH   3,559   1.40    41.40      10.5%
SELL CALL OCT 45    QLC JI   3,135   0.45    45.45       4.9% ***

XL - XL Capital  $72.00  *** Insurance Sector Slump! ***

XL Capital (NYSE:XL), formerly EXEL Merger Company, is a provider
of insurance and reinsurance coverages and financial products and
services to industrial, commercial and professional service firms,
insurance companies and other enterprises on a worldwide basis.
The company provides property and casualty insurance on a global
basis and generally writes specialty coverages for commercial
customers.  Specific lines of business written are third-party
general liability insurance, environmental liability insurance,
directors/officers liability insurance, professional liability
insurance, aviation and satellite insurance, employment practices
liability insurance, surety, marine insurance, property insurance
and other insurance covers, including program business as well as
political risk insurance.  Premiums written vary by jurisdiction
principally due to local market conditions and legal requirements.

XL - XL Capital  $72.00

PLAY (aggressive - sell naked call):

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

SELL CALL SEP 75   XL IO     255    1.10    76.10      13.8%
SELL CALL OCT 75   XL JO     500    2.85    77.85       8.2%
SELL CALL OCT 80   XL JP     416    1.15    81.15       4.3% ***


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.

JNJ - Johnson & Johnson  $55.48  *** Slow Mover ***

Johnson & Johnson (NYSE:JNJ) is engaged in the manufacture and
sale of a broad range of products in the healthcare field.  The
company conducts business in virtually all countries of the
world.  Johnson & Johnson's primary interest is in products
related to human health and well being.  The firm's worldwide
business is divided into three primary segments: Consumer,
Pharmaceutical and Medical Devices and Diagnostics.  In 2001,
the company merged with ALZA Corporation.  Under the terms of
the merger, ALZA Corporation will retain its name and survive
as a direct, wholly owned subsidiary of Johnson & Johnson.  ALZA
is a research-based pharmaceutical company that offers drug
delivery technologies.  ALZA applies its delivery technologies
to develop pharmaceutical products with enhanced therapeutic
value for its own portfolio and for pharmaceutical companies.
ALZA's sales and marketing efforts are focused on urology,
oncology and central nervous system products.

JNJ - Johnson & Johnson  $55.48

PLAY (very conservative - bearish/credit spread):

BUY  CALL  SEP-65  JNJ-JM  OI=12819  A=$0.15
SELL CALL  SEP-60  JNJ-JL  OI=18447  B=$0.55
POTENTIAL PROFIT(max)=11% B/E=$60.50

MSFT - Microsoft  $48.58  *** An Uphill Battle ***

Founded in 1975, Microsoft (NASDAQ:MSFT) is the worldwide leader
in software, services and Internet technologies for personal and
business computing.  The company offers a wide range of products
and services designed to empower people through great software,
any time, any place, and on any device.  The company software
includes scalable operating systems for servers and personal
computers as well as intelligent devices; server applications
for client/server environments; knowledge worker productivity
applications; and software development tools.  The company's
online efforts include the MSN network of Internet products and
services and alliances with companies involved with broadband
access and various forms of digital interactivity.  Microsoft
also licenses consumer software programs; markets hardware
devices; provides consulting services; trains and certifies
system integrators and developers; and researches and develops
advanced technologies for future software products.

MSFT - Microsoft  $48.58
PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-60  MSQ-JL  OI=26854  A=$0.20
SELL CALL  OCT-55  MSQ-JK  OI=42741  B=$0.70
POTENTIAL PROFIT(max)=12% B/E=$55.55

PHM - Pulte Homes  $48.46  *** Housing Rally At An End? ***

Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries
engage in the homebuilding and financial services businesses.
The company's direct subsidiaries include Pulte Diversified
Companies, Del Webb Corporation and others that are engaged in
the homebuilding business.  PDCI's main operating subsidiaries
include Pulte Home Corporation, Pulte International Corporation
and other subsidiaries that are engaged in the homebuilding
business.  The company also has a mortgage banking company,
Pulte Mortgage Corporation, which is a subsidiary of PHC.

PHM - Pulte Homes  $48.46

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-60  PHM-JL  OI=482   A=$0.30
SELL CALL  OCT-55  PHM-JK  OI=1510  B=$0.85
POTENTIAL PROFIT(max)=14% B/E=$55.60

WFT - Weatherford International  $39.37  *** Energy Sector ***

Weatherford International (NYSE:WFT) is a provider of equipment
and services used for the drilling, completion and production of
oil and natural gas wells.  The company conducts operations in
approximately 100 countries and has approximately 485 service
and sales locations, which are located in nearly all of the oil
and natural gas producing regions in the world.  The company's
business is divided into three principal operating divisions.
The Drilling and Intervention Services group provides drilling
systems, well installation services, cementing products and
underbalanced drilling.  The Completion Systems Division offers
a full range of completion products and services.  The Artificial
Lift Systems Division is the only organization in the world that
is able to provide all forms of artificial lift used primarily
for the production of oil.  The Lift Systems segment also offers
production optimization services and automation and monitoring
of well-head production.

WFT - Weatherford International  $39.37

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-50  WFT-JJ  OI=39  A=$0.30
SELL CALL  OCT-45  WFT-JI  OI=82  B=$0.80
POTENTIAL PROFIT(max)=14% B/E=$45.60




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