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Daily Newsletter, Wednesday, 09/18/2002

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The Option Investor Newsletter                Wednesday 09-18-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: The Matador Usually Wins
Index Trader Wrap: Close, but no cigar
Weekly Fund Family Profile: J. & W. Seligman: Seligman Group of Funds
Options 101: More On Managing Risk

Updated on the site tonight:
Swing Trader Game Plan: Motion Sickness

Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
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09-18-2002                High    Low     Volume Advance/Decl
DJIA     8172.45 - 35.10 8253.53  8051.91  1752 mln   532/1210
NASDAQ   1252.13 -  7.81 1263.90  1233.08  1560 mln   472/1057
S&P 100   435.99 -  2.56  441.04  429.93   totals     1004/2267
S&P 500   869.46 -  4.06  878.45  857.39
RUS 2000  376.75 -  2.56  379.83  373.27
DJ TRANS 2162.72 - 40.97 2200.88  2153.38
VIX        40.89 -  1.07   44.30  40.30
VIXN       59.33 -  1.06   61.76  57.45
Put/Call Ratio 1.36
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The Matador Usually Wins
by Steven Price


We had an interesting batch of conflicting data and news stories 
this morning.  First of all, the markets tanked on news from J.P. 
Morgan that they would be reducing their earnings forecast due to 
credit losses and lower trading revenue.  The reaction was 
dramatic, as earnings forecasts were slashed on the bank.  Lehman 
cut its forecast from 0.58 to 0.38 and lowered its price target 
on JPM from $31 to $23.  Fitch ratings downgraded the bank's 
debt, as did Standard and Poor's, which said that it could lower 
the rating once again if trading problems persist in the fourth 
quarter.  JPM has been estimated to have as much as $20 trillion 
(yes, I said trillion) of derivatives positions on its books, 
which is another source of tremendous risk for the company.  They 
are the world's largest holder of gold derivatives.  Two percent 
of a bank's derivatives exposure is usually considered at risk in 
the normal course of business. Two percent of $20 trillion is 
$400 billion.  Considering a market cap of $37 billion for JPM, 
we could be seeing a lot more red on its chart than we already 
have.  I am not saying that JPM could not profit from this 
portfolio, rather than lose, but the risk is enormous.  The 
credit problem was pinned on loans to the telecom sector, which 
resulted in an increase of $1 billion in bad debt.  

If JPM is seeing high default rates from the telecoms, there are 
undoubtedly other banks with similar problems.  While they may 
not have the same amount of exposure, we could still see some 
heavy losses.  Taking this pattern a step further, there are 
other sectors that have performed horribly and seen financial 
problems as well.  How many of these are also having problems 
making payments?  How many banks are suffering from bad debts 
that we have not yet heard about?  I think this announcement 
could just be the tip of the iceberg and I would stay away from 
playing the banks long on anything but a short-term basis. 

On the positive side, the U.S. trade deficit decreased by 6 
percent in July, to $34.6 billion.  Exports increased for the 
fifth straight month, while June's record trade deficit was 
revised downward to $36.8 billion from $37.2 billion.  

Inflation also appears to be peaking its head back out, as the 
consumer price index rose 0.3 percent.  The core rate, which 
excludes the more volatile food and energy components, was also 
up by the same amount.  Those increases were a bit higher than 
forecasts of 0.2 percent.

Oracle released earnings after the bell yesterday.  They met 
expectations, but issued cautious statements.  The company's 
earnings fell 33 percent from last year and Jeff Henley, Oracle's 
CFO said, " We think the worst is over, and we think we'll see 
gradually better year-over-year numbers ... but it's still a 
difficult, slow recovery. We're being very cautious with our 
business planning at this point."  These comments weighed heavily 
on the markets this morning as well, as the Nasdaq started the 
day down 15 points.  Oracle ended the day down 8 percent (0.73) 
at $8.30.

I have been writing recently about the bearish head and shoulders 
pattern forming across the broader indices. Yesterday's action in 
the Dow led to a definitive neckline break, as the index closed 
below 8305, which was the 50% retracement of its gains from July 
24 to August 22.  The neckline can be drawn from several 
different points, but there wasn't much to argue about in 
yesterday's Dow breakdown. The previous low at that support level 
was set on September 5 in the Dow.   The Nasdaq Composite 
(COMPX), however, is a slightly different story. The September 5 
low, which is also the point at which there is little argument 
about a neckline break, was 1251.00. The September 5 low is also 
the last significant support level above 1200.  The Nasdaq traded 
as low as 1233.08 this morning and a breakdown appeared certain.  
However, much like the action in the Dow when it was testing the 
50% retracement level the week of September 5, a rally boosted 
the Nasdaq back above the crucial level.

Chart of the Nasdaq Composite (COMPX)



After the bell, Electronic Data Systems (EDS) warned that they 
would miss expectations for the third and fourth quarters, as 
well as the full year.  EDS said that lack of demand for 
infrastructure technology services is very soft and lowered 
earnings estimates from 74 cents to 12 to 15 cents for the third 
quarter.  Although it was halted in after hours trading, rival 
IBM was trading down $3.55 to $66.00.  This should be the kicker 
that takes the Nasdaq back down below that 1251 level and on its 
way to 1200.  While neither IBM nor EDS are Nasdaq stocks, IBM is 
the biggest of the techs and should tip the scales. As a Dow 
stock, it may also lead us back below today's low of 8051.91.   
IBM is the third heaviest weighted stock in the Dow, and a 
significant move could speed the process toward re-testing July's 
low.

Today's low got us within 21 points of 8030, which is the last 
significant support level between where the index is currently 
trading and the July low of 7532. I had planned on writing about 
the strength of the intraday turnaround, but if IBM does not 
rebound from its $3.50 dollar drop after the close, it is likely 
we will see tomorrow's action take us below 8030.  This 
afternoon's rebound brought us back above the 61.8% retracement 
level and it appeared that this might be the next level of 
consolidation.  However, given the news after the bell, I am no 
longer confident that this level will hold.

Chart of The Dow


In what appears to be more bad news for the brokerage sector, 
Merrill Lynch announced after the bell that they have fired Vice 
Chairman Thomas W. Davis and Schuyler Tilney, an investment 
banking managing director, for refusing to testify in the SEC and 
Department of Justice investigation of financial transactions 
Merrill completed with Enron.  Merrill sold off after the 
announcement, as investors worry what the two executives are 
hiding.  A refusal to testify does not always mean the subject is 
hiding something, however.  The way the law is structured, it 
rarely benefits a potential defendant to speak up on his own 
behalf.  Statements made for your own benefit are not admissible 
in court, while statements made against your own interest are 
allowed.  Therefore, there is little to gain by speaking up on 
your own behalf and many attorneys counsel clients to simply 
remain quiet.  Regardless of this rule, investors don't like 
hearing about non-cooperation in a government probe, especially 
when it has turned up many violations already.

A development that did not get much media play today, but could 
have serious effects on our economy, was an informal agreement 
between OPEC members to leave oil production quotas unchanged.  
There had been predictions that they would raise their official 
quota of 21.7 million barrels a day at the September 19 meeting 
in Osaka, Japan, in order to bring the per barrel price down to 
palatable levels.  But even Saudi Arabia, the world's largest 
producer of crude oil, apparently has agreed to leave current 
quotas unchanged. They had previously come out in support of 
raising quotas. This is partially the result of the fact that the 
OPEC members have actually been overproducing by about 1.7 
million barrels per day, and will simply "cheat" on the current 
quota, rather than raise it.  The problem for the U.S. is that 
the country's crude oil inventories have contracted by 15.3 
million barrels in the last three weeks, and now stand at the 
lowest level, 287.8 million barrels, since March 2001.   Heading 
into the winter, this could squeeze prices even higher than they 
are now - and that does not include the possibility of an 
invasion into Iraq.  Crude Oil Futures jumped again today, as 
news of the unchanged quotas seeped out.  A vote by Congress 
authorizing military action in Iraq will almost certainly push 
the price of futures over $30 per barrel.  With an economy that 
is already growing at a very slow pace, increasing fuel costs 
could have a pronounced effect on all industries, as well as 
cutting into discretionary spending by consumers who will be 
paying higher prices at the pump. 

Chart of Crude Oil Futures


With so many factors weighing on the markets today, look for a 
much lower open tomorrow.  A hold above the 8000 level in the Dow 
could be viewed as bullish, however, the overall trend appears as 
though it is just a matter of time before we re-test July's lows.  
The put/call ratio is once again growing and now stands at 1.36, 
which shows an even greater number of puts trading than calls.  
While this is not an exact science, experience on the floor has 
taught me that puts trade when the smart money is bearish, and 
they trade more than calls when the smart money is very bearish. 
There will be pockets of opportunity from the long side, but 
remember that when the trend is down, the longs are usually 
short-term plays.  Choose your plays carefully and don't lose 
sight of the big picture.



********************
INDEX TRADER SUMMARY
********************

Close, but no cigar

Just as index bears found it rather tough sledding to break some 
upward trends on our bar charts and even some of the point and 
figure charts, today's tempting lows of the indexes near our 
swing-trader's targets has bears saying "close, but no cigar."

After some September lows were reached in the late-morning 
session, stocks managed to rebound from their lows to leave the 
major indexes all showing marginal losses.

Still, the technicals hint that a break is in the wings, but just 
as bears had to wait for breaks of trends, another day will have 
to pass for outlined targets to be achieved.

Fathers and mothers will understand a waiting game as it relates 
to the families anxiously awaited new addition to the family.  
For the most part, the mother can't wait for it to be over, while 
the father resides in the reception room with cigars ready for 
distribution.  

Each time a nurse comes out from the delivery room, the expectant 
fathers all look up, awaiting the news, but as the nurse passes 
them by, they chuckle nervously and think, "close but no cigar."

Trading volume was brisk today with the NYSE trading 1.47 billion 
shares and the NASDAQ trading nearly 1.57 billion.  I've argued 
before that volume by itself doesn't really tell a trader 
anything about price action, but tells you everything about 
interest among participants.  After all, a supply/demand theorist 
knows that for every buyer there's a seller, and the most 
aggressive buyer/seller eventually wins out over a give time 
period.

Breadth remained negative throughout the session, despite some 
gains before the close in the major averages.  The NYSE ended 
with 19 stocks declining for every 12 stocks showing a gain, 
while NASDAQ breadth was just a negative at 20 to 12.

New highs versus new lows has shown stability in the new highs 
category in recent sessions, but stocks hitting new 52-week lows 
continues to deteriorate.  

For instance, on Monday the NYSE had 43 stocks reaching new 52-
week highs versus 76 stocks at new lows.  Today, the NYSE had 42 
stocks at new highs versus 228 new lows.

For me, this is like a rubber band stretching as if you or I hold 
a rubber band vertically, then pull the rubber band lower.  
Eventually, we'd stretch the rubber band to its extreme and it 
would break.  Either that, or we'd have "give in" on one of the 
ends if the rubber band is to stay intact.

With the Dow Industrials (INDU) 8,172 -0.42% (-35 points), S&P 
500 (SPX.X) 869.46 -0.46% (-4 points), S&P 100 (OEX.X) 436 -0.58% 
(-2.5 points) and NASDAQ-100 Tracking Stock (QQQ) $21.93 -1.12% 
(-$0.25) it would be a stretch to say much happened over the 
entire trading session.

Commercial airline carries were the weakest sector today with the 
Airline Index (XAL.X) 37.99 -5.04% breaking and then closing at a 
new 52-week low.  Notable new 52-week lows had AMR Corporation 
(NYSE:AMR) $5.82 -11.8% and Continental Airlines (NYSE:CAL) $6.79 
-15.4% also trading new 52-week lows.  AMR is a component of the 
S&P 500 Index, but not the OEX.

As I go down a list of new 52-week lows, it is increasing 
difficult to find many stocks that trade over $10, let alone $5.  
I think this is important as you and I need to focus on those 
stocks that are more "institutional."  

I'm not saying that institutions don't own a bunch of these 
stocks, which have gone south, but for the most part, their 
impact on the indexes you and I are trading is rather 
meaningless.  What we can draw from the new highs/versus new lows 
list is somewhat of a pulse on how aggressive bulls are in an 
attempt to pick a bottom and take on risk, and at the same time 
try and get a feel for how eager a bear is to capture gains, 
remove the risk of being short from his/her portfolio and move on 
to another meal.

There is also some psychology at play when investors see a stock 
like EMC Corp. (NYSE:EMC) $5.40 -7.84% break to a new 52-week 
low.  This will weigh on any bulls mind with the thought being 
"if this data storage giant isn't doing well, then why should I 
be interested in the other guys in the group?"

There were some notable new 52-week lows traded in NASDAQ-100 
components like PeopleSoft (NASDAQ:PSFT) $13.96 -1.89% and QLogic 
(NASDAQ:QLGC) $29.54 -3.74% and Integrated Devices (NASDAQ:IDTI) 
$10.52 -4.79%.

The oscillators of all these three stocks all have the MACD 
(12,26,9) starting to roll below zero level, while the daily 
stochastics (5,3,3) are all buried in oversold conditions.  

Short-term, the only "smart money" that buys these stocks from 
the bullish side are those that know for certain of a near-term 
catalyst for a rebound.  Either that, or a bear from higher 
levels coming in to lock in a gain.

For the QQQ trader, it's the bears covering their shorts that we 
need to worry about, not bulls buying.  The question for a QQQ 
trader is when are the shorts going to come in and cover?  That's 
the toughest, if not an impossible question to answer.

For the technician, like myself, the only thing a QQQ trader and 
do I think is simply monitor his/her bearish trade and look for 
any sector, with representation in the QQQ that could cause 
upside movement.

As mentioned in the past couple of wraps and in the "market 
monitor," its these darned biotechs, as depicted by the Biotech 
Index (BTK.X) 336.64 +1.69% that looks to be holding things 
together.  Remember, per NASDAQ (as of 08/31/02), biotech 
represented an 11.9% weighting and that's the sector that has 
traded a flat range between 320-350 for the past 12 sessions that 
has had the QQQ gently trading lower and not giving the Q-bears 
our swing-trade bearish target of $21.35.  

The more heavily weighted software group of stocks, which 
according to NASDAQ (as of 08/31/02) represents a 31.42% 
weighting, has us seeing the GSTI Software Index (GSO.X) 89.97 -
1.80% attempting to break September support of 89.63 on an intra-
day basis today.

Do you "get the feel" for just how these two sectors are kind of 
"stretching" just like we noted above in the new highs versus new 
lows categories on both the NASDAQ and NYSE?

In essence, the biotechs are attempting to anchor themselves in a 
base, while the software stocks attempt to break lower from 
September consolidation.  And "in between" in the QQQ.

I'll apologize for the following chart, but I want to try and 
explain how I'd look to control a bearish trade in the QQQ.  The 
QQQ came close to our bearish target of $21.35, but today's low 
of $21.78 just didn't get us there.

Tonight, I'd look to lower a trader's stop to just above today's 
QQQ high of 

GSO.X, QQQ and BTK.X Comparison - Daily Intervals



Again, I'm limited on horizontal space, but what I'm trying to 
show here is how the QQQ is "sandwiched" between the software and 
biotech stocks that make up a large portion of the QQQ.

We see weakness from the software chart (far left) as it broke 
upward trend two day's ago and intraday, broke to a September 
low.  The "impact" was the QQQ making a more confirmed break 
below trend today.  But the QQQ bear finds some problems as it 
relates to near-term technical strength in the biotechs.  See how 
the biotechs are holding above trend and even trying to challenge 
both the 21-day SMA and 50-day SMA?  As such, a QQQ trader that 
is short/put that can watch things would cover his/her QQQ 
position if.....

The biotechs break above the 352 level COMBINED with any 
bullishness in the software group.  Today the lower software 
action was ENOUGH to keep the QQQ lower.

A bearish target near $21.35 can be achieved, but a bear wants to 
see weakness in the biotech COMBINED with weakness in the 
software stocks.

Do you "note" the DIVERGING characteristics that the oscillators 
in the biotechs show, when compared to the software and QQQ 
charts?

Why is this?  The only explanation I can come up with and have 
discussed before is that the biotechs trade in a world of their 
own.  They're not as "economically" sensitive, nor does any type 
of "attack on Iraq" really impact biotechs.  What impacts biotech 
stock action is the "hope" of new discovery drugs and bulls 
getting aggressive and willing to take on greater risk.

The one stock that "bothers" a bull right now is Genzyme 
(NASDAQ:GENZ) $21.70 +5.23%, which posts a third consecutive gain 
today, despite warning on earnings three days ago.  What is in 
play here I think is a note I jotted down months ago from a 
little blurb in a newswire.  Next Thursday, GENZ's Fabrazyme drug 
is up for review and possible FDA approval.  I think bears are 
covering shorts and bulls may be speculating long ahead of this 
report.  When you look at the NASDAQ-100 Heatmap of the NASDAQ-
100 today, its probably not a coincidence that other biotech 
components like GILD +6.25%, CHIR +4.11%, HGSI +3.75%, IMCL 
+3.03%, ABGX +2.21%, ICOS +2.13%, PDLI +1.94%, BGEN +1.59%, etc. 
saw bidding today.  For those of you that have traded long 
enough, you've probably noted how just one positive bit of news 
related to FDA Approval in one sector stocks tends to boost 
bullishness in the sector on a short-term basis.  This is why I 
think the biotechs are bidding.  For a QQQ bear, they want it to 
stop short of BTK.X 503.

For those traders that can't correlate action intra-day with 
their trades, I'd play it safe with a QQQ stop at $22.60, which 
is about equal risk of $0.67 to our potential reward target of 
$21.35 (roughly $0.58 gain potential).

I spent a lot of time...

I spent a lot of time on the QQQ's and getting a trader's mindset 
to try and look "beyond" just the security they're trading to try 
and understand and perhaps look for what could threaten a QQQ 
bear's profits so close to target.

This is time consuming, but once learned, subscribers will know 
to take steps of their own to further investigate and perhaps lay 
out scenarios of what they want to happen based on a technical 
scenario.

For other sector traders in the Dow Industrials, SPX and OEX, and 
even the QQQ's, bears should get some early morning weakness 
after tonight's earning's warning out of Electronic Data Systems 
(NYSE:EDS) $36.46 -3.4% and BIG MISS on earnings they now expect 
for the upcoming quarter.

What this has done in after-hours trading is had the bulk of 
"computer-related" technology stocks trading lower, and had S&P 
futures at 862, which is about 8-points below fair value.  In 
essence, as it stands at the time of this writing, stocks look to 
open lower in the morning on a broader scale.

The "key phrase" I pick up on and perhaps other market 
participants are, is "economy is having a major impact on its 
results" and management concedes that it was more optimistic than 
it should have been in its ability to fight its way through a 
tough economy; noting it expected customer discretionary spending 
to tighten, but not virtually stop altogether.

Currently, I'd look to lock in some profits from bearish index 
trades at previously outlined swing-trade targets.

For review.  

DIA target is $80.50 : today's low was $80.77 : closed $81.42
OEX target is 419 : today's low was 430 : closed 436
SPX target is 835 : today's low was 858 : closed 870
SPY target is $84 : today's low was $86.95 : closed $86.95
QQQ target is $21.35 : today's low was $21.78 : closed $21.93.

Stochastics have MACD still showing weakness, but daily 
stochastics with settings (5,3,3) are all below oversold levels.

As such, traders can continue to use the 21-day or 50-day SMA's 
as stops, or if that's too much room, simply take today's closes, 
then calculate how much downside potential to your swing-trader's 
targets are left, just like we did in the QQQ.  Then add that 
amount back to today's closes to put current risk/reward at 1:1.  
Again, using what we did in the QQQ as an example.

Remember that index expiration is tomorrow, so traders shouldn't 
be surprised if some volatility is experienced.  Be willing to 
trade targets and if taken out of a trade as you book gains from 
a bearish target level, DON'T then panic should a move lower take 
place.  Most likely, traders will get a rebound, get some better 
trade setups for new entry points.

I do think that bears have had plenty of "bad news" lately for 
bulls to cave in for our swing-trader's targets to be hit.  We're 
close to our targets, but no cigars can be passed out yet.

Did you know that I was the "biggest baby" of the month that was 
born in Lewistown, Montana?  That's right!  A whopping 10 lbs. 8 
oz.!  Oooooeeee, was mom glad when that was over.  Dad worked for 
Boeing at the time.  He denies ever calling me his "little 747."

Jeff Bailey


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WEEKLY FUND FAMILY PROFILE
**************************

J. & W. Seligman: Seligman Group of Funds


Founded in 1864 and based in New York City, J. & W. Seligman and 
Company Inc. is one of the nation's oldest investment firms with 
more than $22 billion in assets under management as of June 30, 
2002.  Seligman manages money for institutions including public 
funds, corporations, endowments and foundations and Taft-Hartley 
plans, and provides a broad range of mutual funds and variable 
annuity products for individual investors including the Seligman 
Group of Funds.

Seligman also manages Tri-Continental Corp., the largest publicly 
traded, diversified closed-end investment company in the U.S. and 
two closed-end municipal bond funds which are traded on the NYSE.  
In addition, they manage a range of offshore investments that are 
available exclusively to non-U.S. investors.  The old established 
firm has additional offices in Palo Alto, and its affiliates have 
marketing offices in London, Hong Kong, and Buenos Aires.

Our main focus this week is on the Seligman Group of Funds, which 
provide a full range of investment possibilities designed to help 
individuals work toward their fiscal goals at each stage of their 
life.  Like other load fund groups, Seligman believes a qualified 
financial advisor can help individuals develop a solid investment 
strategy.  Accordingly, Seligman's open-end mutual funds are sold 
primarily through financial advisors and come in multiple classes 
including Class A, B, C, D and I shares, which differ in fees and 
availability.  A Seligman financial advisor can help you find out 
which class shares may be right for you.  We will use the Class A 
shares for discussion and comparison purposes, which have a front 
load of 4.75%.  The minimum initial investment is $1,000 for most 
Seligman fund shares.


History/Background


This firm's roots trace back to 1864.  At that time, the Seligman 
family was one of the era's leading investment bankers.  Frontier 
investing is what they call it, and the Seligman's were among the 
financiers that helped to build public utilities and railroads to 
the Western United States.  In 1864, for instance, the Seligman's 
joined forces with the Vanderbilt's to create public utilities in 
New York.  

As the 20th century ensued, the Seligman's shifted their emphasis 
from investment banking toward investment management.  They lent 
support and backing to the construction of the Panama Canal, and 
expanded to support the launch of urban transit systems and fund 
the growing capital needs of public utilities, large mines, land 
ventures, etc.  They also played a role in the development of the 
automobile industry, participating in the early underwritings for 
General Motors Corporation ("GM").

In the late 1920s, Seligman became a leading contributor to the 
development and growth of the modern investment company (mutual 
fund).  In 1929, they created Tri-Continential Corporation, the 
largest diversified, closed-end investment company listed on the 
New York Stock Exchange.  In 1930, Seligman introduced its first 
mutual fund, Broad Street Investing Company (called the Seligman 
Common Stock Fund today).  

Prior to 1983, the firm had just four mutual funds on the market 
but as the mutual fund industry grew in the 1980s and 1990s, the 
firm expanded its fund lineup to include the era's new frontiers 
(science and technology, small companies, emerging markets, and 
global).  Today, the Seligman Group of Funds provides investors 
more than 50 investment choices to help them meet personal needs 
and goals.


Investment Style/Strategy


At Seligman, equity strategies are designed to achieve growth of 
capital over the long run by maintaining a consistent investment 
discipline through both fundamental research and portfolio risk 
management.  Portfolios employ the company's extensive research 
capabilities, applied by skilled portfolio managers and research 
analysts to the security selection process.  

Seligman's website says the firm is recognized today as a leader 
in the areas of "technology" research, analysis, and investment.  
They are also one of the largest investors in the communication, 
information and technology sectors with over $5 billion invested 
in technology companies worldwide as of mid-year 2002 (primarily 
through the Seligman Communication & Information Fund). 

Stock portfolio construction evolves through a "bottom-up" focus 
on the analysis of individual companies.  Particular emphasis is 
placed on direct contact with company management.  Equity mutual 
funds cover the range of investment styles from value to growth, 
and are invested across all equity capitalization ranges.  Mixed 
equity funds and international funds round out the equity lineup.

Seligman's fixed income strategies are designed to achieve high 
total return while reducing overall risk.  Bond funds are based 
on active fixed income management and thorough analysis of long-
term secular trends.  

Presently, Seligman offers three funds in the fixed income peer 
group, a long-term government bond fund, an intermediate fixed 
income fund, and a high yield fund that seeks to generate high 
current income vis-a-vis investment in a portfolio of mid- and 
lower-quality bonds.  Seligman's intermediate-term fixed income 
strategy seeks strong risk-adjusted total returns, with capital 
preservation, in down markets through investments in a range of 
government, corporate and asset-backed issuers, with varying 
duration and maturity.

In the next section, we look to see how well Seligman's funds 
have performed in comparison with similar funds using data by 
Morningstar.  


Investment Performance


Over the last three years, a volatile period for tech stocks, 
Seligman's relative performance has been superior compared to 
other science and technology funds.  Over the trailing 3-year 
period through September 17, 2002, Seligman Communication and 
Information Fund (SLMCX) produced a negative 18.5% annualized 
total return.  While that is a negative number, it was strong 
enough on a relative basis to rank in the 10th percentile (top 
decile) of the technology fund category, per Morningstar.  Per 
the funds tracker, the average tech fund declined by an annual 
rate of 29.3% on average over the past three years.



The Communications and Information Fund's average annual total 
return for the trailing 10-year period through August 31, 2002 
shows what this offering is capable of over a long time period, 
though you have to remember that the bull market of the 1990's 
was in large part technology-driven.  For the trailing 10-year 
period, the fund generated a positive 15.8% annualized return.  
That was 5.4% more a year on average than the S&P 500 index of 
U.S. stocks and good enough to rank the fund in the top 25% of 
the technology category per Morningstar.

Accordingly, in terms of total return and consistency compared 
with other tech funds, Seligman Communications and Information 
Fund has performed relatively well.  And, they have shown over 
the last three years that they can limit losses in relation to 
the average technology fund in down markets.  Seligman Global 
Technology Fund (SHGTX) has similar performance numbers/ranks 
within the technology fund category, according to Morningstar.

The story is a little different for Seligman's three original 
equity fund products: Common Stock A (SCSFX), Growth A (SGRFX) 
and Income A (SINFX).  Below are each fund's trailing 10-year 
average annual total returns and rankings within the category.

 Seligman Common Stock Fund (SCSFX):
 10-Year Average Total Return: +4.9% (-5.4% vs. S&P 500)
 Rank in Large-Blend Category: 95th percentile

 Seligman Growth Fund (SGRFX):
 10-Year Average Total Return: +5.6% (-4.8% vs. S&P 500)
 Rank in Large-Growth Category: 81st percentile

 Seligman Income Fund (SINFX):
 10-Year Average Total Return: +4.1% (-6.3% vs. S&P 500)
 Rank in Domestic Hybrid Category: 96th percentile

Seligman's relative performance here is disappointing over the 
long-term, especially considering that there is over a billion 
dollars invested today in these three large-cap oriented funds. 
In terms of performance - as adjusted for risks, sales charges 
and expenses - Morningstar gives the Common Stock Fund Class A 
just one star.  Growth Fund is 2-star rated and Income Fund is 
also 1-star rated by Morningstar.  

Seligman's international funds have also struggled.  Seligman 
International Growth Fund (SHIFX) has a negative 0.3% average 
total return for the trailing 10-year period as of August 31, 
2002.  That bleak performance was 4.3% a year on average less 
than the MSCI EAFE index of developed markets, ranking in the 
100th percentile of the foreign stock category.  The fund's 3-
year and 5-year performance also ranks in the category's 100th 
percentile per Morningstar.

Seligman's Global Growth (SHGOX) and Emerging Markets (SHEMX) 
funds don't have 10-year track records, but their performance 
over the trailing 5-year period through September 17, 2002 is 
also ranked in the bottom quintile of their relative category 
groups using Morningstar's data.  In the case of the Emerging 
Markets Fund (SHEMX), relative return ranks in the category's 
bottom decile.

None of the three taxable bond fund products mentioned before 
have Morningstar ratings of above two stars, signifying below 
average performance there compared to relative category peers.  
Where Seligman looks good is on the municipal bond side where 
several state muni funds have earned good independent ratings.  
For example, Seligman's Massachusetts muni fund is rated five 
stars by Morningstar with several more state muni funds rated 
four stars.  


Conclusion


Seligman's website states the firm's tax-exempt separate account 
business has grown considerably in the last few years from under 
$4 billion at the end of 1996 to more than $7 billion as of June 
30, 2002.  However, total assets under management are much lower 
today than they were at the end of 2001, primarily due to return 
performance and mutual fund withdrawals.

At this point, unless you are looking to add exposure to certain 
sectors, such as communications, information and technology, you 
may want to wait and see if Seligman's performance in their bond 
and stock funds improves on an absolute and relative basis.  For 
more information, log on to www.seligman.com.
  


Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


***********
OPTIONS 101
***********

More On Managing Risk
by Mark Phillips
mphillips@OptionInvestor.com

Last week we talked about the basics of managing risk, beginning
with the proper use of Stop Loss orders (through reference to a
prior article) and then extended the discussion to looking at
how intelligent selection of entry points can help us to mitigate
our risk in a trade.  Specifically, buying/selling near important
support/resistance levels allows us to set stops just the other
side of those support/resistance levels.  Then I extended the
train of thought to selecting the right options trade, based on
selecting stocks/options with the appropriate liquidity for each
individual's risk tolerance.

Apparently that got a lot of readers' brains whirling, as I got
a fair amount of questions asking for more information on how to
properly manage risk, both on an individual trade basis, as well
as for an overall account.  Being an engineer in my prior life,
I'm always reluctant to reinvent the wheel if it isn't necessary.
One of my early engineering mentors pointed out to me that
engineers are basically lazy, and it is our desire to find more
efficient solutions to problems and rely on the discoveries of
others in order to accomplish more with less effort.  When it
comes right down to it, that's what engineers do, take advantage
of prior discoveries, so that they can leverage that knowledge
into new and better cars, airplanes, TVs, computers, etc.

Keeping with that theme, I'm going to start out by echoing the
recent words of our own Jeff Bailey.  In yesterday's Market
Monitor, Jeff pointed out how to evaluate position size, relative
to the overall account.  I think the key point that Jeff makes is
that before we ever implement the first trade in an account, we
MUST have a detailed, written business plan that dictates every
aspect of how we are going to trade that account.  It needs to
include our goals and expectations (such as percentage return),
as well as how we intend to trade that account and how we will
manage risk.  In my experience, failure to go through this process
is at the core of just about every blown-up account.  This
observation led me to write What To Do When You Can't Do Anything
Right back in April.  If you missed that article back when I
first wrote it and you don't have that detailed trading plan
sitting on your desk right now, then you need to read it.

We need to understand that the roadmap that I laid out in that
article is just the starting point, as it is then incumbent on
the individual to do the hard work of answering all the questions
laid out in the numbered list in the lower half of the article.

One of the things that requires a lot more clarification than
what I provide in that article is what type of money management
system to employ.  This part of the trading plan needs to address
questions such as What is the maximum amount I can risk in any
given trade?  Also important are the issues of the maximum
portion of the account that should be exposed to risk at any
given time (i.e. what is the minimum amount of cash to always
hold).  Defining the amount of risk you are willing to accept
in any specific trade then leads to other questions such as: If
trading options, will I use stop losses or limit my position size
such that I can use 100% risk capital on each trade?

If you've already answered all of these questions for yourself,
then you're well on your way (or perhaps already there) to having
a strong, usable trading plan.  But for everyone else, you've got
some work to do.  Fortunately we have some more great educational
content available in the Trader's Corner archives.  For fairly
new subscribers, let me encourage you to go through these
archives -- there is a wealth of information contained therein,
equal to a graduate degree in trading methodology and experience.

Coming back to our Risk Management theme, I owe 'Gumby'
(long-time OI reader) a huge debt of gratitude to pointing out a
great series of articles written on the topic of Account
Management back in the ancient past of late 2000 and early 2001.
If you're still struggling for a way to quantify your risk
management rules, I would highly recommend perusing the
following articles.

Methodical Account Management
Methodical Account Management II
Proper Account Management (Through Good Times & Bad)

Gumby went on in his email to describe a purely mechanical
approach he uses for Risk Management, that dovetails nicely with
both Austin's descriptions in the above articles, as well as
Jeff's use of the terms like 'Full Position' or 'Half Position'.
Rather than try to reword his description, I'll just let you
read it here as I received it.

"After reading these articles, I generated a simple spreadsheet;
account size in one cell (A1), pre-calculated % risk (B1=0.05*A1),
position cost (C1), pain level (D1 - can be your estimated cost
if price action hits a certain point, or you could set your stop
at a % level - depends upon your strategy), then calculated # of
contracts [risk/((cost-stop)*100)], to give you the size of a
full position.  OK, for the techies, it's: B1/((C1-D1)*100 per
contract).  One can then judge the scenario, see if a full, half
or quarter position is warranted; easy to do when one knows what
a "full" position is at any given time in a cycle.  Also, after
setting up the spreadsheet, all you do is the planning part -
enter the current cost, your maximum pain level on the position,
and viola!  I find it quite useful at various times, in that I
like to play front-month contracts - in the first week of a
cycle, I'll either fix the loss to a given % or to a previous
contract price given price action at a known support/resistance
level.  Or, in the last few days of a cycle, set the stop loss
at zero - doesn't matter much, in that my maximum account risk is
known and fixed prior to entering the trade.  If traders can
incorporate this or some similar method into their trading
practice, it forces you to do several critical, related topics,
including selection of exit point (prior to entry) and
implementing a strategy of risk management.  And all you have
to do is plug in a couple of numbers."

All I have to add to that is THANKS!  What Gumby has done here
is create a mechanical system that he can plug a prospective
trade into and it tells him exactly how large a position to put
on, based on his tolerance for risk -- which he defines.  As a
side note, I think I can say with a high degree of certainty,
that he has his detailed trading plan already written and
sitting within easy reach of his trading station.  I think that
is a good signal to all of us of the importance of taking the
time to develop our own trading plan.

I know this approach will appeal to all the other "lazy"
engineers out there, and hopefully even those that aren't overly
fluent in Excel can use this information to their benefit.  It's
kind of like the tagline on the commercial frequently seen on
CNBC - "Manage your risk and you can do anything."  How true!

Questions are always welcome.

Mark

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***********************
SWING TRADER GAME PLANS
***********************

Motion Sickness

If you are susceptible to motion sickness there was a good
chance you need Dramamine today. With a gap down open on 
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The Option Investor Newsletter                Wednesday 09-18-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:
Stop Loss Updates: AVY, TIN
Dropped Calls: NONE
Dropped Puts: NONE
Play of the Day: Put - BRL
Big Cap Covered Calls & Naked Puts: A Key Test Approaches!

Updated on the site tonight:
Market Watch
Market Posture

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*****************
STOP-LOSS UPDATES
*****************

AVY - put
Adjust from $63 down to $62

TIN - put
Adjust from $50.50 down to $48

*************
DROPPED CALLS
*************

None


************
DROPPED PUTS
************


None

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

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*********************
PLAY OF THE DAY - PUT
*********************

BRL – Barr Laboratories $65.29 -1.03 (-1.88 this week)

Company Summary:
Barr Laboratories is a pharmaceutical company engaged in the
development, manufacture and marketing of generic and
proprietary prescription pharmaceuticals.  Barr markets
approximately 85 pharmaceutical products, representing various
dosage strengths and product forms of approximately 35 chemical
entities.  BRL's product line focuses principally on oncology
and female healthcare categories, including hormone replacement 
and oral contraceptives.  The company's Duramed subsidiary 
develops, manufactures and markets a line of prescription drug 
products in tablet, capsule and liquid forms.

Most Recent Write-Up:
With virtually every sector of the market ending in the red on
Tuesday, it was like a smorgasbord, looking for attractive
downside plays.  While it hasn't broken down quite yet, the
Pharmaceutical index (DRG.X) is looking particularly top-heavy,
as it is resting just above critical support at the $284 level.
What is particularly telling is that each rally attempt over the
past few weeks has resulted in a lower high, with the 20-dma
(currently $296) continuing to provide resistance.  Add to this
the fact that the DRG index broke back under its 50-dma (just
above $287) on Tuesday, and it looks like the bears may be coming
out of their brief period of hibernation.  BRL had a nice run to
the upside throughout most of the month of August, but with the
DRG sector falling and BRL now solidly below the 200-dma 
($67.68),the bears are coming back out to play.  Particularly 
interesting is the series of lower highs and lower lows that the 
stock has posted over the past few weeks, and with the stock 
resting precariously on the $66 support level, we have a couple 
of solid action points to work with.  Momentum traders will want 
to enter the play as BRL falls under the $65 support level (just 
below this week's intraday lows), preferably with the DRG index
confirming this weakness with a break under the $284 support
level.  Should we get an oversold rebound first, look to fade
that rally attempt by entering on a rollover from resistance,
first at $67 and then possibly as high as $68.50.  Initial stops
are in place at $69.

Why This Is Our Play of the Day:

Today's trading brought some wild swings across the board.  While 
most equities were down this morning, the furious rally in the 
Dow and Nasdaq provided a market wide boost.  The Pharmaceutical 
Index even finished slightly up on the day.  BRL on the other 
hand saw its attempt to rally back over $66 fail miserably and it 
now looks like this level is providing new resistance to the 
upside.  The bears piled on and Barr closed just 0.02 off its low 
of the day, showing us the sellers were still present as the 
market closed.  New entries can look for a break below $65.00 or 
a failed rally attempt at $66.00.

BUY PUT OCT-65*BRL-VM OI= 94 at $3.60 SL=1.80
BUY PUT OCT-60 BRL-VL OI=356 at $1.80 SL=0.90

Average Daily Volume = 573 K



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*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

A Key Test Approaches!
By Ray Cummins

The major equity averages moved closer to the July lows Wednesday
amid renewed concerns over waning corporate profits and the weak
U.S. economy.

J.P. Morgan (NYSE:JPM) was the biggest Dow loser by far, tumbling
almost 10% after the banking giant issued a third-quarter profit
warning late Tuesday.  The company attributed the shortfall to
high commercial credit costs in the telecom and cable sectors and
weak trading performance.  A rating downgrade from Fitch followed
the announcement.  The blue-chip industrial average sank 34 points
to 8,173.  In the technology segment, software issues were among
the biggest decliners as investors took heed of a cautious outlook
by Oracle (NASDAQ:ORCL).  After the close Tuesday, the software
bellwether reported acceptable first-quarter earnings but said it
still expects a "difficult and slow recovery" and conceded that
second-quarter revenue would be lower versus last year's levels.
The NASDAQ Composite index slid 6 points to 1,253.  In the broader
market, airline shares went into a tailspin after Merrill Lynch
cut its industry earnings forecast for the group.  The oil service
sector achieved mild gains after the American Petroleum Institute
reported a drop in supplies and utility, gold and defense issues
also benefited from moderate buying pressure.  The S&P 500-stock
index slipped 4 points to 869.  Trading volume totaled 1.5 billion
on the NYSE and 1.52 billion on the NASDAQ.  Market breadth was
sloppy, with losers racing past winners by 19 to 13 on the NYSE
and by 20 to 13 on the technology exchange.  The 10-year Treasury
note inched down 3/32 to yield 3.83% while the 30-year government
bond added 2/32 to yield 4.72%.

Today's economic news was guardedly upbeat as the August consumer
price index climbed 0.3% both overall and at the core, which omits
the food and energy components.  Economists had expected a 0.2%
increase in both numbers.  The country's foreign exchange data was
also bullish as the July trade numbers revealed a deficit of $34.6
billion, lower than the $37 billion gap forecast by economists.
Despite the optimistic data, equity values continued to slump and
the bearish trend shows no signs of a respite in the coming weeks.
The technical indications suggest a move through the July lows and
a possible dip into the 675-700 range (S&P 500 index) before the
historical up-trend resumes.

***************

SUMMARY OF CURRENT POSITIONS

***************
(As of 09-17-02)

Naked Puts

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

PLMD     SEP    22   21.85  24.40   $0.65    5.39%
AMGN     SEP    35   34.40  45.17   $0.60    4.26%
CCMP     SEP    25   24.45  40.76   $0.55    4.44%
AMGN     SEP    37   37.00  45.17   $0.50    4.11%
CCR      SEP    45   44.35  47.41   $0.65    4.15%
CEPH     SEP    35   34.05  42.75   $0.95    7.61%
CHIR     SEP    32   32.05  36.76   $0.45    4.03%
CVTX     SEP    20   19.65  21.05   $0.35    4.87%
IDPH     SEP    35   34.30  44.03   $0.70    5.84%
IVGN     SEP    30   29.40  36.15   $0.60    5.66%
AMGN     SEP    40   39.40  45.17   $0.60    5.88%
GDT      SEP    30   29.70  35.85   $0.30    4.41%
IDPH     SEP    35   34.35  44.03   $0.65    7.96%
INVN     SEP    25   24.75  34.54   $0.25    4.91%
IVGN     SEP    30   29.65  36.15   $0.35    5.28%
AMGN     OCT    35   33.15  45.17   $0.85    6.08%
CHTT     OCT    35   34.50  37.00   $0.50    4.27%
CCMP     OCT    30   28.90  40.76   $1.10    8.06%
INVN     SEP    30   29.60  34.54   $0.40    7.34%
IVGN     SEP    30   29.65  36.15   $0.35    7.39%
MIK      SEP    40   39.60  45.90   $0.40    6.00%
UOPX     SEP    25   24.75  31.30   $0.25    6.56%
INTU     OCT    40   38.60  46.34   $1.40    6.87%
COF      OCT    30   29.30  35.24   $0.70    6.47%
CTSH     OCT    50   49.25  63.02   $0.75    4.57%
EASI     OCT    50   49.00  59.37   $1.00    5.13%
INVN     OCT    25   24.45  34.54   $0.55    6.31%
LLL      OCT    47   46.65  53.83   $0.85    4.70%
MIK      OCT    40   39.35  45.90   $0.65    4.65%
ROOM     OCT    40   39.25  46.60   $0.75    5.16%

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  51.70   $0.60   4.63%
MUR      SEP    90    91.05  82.40   $1.05   5.13%
OMC      SEP    70    70.60  61.44   $0.60   5.74%
QLGC     SEP    40    40.45  30.69   $0.45   6.61%
ERTS     SEP    65    65.66  63.35   $0.55   5.30%
MMM      SEP    125  126.75  116.67  $1.75   7.29%
MUR      SEP    90    91.00  82.40   $1.00   6.74%
QLGC     OCT    40    41.20  30.69   $1.20   9.74%
INTU     OCT    50    51.50  46.34   $1.50   6.80%
EBAY     OCT    65    66.20  57.22   $1.20   5.48%
QLGC     OCT    45    45.45  30.69   $0.45   4.91%
XL       OCT    80    81.25  73.74   $1.25   4.66%
GILD     OCT    35    36.45  32.00   $1.45   9.78%


Put-Credit Spreads

Stock                                              Gain
Symbol  Pick   Last  Month L/P S/P Credit   C/B   (Loss) Status
 
PII     67.90  68.37  SEP   50  55  0.60  54.40  $0.60   Open
BSC     65.44  59.50  SEP   55  60  0.55  59.45  $0.05   Open? *
CCMP    41.50  40.76  SEP   25  30  0.40  29.60  $0.40   Open
SCHL    44.00  44.00  SEP   35  40  0.50  39.50  $0.50   Open
CCR     52.47  47.41  SEP   45  50  0.65  49.35 ($0.60) Closed *
EASI    52.40  59.37  SEP   45  50  0.90  49.10  $0.90   Open
EASI    55.00  59.37  SEP   45  50  0.55  49.45  $0.55   Open
HRB     51.30  49.45  OCT   40  45  0.45  44.55  $0.45   Open
LOW     45.20  44.06  OCT   35  40  0.50  39.50  $0.50   Open

Countrywide Credit (NYSE:CCR) was closed Monday when the issue
moved below the sold strike at $50.  The cost to exit the play
was $1.25, but the initial credit reduced the position loss to
$0.60.  Traders should also consider closing the bullish spread
in Bear Stearns (NYSE:BSC) to limit potential losses.


Call-Credit Spreads

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

AAP    45.95   53.90  SEP   60  55  0.70  55.70  $0.70   Open
AIG    62.08   58.11  SEP   75  70  0.65  70.65  $0.65   Open
INTU   41.04   46.34  SEP   55  50  0.60  50.60  $0.60   Open
AVE    63.62   54.17  SEP   75  70  0.55  70.55  $0.55   Open
HI     38.09   29.52  SEP   50  45  0.65  45.65  $0.65   Open
AET    41.89   38.45  SEP   50  45  0.45  45.45  $0.45   Open
COF    35.33   35.24  SEP   42  40  0.25  40.25  $0.25   Open
LEH    56.22   53.55  SEP   65  60  0.40  60.40  $0.40   Open
ATH    60.41   69.05  SEP   70  65  0.60  65.60 ($1.40) Closed *
GSK    37.73   37.47  SEP   42  40  0.30  40.30  $0.30   Open
EBAY   55.59   57.22  SEP   65  60  0.55  60.55  $0.55   Open
JNJ    55.48   53.59  OCT   65  60  0.50  60.50  $0.50   Open
MSFT   48.58   47.29  OCT   60  55  0.55  55.55  $0.55   Open
PHM    48.46   47.60  OCT   60  55  0.60  55.60  $0.60   Open
WFT    39.37   36.57  OCT   50  45  0.60  45.60  $0.60   Open

Anthem (NYSE:ATH) was closed Wednesday (9/11) when the issue
moved above the sold strike at $65.  The cost to exit the play
was $2.00, but the initial credit reduced the position loss to
$1.40.

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   46.34   $1.50    6.80%
INTU     OCT     40P    38.60   46.34   $1.40    6.87%
GILD     OCT     35C    36.45   32.00   $1.45    9.78%
GILD     OCT     30P    28.50   32.00   $1.50   10.36%

 
Synthetic Positions:

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

PDX    34.15   33.28   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 and a move below $32 will be our exit
signal for the Pediatrix Medical (NYSE:PDX) play.

Questions & comments on spreads/combos to Contact Support
***************

NEW POSITIONS

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.

***************
BSTE - Biosite  $30.50  *** Rally Mode! ***

Biosite (NASDAQ:BSTE) is a research-based diagnostics company
dedicated to the discovery and development of novel protein-
based tests that improve a physician's ability to diagnose
disease.  The firm combines separate, yet integrated, discovery
and diagnostics businesses to access proteomics research,
identify proteins with high diagnostic utility, develop and
commercialize products and educate the medical community on new
approaches to diagnosis.  In March 2002, Biosite entered into a
multi-year collaborative agreement with Amgen (NASDAQ:AMGN).

BSTE - Biosite  $30.50

PLAY (sell naked put):

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

SELL PUT  OCT 20   BQS VD     367     0.35    19.65      5.6% ***
SELL PUT  OCT 22.5 BQS VX     130     0.55    21.95      8.5%
SELL PUT  OCT 25   BQS VE     424     1.10    23.90     13.8%


***************
ESRX - Express Scripts  $54.88  *** On The Rebound! ***

Express Scripts (NASDAQ:ESRX) is a pharmacy benefit management
company in North America.  The company is independent from any
pharmaceutical manufacturer ownership, which allows it to make
unbiased formulary recommendations to its clients, balancing
both clinical efficacy and cost.  The company provides a full
range of pharmacy benefit management services, including retail
drug card programs, mail pharmacy services, drug formulary
management programs and other clinical management programs for
approximately 19,000 client groups that include HMOs, health
insurers, third-party administrators, employers, sponsored
benefit plans and government health programs.  As of January 1,
2002, some of the company's largest clients included AARP,
Aetna U.S. Healthcare and Blue Cross of Massachusetts.

ESRX - Express Scripts  $54.88

PLAY (sell naked put):

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

SELL PUT  OCT 45   XTQ VI     238     0.50    44.50      4.0% "TS"
SELL PUT  OCT 50   XTQ VJ     438     1.35    48.65      7.4%
SELL PUT  OCT 55   XTQ VK     190     2.70    52.30     11.1%


***************
GD - General Dynamics  $83.91  *** Defense Sector Rally! ***

General Dynamics (NYSE:GD) operates a range of businesses that
produce information and communications technology, land and
amphibious combat systems, and is engaged in naval and commercial
shipbuilding, and business aviation.  These are high technology
businesses that use design, manufacturing and program management
expertise together with advanced technology and the integration
of complex systems as part of their everyday operations.  The
company operates in four primary business groups: Information
Systems and Technology, Combat Systems, Marine Systems, and
Aerospace.  The company employs approximately 54,000 people
worldwide and anticipates 2002 revenues of $14-$15 billion.

GD - General Dynamics  $83.91

PLAY (sell naked put):

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

SELL PUT  OCT 70   GD VN    1,320     0.65    69.35      3.2% "TS"
SELL PUT  OCT 75   GD VO      585     1.35    73.65      5.3% ***
SELL PUT  OCT 80   GD VP      277     2.40    77.60      7.6%


***************
INVN - InVision Technologies  $34.00  *** 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
baggage.

INVN - InVision Technologies  $34.00

PLAY (sell naked put):

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

SELL PUT  OCT 25   FQQ VE   1,253     0.55    24.45      7.8% ***
SELL PUT  OCT 30   FQQ VF   1,217     1.50    28.50     13.0%


***************
NOC - Northrop Grumman  124.77  *** Another Defense Stock ***

Northrop Grumman (NYSE:NOC) is a global defense firm that provides
unique technologically advanced products, services and solutions
in defense and commercial electronics, defense systems integration,
information technology and nuclear and non-nuclear shipbuilding
and systems.  Northrop Grumman has operations in 44 states and 25
countries, serving U.S. and international military, government and
commercial customers.  Northrop Grumman is aligned into six main
business sectors: Electronic Systems, Information Technology,
Integrated Systems, Ship Systems, Newport News and Component
Technologies.

NOC - Northrop Grumman  124.77

PLAY (sell naked put):

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

SELL PUT  OCT 105  NOC VA     617     0.95   104.05      3.1% "TS"
SELL PUT  OCT 110  NOC VB   2,608     1.45   108.55      4.0% ***
SELL PUT  OCT 115  NOC VC   1,353     2.10   112.90      5.0%
SELL PUT  OCT 120  NOC VD     624     3.20   116.80      6.7%


***************
XAU - PHLX Gold & Silver Sector  $73.81  *** Market Hedge ***

The PHLX Gold & Silver Sector (XAU) is a capitalization-weighted
index composed of the common stocks of 9 companies involved in
the gold and silver mining industry.  The XAU was set to an
initial value of 100 in January 1979; options commenced trading
on December 19, 1983.  For more information on the XAU, go to
www.phlx.com.

XAU - PHLX Gold & Silver Sector  $73.81

PLAY (sell naked put):

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

SELL PUT  OCT 60   XAU VL     968     0.75    59.25      4.6% ***
SELL PUT  OCT 65   XAU VM     413     1.40    63.60      6.4%
SELL PUT  OCT 70   XAU VN     345     2.90    67.10     10.3%


***************

BULLISH PLAYS - Credit Spreads

***************
MBG - Mandalay Resort Group  $32.46  *** Sector Rally! ***
  
Mandalay Resort Group (NYSE:MBG) is a hotel-casino operator.
The firm's Mandalay Mile is a large-scale hotel-casino resort
development in Las Vegas, the world's largest gaming market.
Mandalay Mile consists of three interconnected mega-resorts on
230 acres, including its flagship property, Mandalay Bay.  The
company and the joint ventures in which it participates operate
a total of 16 properties with more than 27,000 guest rooms and
more than one million square feet of casino space in Nevada,
Mississippi, Illinois and Michigan.  Of these properties, 12
are wholly owned and have more than 22,400 guestrooms and more
than 800,000 square feet of casino space.  In addition, the
company owns a 50% interest in each of three joint venture
casino properties that have approximately 4,700 guest rooms
and more than 200,000 square feet of casino space, and a 53.5%
interest in a fourth joint venture casino with 75,000 square
feet of casino space.

MBG - Mandalay Resort Group  $32.46

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-27.50  MBG-VY  OI=27  A=$0.35
SELL PUT  OCT-30.00  MBG-VF  OI=20  B=$0.65
INITIAL NET-CREDIT TARGET=$0.35-$0.40
POTENTIAL PROFIT(max)=16% B/E=$27.85


***************
PDCO - Patterson Dental  $52.63  *** A Big Day! **

Patterson Dental (NASDAQ:PDCO) is a value-added distributor
serving the North American dental supply and companion-pet
(dogs, cats and other common household pets) veterinary supply
markets.  The company has two operating segments, dental supply
and veterinary supply.  As the firm's largest segment, dental
supply provides a virtually complete range of consumable dental
products, clinical and laboratory equipment, and value-added
services to dentists, dental laboratories, institutions and
other healthcare providers throughout North America.  Patterson's
veterinary supply segment distributes consumable supplies,
equipment, diagnostic products, biologicals (vaccines) and
pharmaceuticals to companion pet veterinary clinics principally
in the eastern, mid-Atlantic and southeastern regions of the
United States.

PDCO - Patterson Dental  $52.63

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-45  DOU-VI  OI=100  A=$0.35
SELL PUT  OCT-50  DOU-VJ  OI=103  B=$1.00
INITIAL NET-CREDIT TARGET=$0.70-$0.75
POTENTIAL PROFIT(max)=17% B/E=$49.30


***************
SYK - Stryker  $60.03  *** Hot Sector! ***

Stryker Corporation (NYSE:SYK) and its subsidiaries develop,
manufacture and market specialty surgical and medical products,
including orthopaedic reconstructive implants.  The company
operates in two reportable segments: Orthopaedic Implants, which
sells orthopaedic reconstructive, trauma and spinal implants,
bone cement and the bone growth factor osteogenic protein-1,
and the MedSurg Equipment segment, which sells powered surgical
instruments, endoscopic systems, medical video imaging equipment,
craniomaxillofacial implants, image-guided surgical systems and
hospital beds and stretchers.  The firm's Other segment includes
Physical Therapy Services and corporate administration.

SYK - Stryker  $60.03

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-50  SYK-VJ  OI=230  A=$0.30
SELL PUT  OCT-55  SYK-VK  OI=150  B=$0.75
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$54.50


***************

Neutral Plays - Credit Strangles

One of our subscribers suggested we offer some additional credit
(short) strangles to take advantage of the recent increase in
option premiums (implied volatility) and the range-bound trends
of many stocks.  Indeed, the current market conditions make that
approach viable and here is a second group of new candidates for
traders who favor premium-selling strategies.  All of the issues
have relatively stable chart patterns but current news and market
sentiment will have an effect on these positions, so review each
play individually and make your own decision about its outcome.

***************
BBBY - Bed Bath & Beyond  $34.34  *** Trading Range? ***

Bed Bath & Beyond (NASDAQ:BBBY) is an operator of stores selling
predominantly better quality domestics merchandise and other home
furnishings typically found in better department stores.  The
company operates over 400 Bed Bath & Beyond stores in 44 states
and one territory.  Domestics merchandise includes bed linens and
related items, bath items and kitchen textiles.  Home Furnishings
include kitchen and tabletop items, fine tabletop and giftware,
basic house-wares and general home furnishings.

BBBY - Bed Bath & Beyond  $34.34

PLAY (moderately aggressive - neutral/credit strangle):

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

SELL PUT  OCT 27.5  BHQ VY   108      0.45    27.05       6.2%
SELL CALL OCT 37.5  BHQ JU 1,053      0.80    38.30       7.1%


***************
CAI - CACI International  $35.67  *** In A Comfort Zone ***

CACI International (NYSE:CAI) is a holding company and its many
operations are conducted through subsidiaries located in the
United States and Europe.  The company delivers information
technology and communications solutions to clients through four
areas of expertise or lines of business: systems integration,
managed network services, document technology and engineering
services.  The company's primary markets, both domestic and
international, are agencies of national governments, major
corporations and state and local governments.  The demand for
CACI's services in large measure is created by the increasingly
complex network, systems and information environment in which
governments and businesses operate, and by the need to stay
current with emerging technology while increasing productivity
and, ultimately, performance.

CAI - CACI International  $35.67

PLAY (moderately aggressive - neutral/credit strangle):

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

SELL PUT  OCT 30   CAI VF    20      0.45    29.55       5.0%
SELL CALL OCT 40   CAI JH   216      0.55    40.55       5.3%


***************
WFMI - Whole Foods Market  $45.41  *** Recent Volatility ***

Whole Foods Market (NASDAQ:WFMI) owns and operates a chain of
natural and organic foods supermarkets.  The categories of
products that the company offers include: produce, grocery,
meat and poultry, seafood, bakery, prepared foods, specialty
(beer/wine/cheese), nutritional supplements, body care, pet
products, floral, household products and educational products
such as books.  On average, the firm's stores carry over 20,000
SKUs (stock-keeping units) of food and non-food products.  The
company has a broad product selection with a heavy emphasis on
perishable foods designed to appeal to both natural foods and
gourmet shoppers.

WFMI - Whole Foods Market  $45.41

PLAY (conservative - neutral/credit strangle):

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

SELL PUT  OCT 40   FMQ VH   143      0.55    39.45       4.2%
SELL CALL OCT 50   FMQ JJ   179      0.50    50.50       3.6%


***************

BEARISH PLAYS - Naked Calls

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.

***************
DIA - Diamonds Trust  $81.42  *** Trade The Dow! ***

Diamonds represent ownership in the Diamonds, Trust Series 1, a
unit investment trust established to accumulate and hold a
portfolio of the equity securities that comprise the Dow Jones
Industrial Average.  Diamonds seek investment results that,
before expenses, generally correspond to the price and yield
performance of the DJIA although there is no assurance that the
price and yield performance of the DJIA can be fully matched.
For more information, go to www.amex.com.

DIA - Diamonds Trust  $81.42

PLAY (aggressive - sell naked call):

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

SELL CALL  OCT 83   DAV JE     235     2.20  85.20       6.7%
SELL CALL  OCT 84   DAV JF   1,665     1.80  85.80       5.7%
SELL CALL  OCT 85   DAV JG     809     1.35  86.35       4.5%
SELL CALL  OCT 86   DAV JH   1,669     1.15  87.15       4.0% ***


***************
MUR - Murphy Oil  $83.38  *** Oil Sector Volatility ***

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  $83.38

PLAY (aggressive - sell naked call):

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

SELL CALL OCT 85    MUR JQ   1,283   4.00    89.00      11.3%
SELL CALL OCT 90    MUR JR   1,134   1.75    91.75       6.2% ***
SELL CALL OCT 95    MUR JS     210   0.85    95.85       3.8% "TS"


***************

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.

***************
APA - Apache Oil  $56.57  *** Trading Range? ***

Apache Corporation (NYSE:APA) is an energy company that explores
for, develops and produces natural gas, crude oil and natural gas
liquids.  The company has interests in seven countries including
the United States, Canada, Egypt, Australia, China, Poland and
Argentina.  As of January 1, 2002, Apache had estimated reserves
of 599 million barrels of crude oil, condensate and NGLs (natural
gas liquids) and four Tcf (trillion cubic feet) of natural gas.
Combined, these total estimated proved reserves are equivalent to
1.3 billion barrels of oil or 7.6 Tcf of gas.  Worldwide, in 2001,
the company participated in drilling 939 new wells, with 828 (88%)
completed as producers.  Canada was Apache's most active region,
with 447 gross new wells at a success rate of 93%.  Apache also
performed over 1,350 major work-overs and re-completions in North
America during the year.

APA - Apache Oil  $56.57

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-65  APA-JM  OI=1294   A=$0.25
SELL CALL  OCT-60  APA-JL  OI=2865   B=$1.00
INITIAL NET-CREDIT TARGET=$0.75-$0.85
POTENTIAL PROFIT(max)=18% B/E=$60.75


***************
WY - Weyerhaeuser Company  $49.78  *** New 2002 Low! ***

Weyerhaeuser Company (NYSE:WY) is principally engaged in the
growing and harvesting of timber as well as the manufacture,
distribution and sale of forest products, real estate and
construction and other real estate-related activities.  The
company's business segments are timberlands; wood products;
pulp, paper and packaging, and real estate and related assets.
The firm is engaged in the management of 5.9 million acres of
company-owned and .5 million acres of leased commercial forest
in North America (3.8 million acres in the South and 2.6 million
acres in the Pacific Northwest and Canada).  The company's wood
products businesses produce and sell softwood lumber, plywood
and veneer; oriented strand board, composite and other panels;
engineered lumber, hardwood lumber and treated products.  The
company's pulp, paper and packaging businesses include pulp,
paper, containerboard packaging, paperboard and recycling.

WY - Weyerhaeuser Company  $49.78

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-60  WY-JL  OI=830  A=$0.25
SELL CALL  OCT-55  WY-JK  OI=835  B=$0.80
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$55.60




***************
SEE DISCLAIMER
***************


**************
MARKET POSTURE
**************

Turning Over An Old Leaf

To Read The Rest of The OptionInvestor.com Market Watch Click Here
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************
MARKET WATCH
************

High Dive

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