Option Investor

Daily Newsletter, Wednesday, 09/25/2002

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The Option Investor Newsletter                Wednesday 09-25-2002
Copyright 2002, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Not Convinced
Index Trader Wrap: 
Weekly Fund Family Profile: Bernstein Funds: A Unit of Alliance 
Capital Management L.P.
Options 101: Back To The Basics
Traders Corner: If It Sounds Too Good To Be True

Updated on the site tonight:
Swing Trader Game Plan: 

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
09-25-2002                High    Low     Volume Advance/Decl
DJIA     7841.82 + 158.69 7891.28 7665.66  1930 mln   1509/415
NASDAQ   1222.29 +  40.12 1209.72 1177.41  1684 mln   1438/213
S&P 100   417.38 +  6.52  1227.23 1184.12   totals    2947/628
S&P 500   839.66 + 20.37  844.22  818.46
RUS 2000  365.14 +  8.56  365.18  356.58
DJ TRANS 2167.08 + 69.91 2167.08  2097.65
VIX        42.41 -  2.97   46.23  41.84
VIXN       56.69 -  2.71   61.80  56.67
Put/Call Ratio 0.77

Not Convinced
by Steven Price

Have we found a bottom?  This is the question on the minds of 
investors, OI readers and my own.  It's going to take a lot more 
than a 158.69 point gain, after the Dow gave up over 1300 points 
over the last month, to convince me that we have found a bottom.  
That being said, all bear markets experience some bounces, and 
after a 1300-point drop, this bounce could still tack on a few 
hundred more points without changing my overall sentiment.  That 
bounce could provide some great long opportunities, as well.

I looked back at recent head and shoulders reversal patterns in 
the Dow to see just how accurate the downside projections were.  
It was difficult to find a pattern that looked as textbook as the 
recent pattern, but I found a few that fit the description, 
nonetheless.  It was surprising to see just how accurate the 
downside measuring objectives have been.  The measuring objective 
is taken from the top of the head to the neckline, and then that 
distance is projected downward.  Below is a copy of the chart I 
put in Monday's Market Wrap showing the minimum downside 
objective of the current pattern.  It is followed by recent head 
and shoulders patterns in the Dow.

Chart of the Current Dow and Nasdaq Pattern

In the following charts, the distance between the head and 
neckline is in red, the neckline is in black and the projection 
downward is in blue.

The following chart follows a broad pattern from the end of last 
year to the beginning of this year.  The minimum downside 
objective was achieved, and then some.

Chart of Dow H&S from 2001-2002

This chart from the end of 2000 to the beginning of 2001 is not 
as well defined, but still fits the H&S criteria.  The downside 
objective is also achieved in this pattern.

Chart of Dow H&S from 2000-2001

If we go back a couple of months from this point, to July-October 
2000, we see the pattern repeat itself.  The market continues 
downward and bounces when it hits the downside measuring 

Chart of H&S from July-October 2000

Moving back to the summer and fall of 1999, once again the 
downside objective of a head and shoulders pattern is achieved, 
and provides a bounce point.

Chart of H&S from July to October 1999

By now you get the point.  The recent consistency of the pattern 
suggests to me that today's rally was just a minor bounce on the 
way down.  Tuesday's close brought the Dow down below the closing 
low of July 23(7702.34).  On July 24, the Dow sank 170 points, to 
7532, before staging a 658-point intraday turnaround.  This 
bounce was the beginning of a rally that took the average back 
over 9000.  If there was going to be a similar bounce, this 
double bottom point seemed like the logical place for it to 
happen.  We did get a bounce, but I'm not sure it was terribly 
convincing, especially given the patterns highlighted above.  
Remember that the July low was achieved on the tail end of the 
2000-2001 H&S pattern, shown above.  A double bottom is usually 
portrayed with the second dip being higher than the first.  It 
can be argued that yesterday's intraday low of 7666 was higher 
than the intraday low of 7532 on July 24.  However, the other 
side of the argument is that yesterday's end of day close, 
7683.13, was actually lower than that of 7702 on July 23.

Today's rebound did take out yesterday's resistance level of 
7800.  Intraday resistance had been appearing at successively 
lower round numbers over the last several days.  Today broke that 
daily trend, but was turned back decisively below Monday's 
resistance level of 7900. While a recovery will most likely take 
place in small steps, today's bounce was hardly a reversal in the 
larger trend.  However, it could be the first small step after 
finding support right around the July 23 closing low.

Chart of Dow resistance levels

Over the last several years, the techs have led the market.  One 
of the sectors that has been dragging the Nasdaq down is the 
semiconductors.  With constant warnings, and lower earnings and 
revenue guidance becoming almost a daily event, a look at the 
Semiconductor Index (SOX.X) provides quite a bit of insight as to 
where the broader markets are headed.  Today the group rebounded, 
showing a gain of almost 7%.  However, the index had lost 35% of 
its value in the month between August 21 and September 23.  So 
while today's rally was nice, the sector still remains in a 
strong down trend.  The only silver lining seems to be that the 
last two rebounds have come from the center of the descending 
channel, as opposed to the bottom.  While I wouldn't call this 
bullish, it is an improvement from a technical standpoint.  The 
7% gain, however, has not broken the series of lower highs and 
lower lows.

Chart of the SOX

The International Monetary Fund (IMF) has dialed down its 
expectations for global growth.  It had projected global growth 
at 4% in 2003 just 6 months ago.  It now predicts growth of only 
2.8% in 2002 and 3.7% in 2003.  The outlook stated, "Concerns 
about the pace and sustainability of the recovery have risen 
significantly... The recovery is still expected to continue, but 
global growth in the second half of 2002 and in 2003 will be 
weaker than earlier expected and the risks to the outlook are 
primarily on the downside."  These numbers are still an 
improvement from the 2.2% growth in 2001, but that came during a 
U.S. recession.  Chief IMF economist Kenneth Rogoff cited 
problems in Iraq, uncertainty about when investment will recover 
and investor risk tolerance as the major unknowns. The IMF also 
reduced its growth targets for the U.S. from 2.3% to 2.2% in 2002 
and from 3.4% to 2.6% for 2003.  One of the big problems facing 
the world economy is still Japan, whose economy is expected to 
shrink 0.5% this year, its third recession in the last decade.  
The IMF also said falling equity prices in the advanced nations 
would have negative effects on the global economy and should cut 
spending in the U.S. by about 1% over the year, negating the 
stimulating effects of the weaker dollar and lower interest 

In another bearish sign, the housing market is continuing its 
cool down.  One of the props holding up consumer spending is the 
ability to refinance and lower mortgage payments. While mortgage 
applications and refinancings are still high historically, home 
resales did fall 1.7% in August, in spite of interest rates still 
heading lower. The August resale rate was also down 3.8% from a 
year ago.  The rates were reported by the National Association of 
Realtors, whose chief economist said, "It's still a very healthy 
pace, but certainly we are winding down from the boom." With 
mortgage foreclosures at an all time high, and housing starts 
dropping, I can't help but feel like the housing bubble isn't so 
much bursting, as developing a slow leak.  

Some positive news came after the bell from Bed, Bath and Beyond 
(BBBY).  The past few days have brought cautious comments from 
Wal-Mart, Target and Federated, indicating that we are seeing a 
slowdown in consumer spending.  However, Bed, Bath and Beyond 
beat estimates by 0.02 and posted a 39% increase over the year 
ago quarter.  The company said same store sales were up 10.4%, 
after a 4.6% gain a year ago.  This may be a result of the 
strength over the last few months of the housing market, as the 
company focuses on home furnishings.  The slowdown in home sales, 
however, could affect them negatively in the future.  Still, a 
retailer that beats the street is a positive sign.

Qualcomm said last week that it expects strong chip demand in its 
current fourth quarter and upped their shipping estimates from 19 
million phone chips to 20 million.  Today after the bell, they 
reiterated those expectations and said that they are also seeing 
an increase in fourth quarter bookings, which is a positive for a 
sector that has seen its book-to-bill ratio slide for the past 
few months.  However, Qualcomm has failed to raise earnings 
guidance along with either of these announcements.  One of the 
problems plaguing the chipmakers has been falling prices; so 
increased production does not necessarily mean they will be 
increasing earnings projections. 

Ford also had some good news.  After claiming recently that the 
market was undervaluing its earnings potential, Chairman Bill 
Ford said the company would be raising production in the fourth 
quarter.  Since vehicles are booked as sold when shipped to 
dealers, this increase may help Ford turn a profit for the year.  
This would be a change from their losses of a year ago.

General Electric (GE) came out and reaffirmed their guidance for 
the quarter. This was one of today's market catalysts.  However, 
I found interesting Jim Brown's Market Monitor comment that a 
reader emailed him with information that employees at a plant in 
Bangor, Maine were told this week that 50-75 workers would be cut 
by Christmas if business did not pick up.  

Former WorldCom controller David Myers has agreed to plea guilty 
to two felony counts.  Expect the case against WorldCom to heat 
up now that one of the high-ranking executives has apparently 
agreed to provide information to the prosecution. 

This quarter, with the Dow and S&P 500 down 15% and the Nasdaq 
down 16%, is shaping up as the worst quarter since the fourth 
quarter of 1987.  Today's bounce from the July lows may be the 
first step in another rally.  However, it seems that expectations 
have been dialed down so dramatically that we have a long way to 
go, as far as consumer and capital spending, before we can 
consider ourselves healthy again.   A CFO survey released today 
showed that the boys/girls in charge are not yet convinced.  
Their level of optimism has dropped, due to concerns about 
consumer spending, business capital spending and global unrest. 
If they are less convinced that things might turn around, then my 
feeling that the worst is not yet over seems justified.   Of 
course, the cliché that "it always seems darkest before the dawn" 
usually applies to the stock market, as well.  

Since we are now into earnings warning season, we can expect the 
market to be extremely jittery, as we have also hit critical 
support levels. Today's rally eased fears a little, but the 
market Volatility Index (VIX.X) still remains over 40, which is 
considered high.  For the moment I am very cautious about short 
positions, as a bear market rally could still have some room to 
run.  However, until we see signs of the pace of economic 
recovery picking up, I still think above outlined downside 
measuring objectives in the Dow and Nasdaq have a good chance of 
being tested.

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Coincidence?  Maybe, but then again... maybe not

In last night's wrap, I discussed my "only" fear as a bear.  That 
discussion was simply based on the thought that a bearish trader 
might be facing a near-term asset allocation shift with profits 
being taking in bonds and some of those profits then rotating 
toward stocks.

The "technicals" sure didn't hint all that much that buyers would 
be around, except perhaps that the Dow Industrials (INDU) 7,841 
+2.06% has just tested its 52-week closing low from July 23 at 

While our "Beetles Balanced Fund" is only based on an equally 
distributed 8,000 hypothetical dollars among 8 different "assets" 
the trader/investor that thinks like an institution and 
multiplies that amount by millions if not billions of dollars, 
gets a very different feel for profits and losses.

When I brokered for a living, I'd put my mutual fund investing 
clients on a quarterly review, and offered them the opportunity 
to look at their various holdings and systematically "rebalance" 
their accounts, especially if market conditions dictated a 
rebalancing was necessary.  Asset classed held at various times 
were things like Treasury bond funds, corporate bond fund, large 
cap value stocks, large cap growth stocks, small cap value, small 
cap growth....etc.

Rebalancing by itself and done systematically forces an 
investor/trader to take some profits (if properly diversified) 
where there are gains, and dollar cost averaging into those asset 
classes that have under performed.  I tried to take this to a 
higher level, where I'd allocate into sectors groups of stocks 
that had just reversed up on their bullish % charts, and take 
profits from groups where the bullish % charts had reversed lower 
from a higher level of bullish %.

For an index trader like you and I, this type of "asset 
allocation" thinking is really nothing more than the difference 
between stocks and bonds.  For many institutions, its the exact 

Here's a quick look at how the "Beetle's Balanced" fund did 
today.  I'm not going to show this every night, but just as we 
"wowed" at the gains found in the Lehman 20+ Treasury bond 
Ishares from our 07/31/02 benchmarking, think about today's -1.2% 
decline as it relates to a 20+ year investment, with current 30-
day SEC YIELD as of 5.0% annualized (data as of 08/31/02).

Beetle's Balanced Benchmark - from 07/31/02 close

My mindset in a very generalized sense is that "bonds" are 
PERCEIVED as being "less risky" than equities.  Within the scope 
of bonds, shorter-term maturities in Treasuries are "less risky" 
than longer-dated maturities.  In the Beetle's Balance fund, the 
shorter-term would be the SHY and longer-term would be TLT.

The little "red arrow" just points to today's action, with the 
TLT falling 1.21%, but still up 8.54% from our July 31 

Was today's rally in stocks and selling in treasuries, especially 
the longer-dated a "coincidence" or the beginning of some asset 
allocations taking place just prior to the end of the third-
quarter?  I "developed" the Beetle's Balanced fund ONLY to get a 
feel for risk/reward as it relates to the MARKET'S perception of 
risk and reward and to get a feel for where money is flowing.

Right now, I don't think this morning's "reaffirming" of guidance 
by General Electric (NYSE:GE) $27.00 +4.24% was would have had 
the markets acting like they did today.

Nope... I think we're seeing some asset allocation and will be 
the basis of my near-term scenario and trading strategies.

For me personally, I'm not overly aggressive with bullish trades 
when the bullish % are in column's of O's like they are right 
now.  Nor am I aggressive with bullish trades when the major 
market averages have either hit new 52-week lows, or close to 
hitting them.

My current BIG picture of risk to a stop begins with the current 
lows found yesterday.  That's it, plain and simple.  My main goal 
in ANY BULLISH TRADE is to control risk, and not necessarily 
FOCUS on potential gain.

True.... while there's a greater potential for gain in the QQQ 
than the OEX, or SPX or DIA, there's also greater risk in the 
tech-laden QQQ.  When markets are hitting new 52-week lows, a 
bull should be focusing on risk, and weighing it against a 
secondary variable of potential reward.

If you think about it.... it what every trader/investor should do 
regardless of the security traded.

So lets start tonight's technical update with the Dow Diamonds 
(NYSE:DIA) $78.66 +2.06% as some traders may have taken a bullish 
trade I profiled today in the market monitor (12:19:17) near 
$77.70.  I looked at the October $77 calls (DAVJY), but just 
couldn't bring myself to pay $3.30, when my near-term target is 

Dow Diamonds (AMEX:DIA) Chart - 60-minute interval

Since I'm in the mind-set of short-term bullish in the DIA, I'm 
showing our DIA chart with the lower-trending "short-term" 
regression channel.  We "know" what the longer-term looks like 
from last night's wrap.  I wouldn't be a bit surprised to see the 
DIA dip back near $77.50, just undercutting the 21-hour (pink) 
SMA, similar to that period highlighted in the upper-left corner 
of the chart.  With stochastics "overbought" on the 60-minute 
interval, a pullback near $77.50 is an entry point, with a stop 
just under the lows of $76.60.  I've underlined the word "trader" 
as to a DIA trader loving a rally to $82.  Remember, I'm still 
looking for a BEARISH entry between $80.45 and $82.28.  If the 
bugger is going to go there based on a scenario of "asset 
allocation" then a TRADER looks to trade it.  However, I'm 
starting out conservatively with an $80.00 target.  My thinking 
here is based off of past observation.  As a BEAR, I was 
targeting the $80.45 level of retracement and the DIA fell to 
$76.60.  When an index or stock exceeds to the downside my prior 
bearish target, I think its a bit foolish to begin thinking Dow 
10,000 at this point.  "Baby steps folks... baby steps."

Are "bears" worried from their July 12th opening short?  Nope. 
But today's break back above the 19.1% retracement in the INDU of 
7,747 is an alert and risk becomes 8,043 near-term.

Do you see how a TRADER simply "flips" from bear to bull on a 
shorter-term basis, but still keeps the view of longer-term 

You and I (Jeff Bailey) have been trading the indexes for just a 
couple of weeks.  Hopefully you're getting the feel that once you 
book a gain, you've got some "padding" in the account, and can 
flip to the other side of things.  If things work in our favor to 
the upside and risk is properly managed to the downside, then an 
"asset allocation" rally back near Dow 8,000 may then bring out 
the bear in you.

How about them OEX's?  These buggers found resistance below 
418.50 for the better part of the morning, but when the break 
higher came, they too were on the move!  

I'm going to show the OEX on 60-minute timeframe also.  I got 
several e-mails from DIA traders today that I was "jumping the 
gun" and bullish too soon in a DIA bullish profile below its 21-
hour SMA.  Remember our past discussions on monitoring other 
indexes to hint of bullishness/bearishness.  I count about 3-bars 
trading above the 21-hour in the DIA, but check out the OEX.

S&P 100 Index Chart - Daily Interval

I got an "upside alert" that I had set on my q-charts trading 
station at retracement of 418.53, which may have had bears from 
09/12/02 stopping out.  The 60-minute bar chart sure hints that 
this might have been the case with other trader's too.  

For an "ideal" bullish entry and the weakness we've seen lately 
in the OEX, I'd like to see a gradual drift back lower, into the 
21-hour (pink) SMA of 416.  Let the SMA flatten out a bit.  Then, 
on a move back above 418.53, go long and target 430.  

Yuck!  The October OEX 415 calls (OXBJC) are currently offered 
$20.70, thanks to the higher market volatility and $VIX.X of 
42.41.  Ballpark guess is they would be about $16-$17 on a 
pullback to OEX 416.

I don't like trying to trade call options in a downward trending 
index, when volatility is high like it is.  It has the option's 
trader paying higher premiums and trading against trend.  Extreme 
bullishness is then needed for the underlying index to offset 
deteriorating premium should the index move higher, while 
volatility falls and erodes some of the premiums.

As such, I'd rather trade the underlying equity.  SPX option 
traders are faced with the same "problem" of higher volatility  
and jacked up premiums in their calls.  Again, the OEX and SPX 
look technically identical, so lets look at the SPDRS (AMEX:SPY) 
$84.35 +2.47% as an equity trade for S&P Index bulls.

SPDRS Chart - Daily Interval

The SPY rallied right up to the mid-point of our "short-term" 
regression channel.  What I "envision" is something similar to 
the upper left corner of the chart (See this!).  As such, I think 
a SPY bull can look for a pullback near, or under the 21-hour SMA 
of $83.  I've also tried to "envision" the oscillators under such 
a scenario.  

Should the SPY break above today's high and mid-point regression, 
then a trader holding long from today's break above $84 or 
looking to play some momentum tomorrow, could trade bullish, but 
the 21-hour SMA becomes your trailing stop and target is above 
$86.  I'd try and show some patience and discipline and look for 
bullish entry on a pullback, reduce some risk in a bullish trade 
with stop under the recent lows of $81.85 (say, $81.74).

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

I "hate to admit it," but the little old QQQ looks to be 
technically stronger on a 60-minute chart that any of the other 
major indexes we cover.  Note how the QQQ broke above its 21-hour 
SMA first, then broke our 38.2% retracement next, cleared out our 
profit stop at $21.52, then traded above and closed above the 50-
hour SMA.  

Do you kind of see the "domino" theory at work in the indexes.  
The QQQ now becomes the "stronger" index and OEX, SPX and DIA 
traders can perhaps monitor their trades as it relates to the 60-
minute charts.  I think that's an ADVANTAGE for OEX, SPX and DIA 
index traders.  A bullish trader in these has the mindset of 
"look for leadership or continued strength in the QQQ to provide 
signs of upside aggressiveness."

For a QQQ bullish trader, you're mindset is that of a "rising 
tide lifts all boats" where the QQQ is the boat, and wants the 
index action in the DIA, OEX and SPX to act as a "tide of 
enthusiasm" that has bears wanting to cover short positions and 
assess risk to a bullish target of $22.75 and upper end of the 
regression channel.

Anticipating a question.... Jeff:  You always have taught that 
it's best to trade bullish where strength is found, so why 
haven't you been bullish the QQQ?

My answer would be.  I do teach that.  But remember, it was the 
QQQ that just took out a new 52-week low, not the DIA, OEX or 
SPX.  These 60-minute charts we're looking at tonight are SHORT-
TERM and that's my view from the bullish side right now.

When trading bullish in downward trends, be patient and look for 
entry points on pullbacks, where the pullback in itself helps 
reduce risk in the trade.

Excluding the last 2-days, every prior bull in the QQQ is at a 
loss is my mindset.  At the same time, if we're seeing some asset 
allocation, then buying can be broad-based under such a scenario.  
Combine that with some short-covering thrown in, a nice little 
rally can be had.

Since our short-term levels of resistance were all broken to the 
upside today, I'm willing to "turn the tables" and look for some 
upside action, but want to keep risk to a minimum with 
disciplined stops.

Jeff Bailey

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Bernstein Funds: A Unit of Alliance Capital Management L.P.

This week, we look at Sanford C. Bernstein & Company and the 
Bernstein Funds, now part of the Alliance Capital Management 
family of funds.  Founded in 1967 to manage investments for 
private families and individuals, Bernstein's operations have 
since grown to include investment research and institutional 
asset management, as well as mutual funds, but their private 
clients remain the firm's central focus today.

As of June 30, 2002, the Fifth Avenue (New York) firm managed 
over $40 billion for private clients, institutional investors, 
and the Bernstein Funds.  Bernstein's website touts that its 
private clientele includes some of the nation’s most prominent 
families and individuals.  Because it has its roots in private 
asset management, Bernstein has always been sensitive to "tax" 
implications, becoming a leader in "investment-tax management."  

This tax-managed philosophy permeates to the Bernstein Funds, 
making them well suited to taxable and non-taxable investors.

Like other prominent investment shops, research is the core to 
Bernstein's investment management process - their calling card. 
Collectively, Bernstein has one of the largest research teams in 
the investment management industry, with analysts based in many 
nations around the world.  The firm believes it is the depth of 
their fundamental research capabilities that distinguishes them 
from all other money managers.

Bernstein’s recent combination with Alliance Capital Management 
L.P. in October 2000 brought together Bernstein's expertise in 
"value" investing with Alliance's "growth" investing expertise.  
In addition to the original set of no-load Bernstein Funds, the 
month of March 2001 saw the introduction of a new family of load 
funds in March 2001 called AllianceBernstein Value Funds.  These 
funds offer investors a wide range of value choices from straight 
value, to global and international value, to small cap value, and 
come in Class A, B and C shares, which vary in fees and expenses.

Only the original Bernstein Funds are rated by Morningstar since 
the AllianceBernstein Value Funds haven't been around for the 36-
month minimum time period necessary to do meaningful comparisons.  
While the AllianceBernstein Value Funds are new, they're managed 
the same way that Bernstein has always managed investments for 
its private clients and separate accounts.  In the next section, 
we tell you what that means.

Investment Style/Strategy

Bernstein's philosophy is to manage portfolios "actively" through 
security selection and sector rotation based on their fundamental 
research to achieve consistent returns and to preserve capital in 
down markets.  Their approach utilizes detailed security analysis 
coupled with a disciplined decision-making process.

Bernstein developed its reputation as a "value" investor, seeking 
out stocks with temporarily depressed prices due to undue, short-
term pessimism about a firm's ability to recover from its current 
problems.  Bernstein Strategic Value portfolio was the investment 
firm's flagship product, and it embodied this "value" philosophy.  
Note, Bernstein has since introduced a Strategic Growth portfolio 

As time went on, Bernstein added portfolios in international and 
emerging markets to further diversify client accounts and mutual 
funds by geographic region.  Bernstein's fixed income portfolios 
cover both municipal and taxable issues, primarily in the short-
to-intermediate duration range. 

Twelve Bernstein mutual funds show up in Morningstar's database, 
as follows:

 Bernstein Taxable Bond Funds:
 Government Short Duration (SNGSX)
 Short Duration Plus (SNSDX)
 Intermediate Duration (SNIDX)
 Bernstein Municipal Bond Funds:
 Duration Diversified Municipal (SDDMX)
 Duration New York Municipal (SDNYX) 
 Duration California Municipal (SDCMX)
 Diversified Municipal (SNDPX)
 New York Municipal (SNNYX)
 California Municipal (SNCAX)

 Bernstein International Stock Funds:
 Tax-Managed International Value (SNIVX)
 International Value II (SIMTX)
 Emerging Markets Value (SNEMX)

There are seven AllianceBernstein Value funds offered today, as 

 AllianceBernstein Value Funds:
 Disciplined Value (ADGAX, ADGBX, ADGCX)
 Global Value (ABGAX, ABGBX, ABGCX)
 International Value (ABIAX, ABIBC, ABICX)
 Real Estate Investment (AREAX, AREBX, ARECX)
 Small Cap Value (ABASX, ABBSX, ABCSX)
 Utility Income (AUIAX, AUIBX, AUICX)

The NASDAQ symbols for the AllianceBernstein Value funds reflect 
their Class A, B or C designation.  On August 23, 2002, Alliance 
International Fund merged into AllianceBernstein International 
Value Fund.

Bernstein's fund offerings are designed to meet the needs of all 
types of investors.  All portfolios share a common foundation in 
Bernstein's proprietary research, and are managed with an eye to 
investment taxability.  The byproduct of Bernstein's approach is 
strong, reliable long-term performance.

Our Favorite Funds

Starting first with the original no-load Bernstein mutual funds, 
we like all three of their international stock funds, including 
International Value (SNIVX), International Value II (SIMTX) and 
Emerging Markets Value (SNEMX).  Note: International Value Fund 
is now called Tax-Managed International Value Fund.   

The $2.7 billion Bernstein Tax-Managed International Value Fund 
(SNIVX) seeks to produce total return by normally investing at 
least 65% of assets in at least three foreign countries, though 
it may invest in as many as 20 countries that comprise the MSCI 
EAFE index.  Fund manager Andrew Adelson (since June 1992) seeks 
to achieve the fund's total return objective by investing mainly 
in equities such as ADRs and EDRs and direct foreign securities.

In security selection, Adelson uses a bottom-up approach, which 
seeks undervalued securities as evidenced by low P/E and price-
to-book ratios.  This fund also seeks to control currency risk 
through such techniques as forward currency hedge transactions.

For the trailing 3-year period through September 24, 2002, the 
fund had a negative average annual total return of 9.3%, which 
was 5.8% better than the benchmark MSCI EAFE index, and strong 
enough to rank the fund in the top quartile of the Morningstar 
foreign stock fund category.  For the same period, the average 
foreign stock fund produced an annual-equivalent loss of 12.5%.

Compared to all international stock funds, International Value 
Fund is a Lipper Leader for total return, consistent return and 
preservation.  In other words, it holds Lipper's highest rating 
in three performance categories.  Morningstar awards it 4 stars 
out of five based on "above average" returns and "below average" 
risk relative to its category peers (foreign stock funds).  

For the trailing 10-year period as of August 31, 2002, the fund 
generated a positive annualized total return of 6.9%, outpacing 
the MSCI EAFE index by a full 3% and the average foreign equity 
fund by about 1.9% a year applying its value style to developed 
foreign markets.  Those that want exposure to emerging markets 
can get that through the Bernstein Emerging Markets Value Fund 

Adding to the fund's appeal is its below average expense ratio 
(1.25% versus 1.69% for the category average) and low turnover 
ratio (44%).  The fund's cautious approach keeps it out of the 
more risky international markets, while relying on fundamental 
research to produce great stock picks.  Long-term investors in 
need of a large-cap value driven international stock fund will 
like what they see in Bernstein Tax-Managed International Value 
Fund.  Regular accounts require a $25,000 investment initially, 
but there is no minimum for IRA accounts.

The municipal and taxable bond funds offered through Bernstein 
Funds have delivered competitive performance for investors too.  
Bernstein's diversified municipal fund product is rated 4 stars 
by Morningstar while its New York and California municipal bond 
fund products hold Morningstar's highest 5-star rating based on 
risk-adjusted relative performance.  Collectively, these three 
funds represent $3.2 billion in assets under management today.

The $2.1 billion Bernstein Intermediate Duration Fund (SNIDX) is 
our favorite of the three taxable bond fund products and offers 
the most total return potential over the long run for investors.  
It seeks total return consistent with safety of principal.  The 
fund typically invests at least 65% of assets in debt securities 
rated AA or higher, and tends to stay at the conservative end of 
the intermediate-term bond fund group in terms of portfolio risk.

The fund's management team may invest in fixed income securities 
of any maturity, but normally will maintain an effective average 
duration of three to six years.  Up to 20% of assets may be held 
in debt securities of foreign issuers.

Over the last three years (through September 24, 2002) the fund 
produced an annual average total return of 6.5%, ranking in the 
bottom quartile of the intermediate-term bond fund category per 
Morningstar.  Long-term returns are average compared with peers, 
with "below average" relative risk.  The fund may not shoot the 
lights out, but it won't shoot you in the foot either.  Current 
income investors seeking a conservatively managed, fixed income 
fund may want to have a closer look at Bernstein's Intermediate 
Duration Fund.  


Considering the new AllianceBernstein Value funds are marketed 
and sold through financial advisors, how well they fare versus 
similar funds on a risk-adjusted and cost-adjusted basis isn't 
clear yet.  They should do relatively well on a "gross" return 
basis, given the strength and reliability of Bernstein's value 
investing process, but the effects of sales charges and higher 
operating expenses may limit some of Bernstein's "net" return.

A financial advisor can help you decide what AllianceBernstein 
Value fund class shares may be right for you based on your own 
situation.  As with other load funds, the more assets you have 
and the longer you hold your investment will determine how much 
you ultimately bear in terms of fees and expenses.  

For more information on the Bernstein Funds, you can log on to 
www.bernstein.com.  AllianceBernstein Value Funds' information 
may be found on the www.alliancecapital.com website.

Steve Wagner
Editor, Mutual Investor


Back To The Basics
by Mark Phillips

The simplest and safest option trading strategy is that of the
Covered Call, yet it continues to amaze me how often I speak
with traders that have failed to capitalize on this
cash-generation tool in their portfolios.  Every weekend, Mark
Wnetrzak writes a great column highlighting attractive covered
call trades, focusing on the strategy of buying stock and then
selling a covered call on that stock to generate a steady
monthly income.

Without stepping on Mark's toes, I want to focus on the use of
this strategy for those traders that are still holding onto
stocks that are significantly under water.  For whatever reason,
you didn't sell the stock at a higher level, and don't want to
take the loss at today's depressed prices.  We need to keep in
mind that the simple strategy of selling covered calls can start
us on the path to recovery by reducing our cost basis in a
depressed stock.

I know there are always new traders that are unfamiliar with some
of the strategies we talk about here.  Rather than re-invent the
wheel, let me encourage you to review some of Mark's Covered Call
Basics articles, which can be found by clicking on the Covered
Calls link under the Strategies header on the OIN main page.  The
basic strategy employed in that column is to buy stock and sell
a covered call with the eventual goal of having the stock called
away for a profit.  What I want to talk about here is a slightly
different approach.  Assume you have 1000 shares of CSCO, with a
cost basis of $20 per share, and you have watched in frustration
as the stock has continued to post a series of lower highs over
the past 9 months, reaching down near the $11 level again
yesterday.  Don't despair, as there is a method to get you back
near break even, regardless of whether CSCO in fact approaches
that level over the next year or so.

All we have to do is take advantage of each rally to sell a
front-month call with a strike slightly higher than the nearest
resistance that we expect to hold through the end of the current
expiration cycle.  I know that is a mouthful, but I think we can
best illustrate the concept with a detailed example.  Just
remember this one fine point of the strategy -- we DO NOT want
to have the underlying stock called away, because that will
result in locking in the loss that we are busily trying to

Let's go ahead and use the CSCO example we started with, assuming
we have 1000 shares with a cost basis of $20.  With the stock
currently sitting just below $12, we are sitting on a 40% paper
loss.  Let's look back at the past few months and show how we
could have steadily reduced that loss.

Each time price action topped out near resistance in combination
with the daily Stochastics rolling over from overbought, we could
have taken that opportunity to sell a call with roughly one month
until expiration.  Shorter-term calls would have worked as well,
but given the low price of the stock, would have provided
insufficient premium to achieve our goal.  The first opportunity
to sell calls would have been in mid-May as the stock rolled over
from the $17.50 level.  We would have sold 10 of the June $17.50
Calls for $0.75 each, taking in a total of $750.  Those calls
expired worthless in June, allowing us to keep our CSCO shares
and then prepare to do it all over again.

Then we could have repeated that process both in July as CSCO
rolled over from the $15 resistance level, using the August $15
Calls, which were then trading near $1.00.  Net credit to the
account for that transaction was $1000, and once again they
expired worthless in the third week of August.  Finally, in
August, we got another opportunity as Stochastics rolled over
from overbought, with CSCO once again unable to push through the
$15 resistance level.  Selling the September $15 calls at that
time netted another $800 ($0.80 per contract) into the account,
which we got to keep as expiration arrived with CSCO trading
down in the $12 area.  Adding up those credits gives us a total
credit of $2550 into our account.  In just 4 months, we would
have reduced our cost basis for the long CSCO position from
$20000 to $17450, and that would reduce our 40% paper loss to

Clearly we aren't going to get rich employing this strategy, but
it is a solid and reliable method of repairing a stock position
that is underwater, but appears to be consolidating prior to a
resumption (hopefully) of an uptrend.

Of course, not every expiration cycle will be as kind to the
covered call trader as those we highlighted here.  Sometimes the
stock will trade sideways or even move upwards.  Initiating the
trade as the stock rolls over from overbought helps to skew the
odds in our favor, but as they say, "Stuff Happens!"  We need to
monitor the trade throughout the month, and if the price of the
option moves above the credit taken in, then prudent risk control
instructs us to buy back the calls and then look for another
entry at a higher price.  Recall that our objective here is to
improve our cost basis in a stock position that is underwater.
Key to achieving that goal is to not generate further losses by
holding onto a related option position that is moving against us.
Sounds like a perfect endorsement for using stop loss orders,
doesn't it?

I realize this is a pretty short summary of how the Covered Call
strategy can be utilized to repair a losing stock position, but
hopefully it gets you thinking about what is possible.  If you
held the stock through the most recent decline, then you
obviously have a long-term focus.  Apply this strategy over a
year or more and you may find that you can turn a losing stock
position into a winner.

Questions are always welcome.


Traders Corner

If It Sounds Too Good To Be True . . .
By Mike Parnos, Investing With Attitude

“R-I-I-N-N-G-G!”  -- “Good afternoon, sir.  Congratulations!  You 
have been chosen as one of the lucky winners of a three-day, two-
night all expense paid stay in exciting Las Vegas, Nevada or 
beautiful Orlando, Florida – the vacation capital of the world.”

Be still my beating heart. Sounds too good to be true, doesn’t 

Well, as many Couch Potato Trading Institute students know, it IS 
too good to be true.  There’ll be a high-pressure time-share 
presentation in your future or, at the very least, a travel club 
membership offer you can’t refuse.

The same is true for option strategies.  On the surface, they 
often seem so good that you’re out the door, on the way to pick 
up that new 55-inch high definition home theater five minutes 
after you put on the position.  You better cool your jets.  There 
are no option strategies that guarantee success. 

It’s crucial that traders examine strategies thoroughly, from 
every conceivable angle, inside and out – BEFORE you dive in.  
Analyze all potential scenarios and spend the necessary time in 
the land of “What If.”  If all the “what ifs” are within reason 
and in line with your risk tolerance, then go for it.  But don’t 
go get that TV just yet.  Profit is never guaranteed.  All you 
can do is try to put the percentages in your favor.

So, don’t hold your breath waiting for Ed McMahon to show up on 
your doorstep with a check just because you subscribed to Playboy 
and Humpty Dumpty.  Do the work!  It may be painful, but it’s 
necessary.  Options are incredible tools – if you know how to use 
them.  If you don’t, ask.  If you’re not sure, ask.  That’s why 
we’re here.

I have a question about an options strategy and I want to run it 
by you.  What I'm thinking about is selling a put and a call, 
covering, and closing the position at the end of expiration.  For 
example, say a stock is selling at $30 and the $30 strike put is 
bid at $2.50 and the $30 strike call is bid at $3.00.

So, let's say I sell two call contracts and two put contracts.  I 
take in $1,100.  I immediately buy 200 shares of the stock and 
sell 200 shares of the stock.  I close the position at the end of 
the month.  Is there any risk in this position?  It looks like 
whatever the stock does, I'd be covered and all I have to do is 
collect my $1,100 bucks at the end of the month.

A couple of other things I don't quite understand.  If the stock 
is put to me, does that mean the position is closed?  In other 
words, the put I sold is history.  If you sell a call, is that 
only settled at the end of the month?  I haven't heard of people 
selling calls and ending up with the stock in their account if 
the stock moves against them.

I know I can't quit my day job for $1100 a month.  But that's 
$13,200 a year just for conducting two transactions a month.

Sounds pretty good, doesn’t it?  But let’s take a closer look and 
see if we can find those irritating flaws that always seems to 
turn up and end up costing us big money.  Let’s do it before you 
enter the strategy.

First, let’s venture into the land of “what if.”
We’ll examine a few different scenarios and see how we end up.
1. What happens if XYZ stock is at $33 at expiration?
a) Your $30 call is exercised and your 200 shares of XYZ stock 
are called away.
b) Your $30 put expires worthless and your short 200 shares have 
gone up and you are $3.00 in the hole.
Result:  You only took in $1.10, so you are down $1.90 ($3.00 – 

2. What happens if XYZ stock is at $28.75 at expiration?
a) Your $30 call will expire worthless and your 200 shares will 
be worth only $28.75 -- $1.25 less than the $30 you paid for the 
b) Your $30 put will be exercised and you will be assigned 200 
shares of XYZ at the price of $30.  The 200 shares you were just 
assigned are used to replace your 200 short shares.
Result:  You only took in $1.10, so you are down $.15 ($1.25 – 

The only way you can make out well is if XYZ finishes at $30.  
Then, both options will expire worthless and you will still be 
long and short the stock – which you can close, if you hadn’t 
already done so on expiration Friday.

In the above examples, relatively small moves were used.  If the 
stock moves up to $38 or down to $22, you will experience 
significant losses.

If the stock is put to you, that means the put option was 
exercised and is no longer an open position.  When you sell the 
call, or the put for that matter, you don’t have to wait until 
the end of the month.  You can buy them back at any point prior 
to expiration and close out your position.  

Calls are rarely exercised if the stock moves against you (below 
the sold strike price).  Why would the option holder want to 
exercise the call and buy the stock from you at the $30 strike 
price, when he can go out onto the open market and buy the same 
stock for less than $30?

The Bottom Line:  Don’t quit your day job.  But keep analyzing 
the strategies.  Break them down to their most basic elements.   
Make a list, like I did above, on what would happen with each 
stock and/or option when the underlying is at different levels.  
Then add it all up and see how you stand – and if you can stand 
the risks involved with the particular strategy.
Regarding your PDLI example (from Thursday, Sept. 19th Column in 
Traders Corner), what happens if PDLI drops to $6.00 (and you’ve 
sold an uncovered $10 put)??  

If PDLI falls to $6.00, you should be long gone.  
Initially, in this put-selling strategy (Traders Corner, 
September 5th, “Seven Deadly Sins – Plus One), the decision has 
already been made that you would like to own the stock.  
Hopefully, that was based on some technical analysis -- on a 
support level of some kind.  Once the support level is violated, 
the prudent move would be to admit you chose a turkey of a stock, 
suck it up, take your lumps and buy back the put.  That should 
all take place a lot closer to $10 than waiting till the stock 
gets to $6.  

There are those who would be frozen like deer in the headlights.  
Instead of making a decision, they would prefer to take 
assignment of the stock and pay $10 for a stock that's trading at 
$6.  I want to play poker with these people.  You can't spend 
your trading life drawing to an inside straight.
If You Still Believe . . .
If you still believe in the stock, there is an interesting 
adjustment you can do.  With the stock at $6, it would cost you 
about $4 to buy back the put.  On 10 contracts that's $4,000.  
Look at the $7.50 put for the next month out.  You could probably 
sell that for $2.  If you sold 20 contracts of the $7.50 put, you 
would replace the $4,000 you just spent to buy back the $10 put.  
If the stock rebounds to finish over $7.50, you would break 
You could look at the $5.00 puts and calculate how many contracts 
you would have to sell, and how many months out, to make up for 
the $4,000. 
If the size of your brokerage account permits, you can continue 
to roll out the puts indefinitely, adjusting the strike price, 
the month, and increasing the number of contracts to cover the 
cash outlay to buy back the previously sold puts.
You will be increasing your exposure because of the higher number 
of contracts, but the stock will have to stop going down sooner 
or later.  When it does, you're out from under.  As long as your 
account can withstand the margin requirements, you should be OK.
I would recommend exploring other stocks (or indexes) that might 
have a better chance of rebounding.  Once PDLI (hypothetically) 
has broken down so significantly, it may time to get a divorce 
and look for a new opportunity.

Happy trading!  Remember the CPTI credo:  May our remote 
batteries and self-discipline last forever, but mierde happens.  
Be prepared!  In trading, as in life, it’s not the cards we’re 
dealt.  It’s how we play them. 

Your questions and comments are always welcome.  

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The Option Investor Newsletter                Wednesday 09-25-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:
Stop Loss Updates: ABT, FISV
Dropped Calls: None
Dropped Puts: BRL, JCI
Play of the Day: Call - ABT
Big Cap Covered Calls & Naked Puts: Another Selling Opportunity?

Updated on the site tonight:
Market Watch
Market Posture

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ABT - call
Adjust from $38.25 up to $40

FISV - put
Adjust from $32.50 down to $31.25




BRL $63.44 +2.37 (-0.21) Just as we feared, BRL was primed for a
bounce today and the buyers piled in when it became clear that
selling pressure was going to be insufficient to break the $60
support level.  The stock's resilience earlier in the week
provided the clue that a bounce might be coming and that prompted
us to lower our stop to $62 last night.  By 1pm ET today, BRL
pushed through that level (stopping out the play) and never
looked back as it ran right up to the $64 level late in the
afternoon.  Given the strength of the rally today and our stop
being violated, it should be clear why we are dropping BRL

JCI $77.03 +4.02 (-0.01) The most beaten-down stocks saw the
heaviest buying in Wednesday's short-covering rally and JCI was
no exception.  After a strong open, the stock confirmed support
at $74 before posting a strong 5.5% rally.  Following a nice drop
since we picked the play, we didn't want to risk giving those
gains back, so last night we lowered our stop to $75 in
anticipation of just such a snap-back rally.  Our lowered stop
was triggered by the end of the second hour of trading today and
the bulls never looked back.  All open positions should have been
exited on the strong rally today, but if you are still holding on,
then look to exit on any early weakness tomorrow.

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ABT - Abbott Laboratories $43.80 +1.70 (+2.00 this week)

Company Summary:
Abbott Laboratories is a global, broad-based health care company
devoted to the discovery, development, manufacture and marketing
of pharmaceuticals, nutritionals, and medical products, including
devices and diagnostics. The company employs approximately 70,000
people and markets its products in more than 130 countries. In
2001, the company's sales and net earnings were $16.3 billion and
$2.9 billion, respectively, with diluted earnings per share of
$1.88, excluding one-time charges. (source: company release)

Why we like it:
Abbott has held steady as the market has given up its gains and
fallen through previous levels of support. The recent news that
its Vysis PathVysion® fluorescence in situ hybridization (FISH)
test was approved as a means for determining whether breast
cancer patients will benefit from Herceptin, has no doubt kept
investors happy and prevented a sell-off during the broad market
decline. The fall is generally the best time of year for drug
stocks, as there is a plethora of medical conferences, which give
them the opportunity to offer up data in support of their
products. The stock has held up ever since its gap up on July 25,
which is more than the broader markets can say. Abbott got some
recognition today as one of the top users of information
technology in its field from Information Week magazine, for the
third year in a row. While this probably does not mean much to
the bottom line, it at least lets investors know the company is
at the leading edge in this area. ABT will also be presenting
some new data showing the effectiveness of a new Quinolone (class
of antibiotic) against several different microbes this weekend
at the ICAAC conference in San Diego. The recent triple top point
and figure breakout has held in ABT and in spite of the sag in
the Pharmaceutical Index (DRG.X) and Biotech Index (BTK.X), ABT
just keeps adding green candles to its chart. The PnF pattern also
looks like a bullish flag breakout. More conservative investors
may want to wait for a break in the bearish resistance line, which
would require a trade of $43, to initiate long entries. However,
OI sees the current level as a long entry point and we will keep
the long position open on ABT. 

Why This is our Play of the Day

The bulls are back in town!  Just one day after the DOW posted a
new 4-year low, buyers propelled the broad market to its best
gain in over a month.  That move provided the impetus for ABT to
finally solidify its breakout over the $42 resistance level. 
Adding credence to the breakout was the fact that volume ran more
that 20% above the daily average, allowing ABT to close right at
the high of the day.  This brings the stock right up to the $44
resistance level, the bottom of the early June gap lower.  With
the broad market advance likely to stall a bit before heading
higher, we could get a pullback in ABT to confirm the $41.50-42.00
level as support before the bulls take a serious run at the $44
resistance level.  Use a bounce from that level to initiate new
positions ahead of the expected breakout.  With the PnF chart
pointing to an advance to the $53 level, ABT still looks like it
has plenty of room to run.  Momentum traders will want to wait for
a breakout over the $45 level before adding new positions.  Raise
stops to $40 tonight.

BUY CALL OCT-42 ABT-JV OI=3449 at $2.50 SL=1.25
BUY CALL OCT-45*ABT-JI OI=2745 at $1.05 SL=0.50
BUY CALL OCT-47 ABT-JW OI= 898 at $0.55 SL=0.25
BUY CALL NOV-45 ABT-KI OI=6112 at $1.70 SL=0.75
BUY CALL NOV-47 ABT-KW OI= 640 at $0.85 SL=0.40

Average Daily Volume = 5.05 mln

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Another Selling Opportunity?
By Ray Cummins

A rally among industrial stocks helped spur a broad-based recovery
in the market today.  The Dow Jones Industrial Average jumped 158
points to 7,841 amid solid gains in blue-chip shares.  Dow giant
General Electric (NYSE:GE) was one of the main catalysts for the
bullish activity, telling investors its third-quarter numbers are
"on track" at an analyst meeting.  International Paper (NYSE:IP)
was also in the news, saying it expects third-quarter earning to
be "approximately in line" with the current consensus estimates.
In the technology segment, semiconductor shares led the ascent as
investors searched for downtrodden issues with the best long-term
potential.  The NASDAQ Composite ended 40 points higher at 1,222.
In the broader market groups, virtually all sectors rallied with
biotechnology, natural gas, chemical, pharmaceutical and utility
stocks among the best performers.  The S&P 500-stock index added
20 points to close at 839.  Volume came in at 1.66 billion on the
NYSE and at 1.65 billion on the technology exchange.  Breadth was
positive, with advancers outpacing decliners by 8 to 3 on the Big
Board and 2 to 1 on the NASDAQ.  In the bond market, the 10-year
note slid 28/32 to yield 3.75% while the 30-year bond fell 1 14/32
to yield 4.72%.

Despite today's spike in share values, most experts believe this
is simply a necessary technical bounce -- from extremely oversold
levels -- that will quickly fade due to weak corporate earnings
and the uncertainty surrounding the U.S.-Iraq situation.  Popular
market analyst Elliot Spar commented, "What we need to sustain a
move for more than one day is the realization that you can make
money on the long side as opposed to just the short side of the
market."  If that is the case, traders should remain cautious
when initiating bullish positions and continue to balance their
portfolios with plays that benefit from downside activity, until
there is a significant change in the primary trend.



(As of 09-24-02)

Naked Puts

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

AMGN     OCT    35   33.15  42.07   $0.85    6.1%
CHTT     OCT    35   34.50  38.71   $0.50    4.3%
CCMP     OCT    30   28.90  37.42   $1.10    8.1%
INTU     OCT    40   38.60  43.44   $1.40    6.9%
COF      OCT    30   29.30  34.25   $0.70    6.5%
CTSH     OCT    50   49.25  53.70   $0.75    4.6%
EASI     OCT    50   49.00  60.80   $1.00    5.1%
INVN     OCT    25   24.45  31.82   $0.55    6.3%
LLL      OCT    47   46.65  56.79   $0.85    4.7%
MIK      OCT    40   39.35  44.81   $0.65    4.6%
ROOM     OCT    40   39.25  46.23   $0.75    5.1%
BSTE     OCT    20   19.65  28.44   $0.35    5.6%
ESRX     OCT    45   44.50  52.47   $0.50    4.0%
GD       OCT    75   73.65  82.33   $1.35    5.3%
INVN     OCT    25   24.45  31.82   $0.55    7.8%
NOC      OCT   110  108.55 126.33   $1.45    4.0%
XAU      OCT    60   59.25  75.47   $0.75    4.6%

Cognizant Technology Group (NASDAQ:CTSH) has reversed to
a bearish trend and traders should consider closing the
position to protect profits.

Naked Calls:

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

QLGC     OCT    40    41.20  28.10   $1.20    9.7%
INTU     OCT    50    51.50  43.44   $1.50    6.8%
EBAY     OCT    65    66.20  55.77   $1.20    5.5%
QLGC     OCT    45    45.45  28.10   $0.45    4.9%
XL       OCT    80    81.25  72.28   $1.25    4.6%
DIA      OCT    86    87.15  77.07   $1.15    4.0%
MUR      OCT    90    91.75  79.55   $1.75    6.2%

Put-Credit Spreads

Stock                                             Gain
Symbol  Pick   Last  Month L/P S/P Credit  C/B   (Loss) Status
HRB     51.30  46.99  OCT   40  45  0.45  44.55  $0.45  Closed
LOW     45.20  40.61  OCT   35  40  0.50  39.50  $0.50  Closed
PDCO    52.63  50.63  OCT   45  50  0.65  49.35  $0.65   Open?
SYK     60.03  55.43  OCT   50  55  0.50  54.50  $0.50  Closed
MBG     32.46  32.39  OCT   27  30  0.30  29.70  $0.30   Open

With the renewed downtrend in equity values, we suggest traders
consider closing any positions whose underlying stocks have less
than outstanding technical indications.  Among the credit spread
positions, Mandalay Resort Group (NYSE:MBG) is the only issue
with an extremely bullish outlook.

Call-Credit Spreads

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

JNJ    55.48   53.61  OCT   65  60  0.50  60.50  $0.50   Open
MSFT   48.58   45.68  OCT   60  55  0.55  55.55  $0.55   Open
PHM    48.46   41.65  OCT   60  55  0.60  55.60  $0.60   Open
WFT    39.37   34.32  OCT   50  45  0.60  45.60  $0.60   Open
APA    56.57   55.39  OCT   65  60  0.70  60.70  $0.70   Open
WY     49.78   43.79  OCT   60  55  0.60  55.60  $0.60   Open

Credit Strangles:

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

INTU     OCT     50C    51.50   43.44   $1.50    6.8%
INTU     OCT     40P    38.60   43.44   $1.40    6.9%
GILD     OCT     35C    36.45   33.09   $1.45    9.8%
GILD     OCT     30P    28.50   33.09   $1.50   10.4%
BBBY     OCT     27P    27.05   32.33   $0.45    6.2%
BBBY     OCT     37C    38.30   32.33   $0.80    7.1%
CAI      OCT     30P    29.55   34.01   $0.45    5.0%
CAI      OCT     40C    40.55   34.01   $0.55    5.3%
WFMI     OCT     40P    39.45   43.55   $0.55    4.2%
WFMI     OCT     50C    50.50   43.55   $0.50    3.6%

Synthetic Positions:

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

PDX    34.15   30.40   NOV40C/30P   0.40   29.60   0.20  Closed

As noted last week, a move below $32 was our signal to close the
bullish position in Pediatrix Medical (NYSE:PDX).

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.

AZO - Autozone  $79.27  *** Awesome Earnings! ***

AutoZone (NYSE:AZO) is a specialty retailer of automotive parts
and accessories, primarily focusing on do-it-yourself customers.
The company operated over 3,000 auto parts stores in the United
States and 21 in Mexico.  Each store carries an extensive product
line for cars, vans and light trucks, including new as well as
re-manufactured automotive hard parts, maintenance items and car
accessories.  The company also has a commercial sales program in
the United States that provides commercial credit and prompt local
delivery of parts and other products to repair garages, dealers
and service stations.  AutoZone does not sell tires or perform
automotive repair or installation.  In addition, the company sells
automotive diagnostic and repair information software through its
ALLDATA subsidiary, and diagnostic and repair information through

AZO - Autozone  $79.27

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

SELL PUT  OCT 70   AZO VN    2,352     0.70   69.30       4.0% ***
SELL PUT  OCT 75   AZO VO      633     1.40   73.60       6.4%

BSTE - Biosite  $29.80  *** Entry Point! ***

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  $29.80

PLAY (sell naked put):

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

SELL PUT  OCT 22.5 BQS VX     158     0.40    22.10      8.3% ***
SELL PUT  OCT 25   BQS VE     347     0.60    24.40     10.3%
SELL PUT  OCT 30   BQS VF     380     2.40    27.60     21.9%

ESRX - Express Scripts  $54.18  *** Back In A Comfort Range! ***

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  $54.18

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     508     0.55    44.45      5.6% ***
SELL PUT  OCT 50   XTQ VJ     494     1.35    48.65      9.5%
SELL PUT  OCT 55   XTQ VK     328     3.10    51.90     16.0%

FRX - Forest Laboratories  $80.20  *** Rally Mode! ***

Forest Laboratories (NYSE:FRX) and its many subsidiaries develop,
manufacture and sell both branded and generic forms of ethical
drug products that require a physician's prescription, as well as
non-prescription pharmaceutical products sold over-the-counter.
Forest's most important United States products consist of branded
ethical drug specialties marketed directly, or detailed, to doctors
by the firm's Forest Pharmaceuticals, Forest Therapeutics, Forest
Healthcare and Forest Specialty Sales sales forces.  Such products
include Celexa, Forest's SSRI for the treatment of depression; the
respiratory products Aerobid and Aerochamber; Tiazac, Forest's once
daily diltiazem for the treatment of hypertension and angina, and
Infasurf, a lung surfactant for the treatment and prevention of
respiratory distress syndrome in premature infants.

FRX - Forest Laboratories  $80.20

PLAY (sell naked put):

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

SELL PUT  OCT 70   FRX VN    1,324     0.80   69.20      4.7% ***
SELL PUT  OCT 70   FRX VO    1,699     1.60   68.40      9.0%
SELL PUT  OCT 70   FRX VP      887     3.00   67.00     15.9%

LLL - L-3 Communications  $57.09  *** Defense Sector ***

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  $57.09

PLAY (sell naked put):

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

SELL PUT  OCT 50   LLL VJ    2,300    0.55    49.45      4.5% ***
SELL PUT  OCT 52.5 LLL VX    2,078    0.85    51.65      5.9%
SELL PUT  OCT 55   LLL VK    1,272    1.70    53.30     10.0%

ROAD - Roadway  $37.21  *** Earnings Rally? ***

Roadway Corporation (NASDAQ:ROAD) is a holding company with two
primary operating entities, Roadway Express, and Roadway Next
Day Corporation.  REX is the primary operating subsidiary of the
Company.  REX and its primary subsidiaries provide long-haul,
less-than-truckload freight services on city-to-city routes in
North America, and on international routes to and from North
America.  Roadway Next Day Corporation, formerly known as Arnold
Industries, was acquired in 2001, and provides regional next-day
LTL and truckload freight services in North America in two major
business segments.  At the beginning of 2002, REX owned a total
of 8,555 tractors and 25,175 trailers.  The company also operated
2,130 tractors and 9,349 trailers under long-term leases.  The
average age of the intercity fleet was six years.  New Penn and
ATS together operate 2,100 tractors and 5,800 trailers.

ROAD - Roadway  $37.21

PLAY (sell naked put):

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

SELL PUT  OCT 30   EJQ VF     386     0.35    29.65      5.8% ***
SELL PUT  OCT 35   EJQ VG      42     1.50    33.50     14.0%

SCHL - Scholastic Corporation  $46.04  *** Revenues On Target! ***

Scholastic (NASDAQ:SCHL) is a global children's publishing and
media company.  It is a publisher and distributor of children's
books.  The company creates educational and entertaining materials
and products for use in school and at home, including children's
books, textbooks, magazines, technology-based products, teacher
materials, television programming, videos and toys.  Scholastic
distributes its products and services through a variety of channels,
including school-based book clubs, school-based book fairs as well
as direct-to-home continuity programs, retail stores, libraries,
television networks and the Internet.  The company's new web-site,
Scholastic.com, is a site for teachers, classrooms and parents and
a destination for children.

SCHL - Scholastic Corporation  $46.04

PLAY (sell naked put):

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

SELL PUT  OCT 40   USC VH      55     0.45    39.55      4.6% ***
SELL PUT  OCT 45   USC VI      51     1.70    43.30     11.8%


BULLISH PLAYS - Credit Spreads

APOL - Apollo Group  $43.48  *** Bullish Sector ***

Apollo Group (NASDAQ:APOL) provides higher education to working
adults.  The company operates through its many subsidiaries, The
University of Phoenix, Institute for Professional Development, The
College for Financial Planning Institutes Corporation and Western
International University.  The firm offers various programs and
services at 58 campuses and 102 learning centers in 36 states, as
well as Puerto Rico, and Vancouver, British Columbia.  The firm's
combined degree enrollment was approximately 124,800 at August 31,

APOL - Apollo Group  $43.48

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-35.00  OAQ-VG  OI=299   A=$0.35
SELL PUT  OCT-40.00  OAQ-VH  OI=1662  B=$0.80
POTENTIAL PROFIT(max)=11% B/E=$39.50

ETM - Entercom Communications  $48.45  *** Media Sector Rally ***

Entercom Communications (NYSE:ETM) is a radio broadcasting company
in the United States.  The company has assembled, after giving
effect to the pending acquisitions of three stations in the Denver
market and two stations in the Greensboro market, a nationwide
portfolio of 100 stations in 19 markets.  Entercom operates a wide
range of formats in geographically diverse markets across the
United States.  The company's largest markets are Seattle, Boston,
Kansas City, Sacramento, Portland, New Orleans and Denver.

ETM - Entercom Communications  $48.45

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-40  ETM-VH  OI=10  A=$0.25
SELL PUT  OCT-45  ETM-VI  OI=50  B=$0.85
POTENTIAL PROFIT(max)=14% B/E=$44.35


Neutral Plays - Credit Strangles

Here are some new candidates for traders who favor neutral-outlook
premium-selling strategies.  Both issues have relatively stable
chart patterns and robust option prices, however current news and
market sentiment will have an effect on these positions, so review
each one thoroughly and make your own decision about its outcome.

CCMP - Cabot Microelectronics  $40.54  *** Basing Pattern? ***

Cabot Microelectronics is a supplier of high performance polishing
slurries used in the manufacture of advanced integrated circuit
devices, within a process called chemical mechanical planarization.
CMP is a polishing process used by integrated circuit (IC) device
manufacturers to planarize or flatten many of the multiple layers
of material that are built upon silicon wafers and necessary in
the production of advanced ICs.  Planarization is the polishing
process that levels and smooths, and removes the excess material
from the surfaces of these layers.  CMP slurries are unique liquid
formulations that facilitate and enhance this polishing process
and usually contain engineered abrasives and proprietary chemicals.
CMP enables IC device manufacturers to produce smaller, faster and
more complex IC devices with fewer defects.  

CCMP - Cabot Microelectronics  $40.54

PLAY (conservative - neutral/credit strangle):

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

SELL PUT   OCT 30   UKR VF  1,060     0.35    29.65       5.5%
SELL CALL  OCT 50   UKR JJ    978     0.30    50.30       4.7%

EBAY - eBay Inc.  $56.63  *** 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.  $56.63

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 50   QXB VJ  8,842     0.80    49.20       6.3%
SELL CALL  OCT 60   QXB JL 13,769     1.00    61.00       6.5%



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.

BZH - Beazer Homes  $61.57  *** Housing Sector Slump? ***

Beazer Homes (NYSE:BZH) designs, builds and sells single family
homes in various locations within the United States: Florida,
Georgia, North Carolina, South Carolina, Tennessee, Arizona,
California, Colorado, Nevada, Texas, Maryland, Pennsylvania,
New Jersey and Virginia.  The company designs its homes to appeal
primarily to entry-level and first time move-up homebuyers.  The
company's objective is to provide its customers with homes that
incorporate quality and value while seeking to maximize its gain
on invested capital.  The company's homebuilding and marketing
activities are conducted under the name of Beazer Homes in each
of its markets except in Colorado (Sanford Homes) and Tennessee
(Phillips Builders).

BZH - Beazer Homes  $61.57

PLAY (aggressive - sell naked call):

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

SELL CALL  OCT 70   BZH JN    168    0.70    70.70       5.5% ***
SELL CALL  OCT 65   BZH JM    602    2.00    67.00      11.4%

MUR - Murphy Oil  $82.43  *** Profit-Taking Underway! ***

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

MUR - Murphy Oil  $82.43

PLAY (aggressive - sell naked call):

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

SELL CALL  OCT 90    MUR JR   1,183   1.35    91.35       6.7% ***
SELL CALL  OCT 85    MUR JQ   1,265   3.30    88.30      12.9%
SELL CALL  OCT 80    MUR JP     274   5.70    85.70      18.3%


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.

LEN - Lennar  $55.07  *** Housing Industry Bubble? ***

Lennar Corporation (NYSE:LEN) is a homebuilder and a provider of
residential financial services.  Their homebuilding operations
include the sale and construction of single-family attached and
detached homes, as well as the purchase, development and sale of
residential land directly and through its partnerships.  Lennar's
financial services operations provide mortgage financing, title
insurance and closing services for both its homebuyers and others,
resell the residential mortgage loans originated in the secondary
mortgage market and also provide high-speed Internet access, cable
television and alarm monitoring services to residents of its many
communities and others.  In 2002, Lennar acquired Patriot Homes,
a homebuilder in the Baltimore marketplace, and expanded into the
Carolinas with the acquisition of Don Galloway Homes and the
assets and operations of Sunstar Communities.

LEN - Lennar  $55.07

PLAY (less conservative - bearish/credit spread):

BUY  CALL  OCT-65  LEN-JM  OI=853   A=$0.35
SELL CALL  OCT-60  LEN-JL  OI=2435  B=$1.05
POTENTIAL PROFIT(max)=16% B/E=$60.70

PII - Polaris Industries  $65.02  *** Retail Sector Slump! ***

Polaris Industries (NYSE:PII) designs, engineers and manufactures
all terrain vehicles (ATVs), snowmobiles, motorcycles and personal
watercraft (PWC) and sells them, together with related replacement
parts, garments and accessories (PG&A), through dealers and other
distributors principally located in the United States, Canada and
Europe.  ATVs are four-wheel vehicles with balloon style tires
designed for off-road use and traversing rough terrain, swamps and
marshland.  In the early 1950s, a predecessor to the firm produced
a gas-powered sled that became the forerunner of the snowmobile.
Snowmobiles have been manufactured under the Polaris name since
1954.  The company entered the worldwide motorcycle market in 1998,
with an initial entry product in the cruiser segment.  PWC are sit
down versions of water scooter vehicles, and designed for use on
lakes, rivers, oceans and bays.

PII - Polaris Industries  $65.02

PLAY (conservative - bearish/credit spread):

BUY  CALL  OCT-75  PII-JO  OI=1455  A=$0.45
SELL CALL  OCT-70  PII-JN  OI=83    B=$0.90
POTENTIAL PROFIT(max)=11% B/E=$70.50

TOT - TOTAL Fina Elf  $63.74  *** Oil Sector Speculation! ***

TOTAL Fina Elf (NYSE:TOT) operates with its subsidiaries and
affiliates as an integrated oil and gas company, with operations
in more than 120 countries.  The firm's worldwide operations are
conducted through three business segments: Upstream, Downstream
and Chemicals.  The Upstream segment includes TOT's exploration,
development and production activities, as well as their coal and
gas and power operations.  The Downstream segment sells most of
the crude oil produced by the company, purchases most of the oil
required to supply its refineries, operates the refineries and
markets petroleum products worldwide through both retail and non
retail activities, and conducts TOT's bulk trading.  The Chemicals
segment includes Petrochemicals and plastics, which are linked to
the company's refining activities, Intermediates and performance
polymers, as well as Specialties, which include rubber processing,
resins, paints, adhesives and electroplating.

TOT - TOTAL Fina Elf  $63.74

PLAY (very conservative - bearish/credit spread):

BUY  CALL  OCT-75  TOT-JO  OI=48  A=$0.25
SELL CALL  OCT-70  TOT-JN  OI=8   B=$0.65
POTENTIAL PROFIT(max)=9% B/E=$70.45



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