Amex Financial Select Sector (AMEX: XLF) volatility decreases after rate cut.

• XLF closed at $35.15.
  
• XLF seeks to replicate the total return of the Financial Select sector of the S&P 500 Index. Citigroup (NYSE: C), Bank of America (NYSE: BAC), American International Group (NYSE: AIG), JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), Wachovia (NYSE: WB) and Goldman Sachs (NYSE: GS) are components of the XLF.
  
• XLF total option volume was 294,706 contracts on 9/18 . XLF over option implied volatility of 23 is below its 7-week average of 30 according to Track Data, suggesting decreasing risk.

Volatility Index S&P 500 Options - VIX at 20.03; 10-day moving average is 24.43.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Insurance and risk management company Aon Corporation (NYSE: AOC) is posting good returns in all three business units on the three most important quantitative metrics: organic growth, margin expansion, earnings improvement. The stock is worth considering as part of a balanced value-income portfolio. Its P/E multiple is just above industry standard, but its EPS is 50% above industry average. Even with a market cap in excess of $12 billion, AON stock still returns 10% quarterly growth year over year, far in excess of industry standard. The stock has already appreciated in price more than 15%, opening the year trading at $35.39 and closing on June 12 at $41.80.

Aon Corporation recently reported very good 1Q 2007 earnings. Revenue was up 10% for the quarter to $2.4 billion, 5% of which was due to organic growth. Net income increased 8% to $213 million or EPS of $0.66. Net income from continuing operations rose 23% to $212 million. Aon posted these numbers despite a tough North American market in which rising health care costs have put pressure on medical insurance and risk management companies. During this quarter, Aon realized restructuring savings of $46 million and is on track to realize FY 2007 savings of $235 million and FY 2008 savings of $280 million. The company also repurchased $345 million of its stock and has authorization from its board to repurchase up to $2 billion of its stock.

The Risk and Insurance Brokerage Service segment posted an impressive 8% gain in revenue due to new US business and 8% in Asia Pacific. Overall, this unit posted a 6% revenue increase despite soft markets in the UK and Australia. The Consulting unit increased revenue by 7% to $329 million despite the termination of large outsourcing contracts. The Insurance Underwriting unit grew revenue by 16% to $574 million, up $79 million from 1Q 2006. At the same time as it posted organic growth revenues, Aon Corporation also increased policyholder benefits 27% to $323 million. Clearly, Aon Corporation has developed a profitable business strategy even in the midst of a challenging economic and political environment regarding health care insurance costs.

To most people, even most investors the words "entertaining" and "derivatives" do not belong in the same sentence. Yet Satyajit Das' Traders, Guns, & Money is one the most entertaining investment books I've read in a long time, and is also on excellent primer on topics including derivatives, risk management, and Wall Street's inner workings. This will sound like hyperbole but it isn't: this is possibly the best insider account of a career in investments since Michael Lewis's book Liar's Poker came out in 1989.

Das is able to combine an informative introduction to the "dazzling world of derivatives" along with a jaded, cynical depiction of Wall Street greed. He discusses financial markets using a well-known quote from Donald Rumsfeld, and it is surprisingly effective: "There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know."

Das uses this to discuss efforts to quantify risk, which he often describes as silly, and suggests that most professionals know it is too: "Risk management is like any religious text; nobody is willing to criticize it in public but few follow it completely in private." His stories about the sophomoric antics among young traders are entertaining, and may discourage some young people from pursuing a career on Wall Street (or encourage it in some cases).

In all, I can't recommend this book strongly enough. Risk management and derivatives are fields that all investors should have some knowledge of because they are such a large part of financial markets today. Traders, Guns, & Money is a great way to learn about them.

On a side note, Warren Zevon's song Lawyers, Guns, and Money (I assume the title of this book is a take-off on it) is a classic and should be on the iPod of every investor.

When it comes to predictive data analysis and reporting, Fair Isaac (NYSE:FIC) is the stand out leader in that field. Fair Isaac offers statistics-based predictive tools for the consumer credit industry. You know their talents well. Predictive statistical analysis is the type of methodology used to collar you with your credit score. Fair Issac credit score analysis algorithms are utilized by the three big name credit reporting bureaus, Experian, Trans Union and Equifax. Basic FICO scoring systems have been in use since 1970. The current Fair Isaac credit scoring system has been in use since 1981. In addition to credit risk analysis, Fair Isaac also markets solutions for insurance applicant risk assessment, other financial risk predictors and data management solutions as well.

What might make Fair Isaac a good investment? Well, one thing is for sure. If the company is going to run into trouble they should be the first ones to know. I'll just give you some historical background on the company to enlighten you but I'll have to stop there because frankly when it comes to analyzing analytical analysis, I'd rather be sorting laundry or something exciting like that.