Option Investor

Daily Newsletter, Tuesday, 05/04/1999

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The Option Investor Newsletter         Tuesday  5-4-99
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com

Also provided as a service to The Online Investor Advantage

Published three times weekly, Sunday, Tuesday, Thursday evenings.
MARKET WRAP  (view in courier font for table alignment)
        5-5-99          High     Low     Volume   Advances Decline
DOW    10886.11 -128.58 11035.31 10868.36  931.243k  1,402   1,582
Nasdaq  2485.12 - 50.46  2557.21  2482.49  923,809k  1,728   2,304 
S&P-100  673.28 - 11.80   685.39   672.30   Totals   3,130   3,886
S&P-500 1332.00 - 22.63  1354.63  1330.59            44.6%   55.4%
$RUT     432.59 -   .69   436.56   432.10
$TRAN   3731.88 + 35.29  3776.78  3690.36
VIX       27.19 +  2.44    27.44    25.24
Put/Call Ratio      .58    
Turnaround Tuesday, two steps forward, one step backward. 

In real numbers, it was really +225 on Monday and -128 today.
The Nasdaq however has lost -147 points in the last six days
with only one positive close last Friday for +14 points. Nobody
expected the Dow to continue upward unabated after passing the
11,000 milestone but it would have been nice. The Dow surged
upward at the open this morning to an intraday high of 11,035
before succumbing to the profit taking pressure. Some say the
late day surge over 11,000 yesterday was orchestrated by buyers
at Goldman Sachs as waves of buy programs hit the market in the 
final moments on Monday. The reason given was Goldman wanted to
insure a positive opening for their IPO today and they used their
ready cash to give the market an artificial boost. CNBC reported
at the close yesterday that there were dozens of "buy on close"
orders and all were buys. There were no sells. This alone is

The official "excuse" for the sell off today was the declining
bond market and rising bond yields. The bond closed today at 
5.71% on worries that continuing strong economic reports would
cause the Fed to raise rates on or before their August meeting.
With the market rally continuing to add to the already +19% gains
for the year, many investors are becoming more nervous about how
much farther it can go without a strong correction. Some are
fleeing to the relative safety of bonds at these high levels.
Stocks have been looking at bonds for the market lead for several
days now. 

With interest rates rising the financial stocks took a hit today
as well. Airlines were a pocket of strength even with the strong
oil prices. The reason here was the decision by Continental to
drop capacity. With less capacity the passengers are then 
concentrated into fewer flights producing higher margins. This
pushed the Transportation Index to another new high. Eventually
this too shall cease. If oil continues to hover around $19 even
the diehards will be forced to realize the impact to airline

One of our favorite stocks took a serious hit today. EMC was
dropped for a loss of -$7.00 to close at strong support at $100.
The disk storage maker was hit by news that HWP had signed a 
contract with Hitachi to market their disk systems. EMC claimed
they new this was coming and had staffed up their sales department
several months ago to take up the slack. The company said that
even though HWP accounted for $700 mln in annual sales that they
did not expect this to have any impact on their expected +30%
sales goals for the year. EMC closed over +$4 off the low of the
day but it remains to be seen if this is a buying opportunity
or the first step in a new down trend.

The Goldman IPO recipients were hand picked by Goldman as investors
that would not flip the stock for a quick profit. Evidently the
+25% profit at the start of trading was too much for some to 
pass up as 32% or 22 mln of 69 mln shares changed hands today. 

General Motors was a big loser to day, -4.75, and knocked -22
points off the Dow. The carmaker posted a -4.2% drop in sales
today. Ford and Chrysler were off over -$2.00 each on the news
as well.

Internets were strong in the morning and looked for a time like
they would hold the Nasdaq up by themselves. It was not to be.
As the Dow decline gained speed late in the day the bottom fell
out of the Internet stocks. Many that had been up double digits
during the day ended up with double digit losses in just the last
hour of trading. NITE dropped -$21, RNWK -$11 in the last hour but
still finished positive, NTBK -$24, TBFC -$18, VRSN -$10, GNET -$14.

Web brokers were also hard hit with AMTD -$9.97, EGRP -$8.50. 
Is this another buying opportunity for net stocks? I am concerned 
it is not. There has been some weakness in Internet stocks the 
last week or so and this may be one of the every other month sell 
offs that we have been seeing. Nothing goes up forever and when 
these high flyers start falling you don't want to be holding. 
They will recover, it is just a matter of time. However, recover 
to what? No one knows what the true value of an Internet stock 
will be and as the current values are called into question as 
Barrons did Amazon this week, the value of the sector will 
ripple. Barrons said Amazon could be fairly valued at $25 which
is a far cry from the $200 of recent. Leg Mason called AOL
significantly overvalued today and the reason why they were 
selling it. Again, wait for the recovery before playing these 

Advancers actually led decliners for most of the day which still
bodes well for the broader market. One analyst said he had been
receiving many calls for penny stocks lately. That market has
not been ignored for the last two years, it has been missing in
action. This analyst pointed to the new interest in the very
lowest of stocks as sure signs of a speculative bubble in the
making. Not that we can't play the bubble but when the bubble
does burst it happens very quickly and would make the drops
today look like teenies in comparison. 

The cyclicals sold off today just like the previous leaders and
left us with no direction for the rest of the week. The selling
was broad at the end of the day with very few pockets of strength.
However there was not any panic selling, just more sellers than
buyers. I have no doubt there are buyers waiting in the wings
but nobody wants to make a habit of buying $1 bills for $1.25.
Until they see what they feel is a bargain, they will just wait.
Personally, I thought IBM, UTX and COF showed good underlying
strength today with only minor losses and could lead the rebound.
Full disclosure, I do own all three currently but if the market 
continues down tomorrow I will be out shortly after the open.

On the horizon we have Greenspan speaking on Thursday and the
all important non-farm payroll report on Friday. Since the famous
"irrational exuberance" speech a year ago the market has gone up
over +2000 points so any Greenspan speech will be watched closely
for new market bombs. The non-farm payrolls will be the next
inflation indicator and the market is sure to react to any 
negative news. The FOMC meeting is fast approaching and although
no one expects a hike this soon it is always possible for a 
pre-emptive strike by the Fed if the market continues in blowout 

We are rapidly approaching the summer doldrums for the tech sector.
The remaining big names to announce earnings are Dell and CSCO.
CSCO on the 11th and Dell on the 18th. After those announcements
the tech sector is likely to drift aimlessly without a specific
direction. I would be cautious about holding a tech stock after
May 18th.

Point to ponder: Are you now nursing a losing position like I
wrote about on Sunday or are you in cash? Where would you like
to be tonight with the benefit of 20/20 hindsight for Mon/Tue?
The easiest way to avoid the stress and pain of a losing position
in the future is to plan ahead and then stick to your plan. If 
you are stopped out you can always buy it back later. If you
are stopped out, you are not out of the game, you just have more

1) Don't try to pick a bottom! 
2) Wait for an entry point! 
3) Sell too soon!

Good Luck

Jim Brown

Market Posture
As of Market Close - Tuesday, May 4, 1999 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert

DOW Industrials    9,750  10,000  10,886    Neutral   4.30
SPX S&P 500        1,300   1,350   1,332    Neutral   4.29
OEX S&P 100          660     690     673    Neutral   4.29
RUT Russell 2000     390     435     433    Neutral   4.29

NDX NASD 100       2,075   2,250   2,098    Neutral   4.22
MSH High Tech      1,000   1,100   1,006    Neutral   4.22

XCI Hardware         900     920     867    BEARISH   4.29
CWX Software         600     650     614    Neutral   4.22
SOX Semiconductor    390     420     376    BEARISH   4.29
NWX Networking       450     490     504    BULLISH   4.22
INX Internet         550     700     537    BEARISH   5.04 *

BIX Banking          700     720     712    Neutral   4.30
XBD Brokerage        425     540     435    Neutral   4.14
IUX Insurance        630     655     637    Neutral   4.29

RLX Retail           900     970     880    BEARISH   4.29
DRG Drug             390     425     371    BEARISH   4.29 
HCX Healthcare       780     850     758    BEARISH   4.29
XAL Airline          170     185     187    BULLISH   5.04 *
OIX Oil & Gas        250     260     308    BULLISH   3.30

Posture Alert

Weakness in the bond market prompted a broad-based selloff 
in the stock market.  We have, therefore, turned Bearish
across select industry sectors after violating short-term
moving averages.  We have turned Bullish across the
airline sector bolstered by a report of a cutback in
planned capacity increases at Continental airlines.

A detailed description of our Market Posture and its
applications can be found at:


Market Sentiment
By Pinnacle Capital Advisors
Tuesday, May 4, 1999

Interest Rates: One Key Pillar of the Market

For several weeks, Pinnacle Capital Advisors has been alerting 
investors about the recent action within the long bond (30-year)
and its potential impact on the stock market.  Today, the
Treasury yield closed ABOVE 5.70 closed for the first time in
more than eight months.  It is unlikely that the broad market
indices will advance too much higher as long as interest rates

Also problematic is the action with the Market Volatility Index
(VIX).  As shown below, this trusted short-term indicator closed
firmly above its 50-day moving average signaling the end of its
current Bullish trend.  This is one of the reasons why Pinnacle
has turned Neutral and Bearish across select industry sectors. 
See Market Posture link.     

We have listed where the 50-day moving averages fall across the 
major market indices to help investors with the likely
retracement points. 

          Close      50dma
INDU     10,878     10,000
SPX       1,343      1,300
OEX         680        660

On a positive note, for those who subscribe to the DOW theory,
the Transportation Index (TRN) closed at another 52-week high. 
This helped propel the Airline sector and possibly confirming 
the recent breakout of the DOW.


Advance/Decline Line:
Recovering appears to be holding but beginning to roll over 

Pinnacle Index:            
Excessive OTM call buying in check as evidence by our low 
Pinnacle Index


Interest Rates:           
Trading ABOVE 200dma and 5.50 Benchmark. (5.720%)

Market Volatility (VIX):  
After consolidating below its 50-day moving average (25.94), the 
VIX closed up sharply and closed above its 50-day moving breaking
the current bullish trend.

Russell 2000: 
Closed below key 435 level.  If small cap sells off from here,
the technical move will be viewed by many as negative since the
Russell 2000 could not take out its prior high resulting in a 
"failed rally"

OTM Call Analysis

As we move through May's expiration cycle, Pinnacle is tracking 
the level of call buying (OTM) between 680-740 among option
speculators. As we have been documenting, excessive out-of-the-
money (OTM) call may serve as overhead resistance.

April Expiration Cycle
OEX OTM Call Analysis (Open Interest Apr 650-700)
Date                 Open Interest     Change %    Alert
Friday, March 19            35,626         -
Friday, March 26            60,266      +69.2%     
Friday, April 2             70,952      +99.2%     
Friday, April 9             74,028     +107.8%     

May Expiration Cycle
OEX OTM Call Analysis (Open Interest May 680-740)
Date                 Open Interest      Change %    Alert
Friday, April 16            30,697          -
Friday, April 23            53,887       +75.5%      
Friday, April 30            65,936      +114.8%       
Tuesday, May 4              70,112      +128.4%     *

Market Sentiment at a Glance    Friday     Tues      Thurs  
Indicator                       (4/23)     (4/27)    (4/29) Alert

Pinnacle Index (OEX):          
Overhead Resistance (680-695)     1.6         1.2
Underlying Support  (645-660)     2.2         2.3

Put/Call Ratios:
CBOE Total P/C Ratio               .5          .6
CBOE Equity P/C Ratio              .4          .4
OEX P/C Ratio                     1.9         2.0

Peak Open Interest (OEX):
Puts                              650         650
Calls                             720         720
P/C Ratio                        1.18        1.16

Market Volatility Index (VIX):	
CBOE VIX                        26.07       27.32  *          

Investors Intelligence:
Bullish                         56.1%       56.1%  *
Bearish                         30.7%       30.7%  *	

The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

Pinnacle Index
OEX                             Friday      Tues      Thurs
Benchmark                       (4/30)      (5/4)     (5/6)
Overhead Resistance (680-695)      1.6       1.2

OEX Close                       675.65    673.20

Underlying Support  (645-660)      2.2       2.3

Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is eroding at the OEX 680/695 
level while the underlying support is holding at the OEX 645/660

Put/Call Ratio                  Friday      Tues       Thurs
Strike/Contracts                 (4/30)     (5/4)      (5/6)

CBOE Total P/C Ratio               .53        .58
CBOE Equity P/C Ratio              .38        .42
OEX P/C Ratio                     1.92       2.02

Peak Open Interest   Friday         Tues          Thurs
Strike/Contracts     (4/30)         (5/4)         (5/6)

Puts                 650 / 11,650   650 / 12,935
Calls                720 / 9,915    720 / 11,068
Put/Call Ratio       1.18           1.16


Volatility Index    Major
Date                Turning Point       VIX

October 97          Bottom              54.60      
July 20, 1998       Top                 16.88         
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15   

April 30, 1999                          26.07 
May 4, 1999                             27.32 


Investors Intelligence Survey
                    Major             Percent     Percent
Date                Turning Point     Bullish     Bearish

October 97          Bottom            22.0        48.3
July 20, 1998       Top               52.0        24.0
October 8, 1998     Bottom            38.5        42.7
January 11, 1999    Top               58.3        30.0
March 4, 1999       Bottom            49.1        32.5

January   6, 1999                     58.3        30.0
January  13, 1999                     60.0        30.0
January  20, 1999                     61.7        25.9
January  27, 1999                     60.7        28.2

February  3, 1999                     60.0        26.7
February 10, 1999                     61.7        25.9
February 17, 1999                     55.7        28.7
February 24, 1999                     54.1        31.5

March 3, 1999                         50.9        32.1
March 10, 1999                        49.1        32.5
March 17, 1999                        52.6        17.6
March 24, 1999                        55.9        29.7
March 31, 1999                        55.6        31.6

April 7, 1999                         56.4        31.6
April 14, 1999                        55.9        30.5
April 21, 1999                        56.4        30.8
April 28, 1999                        56.1        30.7  *

Please view this in COURIER 10 font for alignment

Index     Last    Mon     Tue    Week
Dow    10886.11 225.65 -128.58  97.07
Nasdaq  2485.12  -7.27  -50.46 -57.73
$OEX     673.28   9.43  -11.80  -2.37
$SPX    1332.00  19.45  -22.63  -3.18
$RUT     432.59   0.47   -0.69  -0.22
$TRAN   3731.88  49.30   35.29  84.59
$VIX      27.19  -0.68    2.44   1.76

Stock          Mon     Tue    Week

QCOM  209.88  18.38   -8.50   9.88 Splits 2:1 May 11th
CMVT   68.88   2.88    1.88   4.76 Another new high
TMX    78.75   4.25   -1.25   3.00 Momentum continues
IBM   212.00   3.06   -0.25   2.81 Leading by example
FD     49.06   3.31   -0.94   2.37 Earnings May 12th
BRCM   79.00   4.38   -2.50   1.88 Bright future!
CTXS   43.19   1.88   -1.19   0.69 Confirm market direction
HWP    79.50   1.06   -0.44   0.62 Slammed EMC today
FDX   112.88   2.13   -2.00   0.13 Dropped, splits Thursday
DELL   40.81   0.88   -1.25  -0.37 Time to move the ball
WMT    44.00   0.13   -2.13  -2.00 Holding at $44 again
LU     57.88  -0.50   -1.63  -2.13 Don't rush, confirm move
SUNW   57.19  -0.25   -2.38  -2.63 Nasdaq loser
ANF    92.13   0.81   -3.50  -2.69 Split Candidate
MDT    68.94   0.06   -3.06  -3.00 Bottom of channel
COF   169.25  -3.69   -0.75  -4.44 Wait for bounce up
CSCO  108.63  -0.44   -5.00  -5.44 Earnings are May 11th
VISX  121.88   4.75  -11.63  -6.88 Possible bottom?
MFNX   76.00  -5.56   -2.69  -8.25 Buy the dip, anyone?
EMC   100.00  -1.94   -7.00  -8.94 Dropped, HWP leaving?
EGRP  103.00  -4.00   -8.50 -12.50 Online trading is risky?
NTBK  173.06   8.38  -24.31 -15.93 Delayed reaction to Monday
RNWK  201.56 -21.44    1.50 -19.94 Ouch! Painful entry point?
NITE  132.00   0.19  -21.38 -21.19 Volatility hurts


MSPG   88.00  -5.69   -3.25  -8.94 Internet weakness
NSOL   69.50  -5.63   -2.63  -8.26 Internet weakness
SEEK   44.94  -3.24   -2.88  -6.12 New, stock in turmoil
FNM    66.25  -1.81   -2.88  -4.69 Moved to call, channel up
JNJ    95.00   0.25   -2.75  -2.50 New, weakness+CNTO deal
DD     69.69   1.06   -2.06  -1.00 New downgrade
LOW    53.25   0.94   -0.44   0.50 Failed to hold rally
GIS    73.75   1.38   -0.75   0.63 Competition heating up
BMY    67.31   2.38    1.38   3.76 Dropped, back to life
ELN    57.94   1.13    5.19   6.32 Dropped, sudden revival

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


FDX $112.88 -2.00 (-.13) FDX had a nice $2.13 gain yesterday, 
but gave most of it back today. It also closed right at its low 
of the day (not good), although volume was very light. FDX is 
due to split after the bell on Thursday and it has so far failed 
to give us the split run we expected. It might move up Wednesday 
and Thursday, but overall market direction could take it either 
up or down. In any case, we don't recommend holding over the 
split, and since that will occur before our next letter, we are 
dropping FDX now.

EMC $100 -7.00 (-8.94)  EMC took a dive today and lost $7.
This came on the news that HWP will be reselling Hitachi
storage equipment, a move that could alter its sales partner-
ship with EMC.  Details were a little sketchy but evidently
EMC knew this might have been coming.  They have since 
doubled their sales force over the last 18 months.  What
makes this confusing is that HWP just recently resigned a 
3 year deal to re-sell EMC products.  EMC still claims 
that they will hit over 30% earnings growth this year.
More good news is that EMC bounced off it's support at $95
(like we said last week).  If you can handle the heat, EMC
might pull out of this with a split coming at the end of the
month.  We would rather not hold on when the handle gets 
this hot.


ELN $57.81 +5.06 (+6.18)  This week-end we reported ELN may be
signaling a reversal and start to climb.  Unfortunately, this 
was the case. The ascent started slowly on Monday.  In contrast, 
ELN went full-speed ahead today and spiked up over 5 points in
confirmation of its intent.  The play's been successful shedding 
over 25 points in the past 3 weeks, but now it's time to hang 
it up.  Consider this stock dropped.

BMY $67.31 +1.38 (+3.75) Sometimes we are unable to get out 
of the gates on stocks we like and that was the case with BMY.
Initially on Monday the stock opened weak down at $61.62 but 
it didn't hold as drug issues participated in the record-breaking 
day. Today BMY made the papers as Investor's Business Daily 
cited new drugs and joint ventures as positives for the stock.  
With the rebound, it has broken back above its 50-dma.  This 
may be the beginning of a new rally as it had previously ignored 
the trend lines with wild spikes above and below key support 
levels.  With the stock less than 2 points from an all-time 
high, we are dropping it from the put list to avoid being caught 
in a momentum rally.


FD $49.06 -0.94 (+2.37)  FD shot up +$3.31 in trading on 
Monday as the market broke 11,000 for the first time ever.  
As the market fell back on Tuesday, FD followed.  But, it 
gave back only -$0.94.  We feel that FD has a good chance 
of continuing its upward hike on earnings momentum.  It will 
report its numbers before the market opens on May 12th 
(as confirmed by the company).  Retail sales have been strong 
and retailers are expected to report some nice figures.  On 
Tuesday, DLJ upgraded FD to a "buy."   

COF $169.25 -0.75 (-4.44)  After jumping up +$6.00 last 
Friday, some pull back was expected.  COF lost -$3.69 on 
Monday even though the market broke 11,000.  In our eyes,
this is a sign of weakness.  COF could consolidate further 
before making its split run. (The company will split in early 
June).  However, it does seem to have found some support in 
the past four days of trading at $168.  Look for a solid 
bounce off this level before opening any new positions.  There 
is plenty of time to play this pick.  Be patient.  In other 
news, AG Edwards upgraded COF to a "buy." 

QCOM $209.88 -8.50 (+9.88)  QCOM will split its stock 2:1 on 
May 11th.  The company began its run with fireworks on Monday 
as it added +$18.38 in furious trading.  On Tuesday, as 
expected, the market pulled back to clear its head and QCOM 
did the same.  It lost -$8.50.  This dip could provide another 
entry point.  Even though QCOM has the potential to correct 
quickly, don't try to pick the bottom.  Wait for the upward 
confirmation first.  It is better to miss a few points to 
the upside than to guess wrong and lose $$.

TMX $78.75 -1.25 (+3.00)  On Monday, TMX announced that it 
was teaming up with SBC Communications to buy Cellular 
Communications of Puerto Rico Inc. for $814 million.  Telmex 
will benefit since the agreement will allow it to further 
expand its presence outside of Mexico.  Investors showed their 
support for the deal by pushing TMX up +$4.25.  On Tuesday, 
TMX went on to announce that it was going to buy out Sprint's 
stake in their US joint venture called Telmex-Sprint 
Communications, LLC.  TMX fell -$1.25 in trading but we feel 
that the dip was due more to the markets pulling back after 
breaking 11,000 on Monday.  Wait for resumption of the upward 
trend before buying any new calls on TMX.  

WMT $44.00 -2.13 (-2.00)  WMT seems to be having trouble 
breaking out of the doldrums.  It has bounced off its support 
of $44 several times but can't seem to hold onto its gains.  
After consolidating -$4.94 last week and an additional -$2.00
this week, the earnings run could be short and compact.  The 
company will report on May 11th.  Retailers are projected to 
post nice numbers due to strong sales in the quarter.  WMT 
could top estimates by a penny.  Wait for the stock to show 
a solid green figure in trading before initiating any new 
plays.  The key is to see it bounce off of $44 and hold.

HWP $79.59 -.69 (+.71) Up $1.06 yesterday, but down .69 today. 
This stock is not yet moving much in advance of its earnings, 
but it still has time. Technically it looks fairly positive and 
it remains above its 10 dma. In the news, HWP has made plans to 
resell storage equipment from Hitachi Data Systems, a move that 
hurt the stock of EMC today. HWP sales of EMC equipment last year 
made up 20% of EMC's total sales. In other news, following HWP's 
lead last week, Dell has now also entered the sub-$2000 lap-top 
market, using the low cost Celeron chip. 

ANF $92.13 -3.50 (-2.68) ANF traded down on Tuesday, after
a positive gain on Monday.  Monday saw ANF trade as high as
$98.94, but closing as $95.63.  We are at a key point for
ANF, as it is sitting right at its 30-dma.  This has held
as nice support on all but one occasion over the last few
months.  Watch for market direction and play ANF if it trades
above $92.50.  Remember, we feel ANF will announce a stock
split with earnings on May 11th or at it's shareholder meeting 
on May 20th. 

***** Play updates continued in section two *****

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only. The information provided herein is not to be construed 
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newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
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The Option Investor Newsletter         Tuesday  5-4-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

PICK NEWS - CALLS (continued)

BRCM $79.00 -2.50 (+1.87) Most of the tech sector suffered today, 
and BRCM was no exception. After rising $4.38 yesterday on huge 
volume, it gave back $2.50 today on slightly less than average 
volume. As mentioned in Sunday's letter, BRCM, which already 
dominates the broadband chip market, is seeking to become the 
leader in the growing network chip market as well with its 
purchase of Epigram. Various analysts have made positive comments 
on the acquisition, including Steve Harmon, who writes for 
Internet.com. He sees BRCM challenging both Intel and Lucent in 
the home networking arena. Cable modem is also growing. There are 
now only about a half million subscribers to cable modems, but 
1 1/2 to 2 million are expected by the end of the year. Harmon 
believes that BRCM could have revenues of over 450 mln. in 1999. 
It had $135,344 in 1998, so that would represent a tremendous 
increase, but remember that BRCM's first quarter already showed 
a 173% increase over last year and it is growing exponentially. 
Again, expect volatility with this Internet/chip stock. 

VISX $121.88 -11.63 (-6.88) VISX gained $4.75 yesterday only to 
drop a whopping $11.63 today. Buyers did show up in the last 10 
minutes of trading to take the stock off its lows of the day. 
Technical indicators are somewhat negative for this stock, but 
they can change quickly for VISX. VISX is now poised right at 
its 10 dma, and market direction tomorrow could push it below 
that level or help it move higher. We are still looking for the 
split run to continue, but be aware that this stock can 
experience big moves up and down! No new news.

CMVT $68.88 +1.88 (+4.75) CMVT reached another 52 week high
on Tuesday, as it traded as high as $69.88.  We like the
strength CMVT showed, as the NASDAQ tanked at the end of
the day.  Part of this strength could be the shorts that
are covering, which we could continue to see.  The latest
short ration was 5.  CMVT could really go if we see any
strength in Technology stocks.  Communication stocks did
fair better on Tuesday, than the Tech sector in general.

RNWK $201.56 +1.50 (-19.94) RWNK took a dive with the other
Internet companies on Monday, as it dropped over $20.  On
Tuesday, RNWK shot out of the gate and reached an intra-day
high of $221.50, but faded with the market to close slightly
positive.  This could be a nice buying opportunity, considering
the conference RNWK is having this week.  Conferences like
this usually provide positive news.  RNWK also announced its
RealJukebox product.  This allows users to download and save
CD's off the Internet.  

MDT $68.94 -3.06 (-3.00) MDT is one of our channeling stocks.
It is now at the bottom of the channel, which is an ideal time
to buy a call.  Make sure of market direction before buying.
We want to make sure that MDT is not going to continue down. 
A good option to buy if MDT works as planned, would be 
either the May-70 or the June-70.  

NTBK $173.06 -24.31 (-15.94)  NTBK proved to be a little rebel 
on Monday.  The stock went against the market sentiment and 
held on to $18.38 in gains.  Today it peaked at $191 only to 
finally succumb to the downward pressure.  By early afternoon, 
NTBK was free falling and finally closed right on its 10 dma.  
The bottom on a high-risk internet stock can rarely be predicted.
However, I can report that in the past 9 days NTBK has twice 
took a dip as low as $162 only to bounce back. This is purely 
a split-play and very HIGH RISK split-play at that.  NTBK is 
having a powerful 3:1 stock split on May 14th! It's a tough 
call readers, this drop today could make an awesome entry point.  
But on the other hand, where's the bottom? Remember, NTBK doesn't
necessarily move with the market so it's of the utmost importance 
to confirm the stock's direction before you begin a new play.  
And even still, be prepared for anything (not for everybody).

LU $57.88 -1.63 (-2.12)  LU seems to have found new support 
around $57-58.  It's encouraging that it's holding this tight 
range in light of the market volatility.  But again, a more 
definitive sign of its direction would be for the stock to 
stay above the 10 dma at $59 and then to push through its 
proximate resistance at $62-63.  In the news today, Lucent 
announced an Internet-based venture with Persystant Technologies.
BitRoom Collaboration System will take networked users (wired,
wireless, laptop, or even multimedia PC) and link them with 
public Internet or corporate Intranet - quite the leading 
edge technology.  On this play, wait for the confirmation 
before you open a new position.   

CSCO $108.63 -5.00 (-5.43)  The NASDAQ has been ruthless 
this week. CSCO gave back the $4.88 it gained on Friday plus
a little for measure.  We're keeping it on our play list for a 
couple of reasons.  First, earnings are right around the bend 
on May 11th (after the bell) and there's the possibility 
of a 3:2 split announcement. And also, since CSCO is one of 
the big players, there's pretty good odds this stock will be 
in the forefront when the market rallies.  Now not to downplay 
the dip, it certainly is significant. But dips can make 
profitable entry points assuming the play goes your way.  
For instance, this past Thursday CSCO had also dropped down 
to this level but recovered when the NASDAQ reversed.  
If you have done your research, this might be an entry point
for you.

CTXS $43.19 -1.19 (+0.69)  If you took a look at the 10 day 
chart, it's easy to see CTXS has formed a new support around 
the $42-43 mark.  During intraday trading, the stock has been 
testing resistance on the high end of $44.  So look for a 
decisive move through that point of opposition for positive
confirmation.  Overall, CTXS has demonstrated its strength. 
Throughout the ups and downs of the market, consolidation has 
been mild.  And yesterday, the stock advanced +1.88 points for 
the day. 

MFNX $76.00 -2.69 (-8.25) Relative strength doesn't help 
much if the rug is getting pulled out from under your 
index, in this case the NASDAQ.  $78 was former short-term 
support; now MFNX is noticeably below that.  Fortunately, 
it was on low volume.  Therein lies another red flag - low 
volume has settled into this stock telling us the demand 
isn't there right now, and that basing could continue.  
Split and earnings run?  Maybe, market willing.  The good 
news is that MFNX will split on May 18 and will likely 
announce earnings then too.  (We'll pass on the exact date 
when we get it) Investors with higher risk profiles will 
try to catch the falling knife (target shoot); more 
conservative types should wait for volume and price to rise 
again.  Confirm market direction before playing.

DELL $40.81 -1.25 (-0.38) Remember grade school?  This 
feels like trying to talk your best friend out of taking 
home his football.  You know he wants to play, but he 
doesn't like the other guys in the game.  Dell will be the 
last of the large tech companies to report this earnings 
season on May 18, and we are waiting for it to move up into 
earnings, wherein lots of hopes are pinned.  If earnings 
are stellar, A Dell touchdown could pull the whole NASDAQ 
team with it.  Short-term support is at $40.50; about $36 
if things get ugly.  Selling volume hit with noticeable 
force in the last hour of today's trading, making us a bit 
nervous if the NASDAQ continues down tomorrow.  Market 
willing, we still think Dell can reach $45, but it won't 
happen if NASDAQ can't get the lead out.  With NASDAQ 
breaking support below 2500, we need to wait and see which 
direction the market moves before starting a new play.  
Need we say, "confirm market direction before playing"?

SUNW $57.19 -2.38 (-2.62) Where have all the buyers gone?  
Volume remains unusually low though we aren't seeing 
sellers out en masse either.  The tech and Internet-heavy 
stocks of the NASDAQ have seen the aging process reverse as 
the swans turn back into ugly ducklings.  Sun is no 
exception.  The failure to pop back above its 30 DMA 
doesn't look so good.  We really need to wait until the 
stock gets back over short-term resistance of $60.50, with 
a return to big volume before we take a position again.  We 
note too from Sunday, keep your eyes on the AT&T bid for 
MediaOne.  If it succeeds, SUNW could benefit immensely, as 
it would out-fox Microsoft as a dominant set-top box for 
cable broadband use.  Now more than ever, confirm market 
direction (read, "NASDAQ") before starting a play.  Barring 
eyebrow-raising news, the "Sun" isn't coming up without it.

EGRP $103.00 -8.50 (-12.50) Well that didn't help.  In 
addition to a general market shunning of the sector, the 
SEC chairman today admonished day-traders and the on-line 
brokers for propagating an environment conducive to a new 
mongrel horde of gamblers.  People listening couldn't help 
but wonder if his next sentence would be a proposal for 
regulating the industry.  While nothing of the sort 
happened, the sector was tarnished for the day.  Even more 
important, NASDAQ finished below 2500.  This is a critical 
juncture in the market.  If we don't see a rise back above 
2500, we could see 2350-2400 in a real hurry.  This play 
carries a high degree of risk - watch out!  Gun-slingin' 
action required.  Of all times to confirm market direction, 
this is it.

IBM $212.00 -0.25 (+2.81) Whoa!  A technology stock went up?  
Though it gave up a fraction today, after a notable drop in 
the major market indexes, we see this as good.  
Technically, the chart shows all indicators still in the 
positive.  We are not surprised given blowout earnings, 
dividend increase, $3.5 bln. share repurchase and a split 
due on May 26.  Still, we urge caution given the end-of-
the-day sell-off in the tech and Internet sector.  One 
stock does not a market make.  Tomorrow will be a critical 
day and we encourage you to definitely confirm the 
direction of the market before you make a play.

NITE $132.00 -21.38 (-21.19) Knight took a break from the all-time 
highs it had been setting on a daily basis last week.  This is 
to be expected with the kind of gains it has produced in the face
of a weak industry.  Some of the pullback may be due to Arthur
Leavitt, Chairman of the SEC, who spoke today about the revolution
of online trading.  He has long been critical of day-trading 
and expressed his concerns about euphoric trading.  This is not 
new and his role is more defined to educating the public to risk.
But we view this as just a pullback and an opportunity to open 
new plays.  With 2-for-1 splits around the corner for three major 
online brokers (NITE, EGRP, SCH), we could be back at new highs
in no time.  In fact all of the recent data suggest that online 
trading is up more than 40% in April.  Watch for a rebound from 
the dip that occurred in the final 30 minutes of trading.  As 
always, tighten up the stops to protect yourself due to the high 
volatility of this play.

FNM $66.25 -2.88 (-4.69) FNM has worked just like planned.
Even with the big jump in the market on Monday, FNM 
continued to trend toward the bottom of its channel.  On
Tuesday, FNM reached the bottom and those playing this
as a channeling stock, should be out.  We would now suggest
a call play up to the $72-73 range.  Any near-the-money 
should work, but the MAY-70s and JUN-70s seem to have the
most action.  It depends upon your trading profile.  Again, 
don't be greedy and take the quick profit.

MSPG $88.00 -3.25 (-8.94)  MSPG did a beautiful swan dive 
into an empty pool.  It swooped down -$8.94 in trading on 
Monday and Tuesday.  Without a life guard in sight, we see 
MSPG dipping all the way to its support of $79.50.  Since 
all put plays are risky, we suggest following your plays 
with stop losses.  MSPG could try to fight its way back up 
since it has been down for 5 consecutive trading days.  No 
stock is immune to cycling.  MSPG could possibly rally for 
2 days before resuming its descent.  

NSOL $69.50 -2.62 (-8.25) Network Solutions has started this
week like in ended last week with its gradual descent lower.
The Internet sector was beaten up yesterday despite the Dow
Jones rally and Network Solutions dip was even more pronounced
with a drop of $5.62.  This came despite a weekend report that
Hambrecht and Quist analysts feel that NSOL is one of many 
companies poised to do well following presentations at their
annual technology conference.  This could be the case but for
right now the chart is still bearish.  You can see the pattern 
on the chart of lower highs with each rally.  Volume has been
tapering off as investors continue to lose interest in NSOL.  
This signals a further descent and more gains to be made on 
this play.  Look for the 10-dma to keep pressure on NSOL at 
the $72 level and for the 200-dma to be the next major support 
around $58.

LOW $53.25 -.44 (+.50) Lowe's has trying to participate in the
market rally this week but its performance has been less than 
stellar.  We've seen a slight rebound from a big drop last week
but it continues to run into resistance at the 10-dma.  The 
sell-off was triggered by a Prudential Analyst last Thursday 
who downgraded many of the major retailers including LOW.  The 
lack of any substantial move with the 225-point move in the 
Dow Jones on Monday reconfirms our the play and provides an 
entry point.  There has been no news to trade on and volume 
has been light as investors wait for direction.  We see the 
stock drifting lower and sparking a new sell-off when it re-tests 
last week's low at $52.   

GIS $73.75 -.75 (+.62) General Mills was unable to move above 
resistance on Monday as the Dow powered higher. Business outlook 
is still unclear in the industry as another competitor, Quaker 
Oats, announced they will raise cereal prices on Monday by about 
3%.  This follows moves by GIS and others and market share wars 
are heating up.  Investors are leaving the stock as industry 
P.E.s are still lofty compared to previous years.  It hit right 
on the 200-dma around $74.50 before turning lower.  This is 
the kind of trend we were looking for and confirms the market 
direction.  Watch for the 30-dma and 200-dma to provide strong
resistance as they converge near $74.

DD $69.69 -2.06 (-1.00) DuPont was unable to gain much ground
on Monday and momentum turned against the stock on Tuesday. 
It was already on its way to negative ground for the week when
a late day downgrade pushed the stock down to close right near
the day-low.  HSBC Securities cut DD to underperform from a hold.
Ouch.  Its rare to see anything less than a hold if the analyst
ever wants contact from the company again.  But analyst John 
Ventusi explained that they feel the shares are currently 15% 
overvalued.  We tend to agree and it bodes well for our play.
We should see a continuation of the selling as word of the 
downgrade only had 15 minutes to publicly spread. This also 
pushes the stock back under the 50-dma.  

FNM $66.25 -2.88 (-4.69) FNM has worked just like planned.
Even with the big jump in the market on Monday, FNM 
continued to trend toward the bottom of its channel.  On
Tuesday, FNM reached the bottom and those playing this
as a channeling stock, should be out.  We would now suggest
a call play up to the $72-73 range.  Any near-the-money 
should work, but the MAY-70s and JUN-70s seem to have the
most action.  It depends upon your trading profile.  Again, 
don't be greedy and take the quick profit.


None today


SEEK - Infoseek Corp. $44.94 -2.88 (-6.12 this wk)

Infoseek develops and services Internet software products and 
services.  The company provides Web-based navigational services
that helps users access resources on the Internet.  They produce
the GO network and the Infoseek Service comprehensive gateways.
They combine content from search and navigational capabilities,
directories of relevant information and content from media leaders.
They also produce Internet sites in a joint venture with Disney
such as ESPN and ABCNEWS.

Infoseek is a stock in turmoil ever since releasing their earnings
report for Q2.  Their revenues came in well below, not only 
expectations, but below last years Q2.  This triggered downgrades
from Volpe and BT Alex Brown not to mention a massive sell-off.
Despite comments from the company that Q3 revenue would pick 
up, the stock has fallen in half.  We are recommending the stock
based on the failure of the 200-dma to provide much support.  
Today was the first close underneath that key support point.  
With Internet issues in general weakening, investors will dump
the faltering stocks first and look for the blue chips.  Watch
for an entry point and use your stops to avoid a relief rally. 

BUY PUT MAY-45*QI-QI OI=238 at $4.25 SL=2.50
BUY PUT JUN-40 QI-RH OI=203 at $4.13 SL=2.00

Average Daily Volume = 2.33 mln

Chart = http://quote.yahoo.com/q?s=SEEK&d=3m

JNJ - Johnson & Johnson $95.00 -2.75 (-2.50 for the week)

Johnson & Johnson is one of the world's largest and diversified 
makers of healthcare products.  JNJ has three distinct business
segments serving the consumer, professional, and pharmaceutical 
markets.  As a consumer you're probably most familiar with their 
over-the-counter brands like Tylenol, Band-Aids, and "no tears" 
baby shampoo.  But Johnson & Johnson reaches beyond that realm 
and expands all aspects of its product lines through acquisitions.
They are truly a healthcare giant.

Rumors started to buzz over the week-end and today there are loud 
whispers that Johnson & Johnson is in merger talks with Centacor 
for $3 bln in stock.  Neither company was available for comment, 
but anonymous sources say an agreement could be reached in as 
early as a week.  After peaking at $103 (its new 52-week high) 
last Tuesday, JNJ started a slow and steady descent.  PaineWebber
stepped in on Friday and downgraded the stock from "attractive" 
to "neutral", but had no additional comments to add. Today, 
the rumors couldn't be ignored and the stock lost -2.75 to put 
it just a point below its 21 dma. In general it normally pans 
out like this: if JNJ and CNTO reach an agreement regarding the 
merger then initially JNJ will suffer.  Investors will be 
concerned about dilution to Johnson & Johnson's earnings because 
it would be issuing such a huge amount of stock to pay for 
Centacor.  Then after this initial unrest, they'll come to their 
senses and realize the benefits of the acquisition.  In this case, 
JNJ will have access to a hot-selling heart drug which is very 
much needed to build up its pharmaceutical business sector 
(this is a weak link in JNJ's health chain).  Another factor which 
will play into this particular scenario is fierce competitor, 
Eli Lilly, is the co-marketer of ReoPro and this could break the 

This put play involves a higher risk level and is obviously is 
based on the prospect of a $3 bln stock deal.  So if you decide
to open a new position, please double-check direction and keep 
those stops tight.  In our Age of Technology a news announcement
can turn the tables in a matter of seconds. 

BUY PUT MAY- 90 JNJ-QR OI=1386 at $0.69 SL=0.00
BUY PUT MAY- 95*JNJ-QS OI=1825 at $2.50 SL=1.25
BUY PUT MAY-100 JNJ-QT OI= 609 at $5.75 SL=4.00

Average daily volume = 2.17 mln
Chart = http://quote.yahoo.com/q?s=jnj&d=3m

11,000...Here Today, Gone Tomorrow!

Monday, May 3

The Dow closed above 11,000 points for the first time Monday, led
by strength in the cyclical stocks after a report on manufacturing
helped soften inflation concerns. The DJIA closed up 225 points at
11,014 surpassing last Thursday's record. The Nasdaq index was off
just slightly, finishing at 2,535. The Standard & Poor's 500-stock
index was up 19 points at 1,354, reflecting the broad market gains
and confirming the ongoing signs of a vibrant U.S. economy.

Sunday's new plays (positions/prices):

The straddle plays were quite active on Monday and any of you
that bought positions individually throughout the day would
have achieved much better prices than our simultaneous orders.

CSX  JUN50C/JUN50P  $6.25 debit
ETH  AUG50C/AUG50P  $9.12 debit
LRW  JUN40C/JUN40P  $6.12 debit
CMNT JUN12C/JUN17C  $3.62 debit

Portfolio plays:

On Monday morning, before the open, CNTO rose almost $4 on a
report that the biotechnology company may be acquired by health
care giant Johnson & Johnson for more than $3 billion. This is
an ideal opportunity to roll up-and-forward, so we closed the May
(short) position and plan to sell a new June call as the current
rally peaks on the merger news. UMG also announced that it had
accepted AT&T's $58 billion cash-and-stock takeover bid leaving
Comcast four days to counter-offer. Unless Comcast makes a new
bid, the options will deflate rapidly. As we said on Friday, it
might make sense to take the the small profit now rather than
wait for a chance for a larger gain (or loss), after the bidding
war ends. On Monday morning, the play was worth about $1.25 more
than we paid for it just last week.

Tuesday, May 4

U.S stocks fell on Tuesday as bond interest rates jumped to the
highest level in nearly 10 months. The Dow gave back 128 points
to 10,886 and the Nasdaq Composite index slid 50 points. In the
broader market, declining issues led advances 16-to-14 on heavy
volume of 930 million shares on the NYSE.

Portfolio plays:

AEOS traded at the post-split prices today and managed to finish
the day slightly higher, even as the overall market moved lower.
Watch for any signs of widespread selling now that the split-run
is over. NSM is making a nice rally towards our sold strike (and
technical resistance) at $15. We assume the stock will have some
difficulty near that previous trading range but also expect it to
finish in that area on May expiration. The CNTO calendar spread
was rolled forward to June with a credit of $0.12 added to the
new position; JUL45C/JUN50C.

Good Luck!

I had some new (Email) interest in Covered-Calls with LEAPS and
today was a good opportunity for that type of play in the retail
sector as many of those issues gapped to new highs. The volatility
of the short-term options will allow us to enter a play at a small
discount. Here are two favorable stocks in that sector. One is a
bullish play and the other is a stable, range-bound issue that has
excellent call-option interest each month.

LEAPS - Covered Calls

One of the most popular strategies associated with LEAPS is the
covered call (or calendar spread) on the LEAP position. The time
spread (horizontal spread) involves the sale of one option and
the purchase of a more distant option, both with generally the
same strike price. The neutral philosophy for using time spreads
is that time will erode the value of the near-term option at a
faster rate than it will the far-term option.

When we open a calendar spread, we try to make sure there is
excess premium in the sold call; a small disparity in our favor.
Then we generally wait until the last day of the strike period
to close out the SHORT position (if necessary). If your sold
position is ITM on the last day of the strike, you need to buy
it back so that you don't get called-out (or have to exercise
the long-term position) because that would defeat the whole
purpose of the strategy. Then we sell next month's call (on any
rally) to further reduce the cost of our long-term position.

That's the whole strategy; selling the time value in the calls
and buying them back (if absolutely necessary) when they return
to intrinsic value. Occasionally, we may also have to "roll-up"
or "roll-down" if the stock price moves very far away from the
"sold" option (in a short time) to keep the play profitable.

More information on these types of spreads can be found in two
of the bibles of floor traders:

"Options As A Strategic Investment" by Larry McMillan and "Option
Pricing And Volatility" by Sheldon Natenburg.


TOM - Tommy Hilfiger Corporation  $71.12

Tommy Hilfiger designs, sources and markets sportswear, jeanswear
and childrens clothing under the Tommy Hilfiger trademarks. With
a range of strategic licensing agreements, the company continues
to expand its product lines to offer a broader array of apparel,
accessories, footwear, fragrance and home furnishings. Their
products can be found in leading department and specialty stores
throughout the United States, Canada, Mexico, Central and South
America, Europe and the Far East.

Americans bought more of everything (including clothes) in the
first quarter as the economy showed few signs of economic
slowdown. Consumer spending climbed almost 7% in the first
quarter, the largest rise in 11 years. A combination of low
interest rates, higher consumer confidence, greater demand for
durable items and the new highs reached in the stock market has
put more money in consumer's pockets.

One industry expert recently commented that retail stocks have
done well and should continue to perform, because they are now
selling more inventory at better prices and less at mark-down
prices. This gives companies improved margins on their product
sales. Most analysts say this shopping spree should continue
well into the summer months.

Technically, this stock is in a sideways trading range near $70
but that can often be the best type of pattern to use in a long
term calendar spread.

PLAY (conservative/calendar spread):

BUY  CALL JAN00-70 LSD-AN OI=158 A=$12.25
SELL CALL MAY-75   TOM-EO OI=273 B=$1.06

Chart = http://quote.yahoo.com/q?s=TOM&d=3m


IBI - Intimate Brands  $54.00

Intimate Brands is the leading specialty retailer of intimate
apparel, beauty and personal care products through the Victoria's
Secret and Bath & Body Works brands. Victoria's Secret products
are available through a chain of lingerie and beauty stores, and
the Victoria's Secret Catalogue is now also online. Bath & Body
Works products are available in over 1000 stores.

We recommend this company regularly in the main section of the OIN
because the retail sector has continued to outperform many of the
other 'stable' industry groups in the market. The current strength
of the U.S. economy allows consumers to spend more on the products
that these companies sell and that translates into higher revenues.

The Limited, Inc. owns approximately 85% of Intimate Brands and
both of these companies have received numerous upgrades over the
past few weeks. Intimate Brands recently reported that net sales
continue to increase at the rate of 10% to 15% per quarter and
the outlook is more for growth in sales as we approach the summer
months. First quarter earnings will be reported on May 12 and the
company has reiterated that it expects to report a 19% increase
over the previous year, translating to an EPS that is slightly
above initial Wall Street estimates.

PLAY (conservative/calendar spread):

BUY  CALL OCT-55 IBI-JK OI=83 A=$5.87

Chart = http://quote.yahoo.com/q?s=IBI&d=3m


ORCL - Oracle  $25.19     *** A Promising Future! ***

Oracle Corporation is the world's leading supplier of software
for information management, and the world's second largest
independent software company. They offer database, tools and other
application products, along with related consulting, education and
support services in more than 145 countries around the world.

A recent report by an industry research company has confirmed ORCL
as the leading database vendor in the world. Oracle is number one
on NT and number one on Unix and that's why most e-business runs
on Oracle databases. Oracle8i(TM) is the top Internet platform
for business innovation, used by nearly two-thirds of the Fortune
100, ten out of the top ten consumer E-commerce sites and nine out
of the top ten business E-commerce sites.

ORCL will soon offer a new pricing model for its database software
intended to attract more Internet-based customers. The new plan is
based on the size and power of server processors. It is a better
way to gauge usage and should help Oracle make more money from
Internet customers. The strategy is part of Oracle's new Internet
plan. The company has Web-enabled all its products, from the new
Oracle8i database to enterprise resource planning applications.
They are also acquiring Tinoway Nederland BV to add to its range
of software linking laptops & mobile phones to corporate networks.

PLAY (long-term/calendar spread):

BUY  CALL JAN00-25 LRO-AE OI=3332 A=$5.75
SELL CALL MAY-25   ORQ-EE OI=8371 B=$1.50

Chart = http://quote.yahoo.com/q?s=ORCL&d=3m





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