Option Investor
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Daily Newsletter, Thursday, 05/06/1999

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The Option Investor Newsletter         Thursday  5-6-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

Published three times weekly, Sunday, Tuesday, Thursday evenings.

MARKET WRAP  
*****
        5-6-99           High     Low    Volume  Advances Decline
DOW    10946.82 -  8.59 10980.04 10852.32  878,521k  1,473   1,479
Nasdaq  2472.28 - 62.17  2546.36  2464.57  910,708k  1,920   2,061 
S&P-100  674.54 -  7.80   684.31   668.33   Totals   3,393   3,540
S&P-500 1332.05 - 15.26  1348.35  1322.56            49.0%   51.0%
$RUT     433.38 -  0.89   435.96   432.16
$TRAN   3735.78 +   .52  3729.15  3682.84
VIX       29.27 +  3.29    31.06    16.43
Put/Call Ratio      .53
*****

Goldilocks chased by four bears, vultures circling.

Three FED bears all took aim at the bull market today. The market,
which has been fueled by the Goldilocks economy, had been waiting
for Fed chief Greenspan to speak and speak he did. While his actual
comments were not as strong as they could have been the impact was
still felt. He said that the high tech gains in productivity could
not continue on forever and eventually the shrinking pool of trained
workers would exert pressure on wages and create inflation. In making
the carefully worded pronouncement today Greenspan stepped out of the
neutral rut the Fed chief had been following and started the lean into
a future interest rate hike posture.

Alice Rivlin, another Fed member, said today that in the Fed's 
opinion the stock market was too high and was giving a false impression
of the U.S. economic health. Citing the "wealth effect" that a
constantly rising stock market has created she said the Fed was on
watch for the real impact to the economy. 

Robert Terry, San Francisco Fed Chairman, said the economy was much
stronger than desired and could not continue to grow at a plus four
percent rate without inflation. He did say there were no signs of
inflation at present and the Fed did not view the rise in oil prices
as a current problem. 

Richard McCabe with Merrill Lynch, said today that the market was
clearly showing signs of topping and he expected a 10-15% correction
soon. In all fairness McCabe has been calling for the correction
for about 1500 points now and eventually he will be right.

Back from the dead?

Pummeled for two days now from negative comments and inflation fears
the Dow has rebounded both days from triple digit losses in the last
hour of trading. Advances which had been trailing declines by as much
as 500 during the day surged back at days end to close down only six
stocks under decliners at 1473 to 1479. The miraculous recovery on
both days in spite of the impending doom of the non-farm payrolls on
Friday is remarkable. The Dow is only 89 points below it's record
high. The Dow's recovery from the -102 low at 3:PM was remarkable.
Some analysts think a strong employment number is already factored
into the market and the two major dips this week have already taken
all the profit out and the market is poised to move upward unless
there is a blowout jobs report in the 350,000 range.

Nasdaq funeral not scheduled yet.

While the Dow has been remarkable in it's rebounds this week, the
Nasdaq has been moved to intensive care. With the sector rotation
being defined as "sell tech and buy anything else", the Nasdaq has
been sinking deeper and deeper into the summer doldrums abyss. After
peaking at 2677 on April 27th the slide has been interrupted by only
momentary signs of life to our current 2473. The 2500 level had 
managed to provide some support but the last two days of selling
proved too much. With Internets dropping like a rock as their prices
head toward their January lows their appears to be no Internet bottom
in sight. Of course as soon as I or anyone else proclaims them dead
and starts playing puts on the sector, new life will rush in on the
back of numerous upgrades on the sector by noted analysts. 

Even the giants of the Nasdaq cannot over come the concentrated selling
onslaught. CSCO, MSFT, INTC, DELL have all suffered at the hands of
the sector flight. Big funds that can remember past summer tech sell 
offs have been liquidating positions left and right. Fidelity has 
dropped its stake in DELL by 59% and AOL by 43% to name a couple.
Multiply this by hundreds of funds and you see the problem. Even the
coming earnings of Dell and CSCO have not been able to sustain their
prices. Dell sank to $39.44 at the close today. I may be in Dell denial
but I have to believe that the Dell faithful will see this as a last
entry point before any Dell earnings run back to $45 and add to their
positions Friday and Monday. When the Dow recovered at the close today
and Dell had risen to over $40 from its bottom at $39.31 I bit the
bullet and bought some Dell options myself. It promptly sank back to
the sub $40 level. CSCO which announces on May 11th, has been severely
beaten up and may not be able to mount any earnings run at all. 

One of the reason these stocks are having so much trouble is the 
number of shares outstanding. Dells recent split resulted in total
outstanding shares now being over 2.4 bln. If a fund like Fidelity
held 20 mln shares three years ago, and that would not have been
a lot for the bigger funds, then today, after splits, they would own
over 320 mln shares at an average cost of $6. As we all know, it is
not profit until you sell and funds do not like to have huge positions
in ANY one stock. A Dell buyer today would be like a fish swimming
upstream against the current. Eventually these funds will run out of
Dell stock to sell and the stock should reverse course but who knows
when. Anybody taking a position in Dell now should plan to be out
by May 18th unless you are planning to hold for a long time. If we 
don't get a major move by Dell before earnings a contrarian play
would be to hold over with thoughts of capturing any bounce from
the lack of an earnings run if they announce outstanding earnings.  
This would of course be VERY HIGH RISK. Dell is already down -29% 
off its recent $55 high.

Microsoft buys AT&T


Not really but Bill probably could if he felt extravagant. MSFT did
invest $5 bln in AT&T today but it was more a bribe than an investment.
The lure here is the millions of set top boxes that AT&T will deploy
on it's way to being the biggest cable vendor on the planet. AT&T

already has a deal with SunMicro to use the Java platform in some of
these boxes and a deal with MSFT to use WindowsCE in others. The deal
today adds several million to Microsoft's contract and puts them in
front of SUNW. Michael Armstrong said they were still in bed with 
SUNW but the MSFT deal was simply a matter of using software that 
was already available and not in development. Sure !!

Nose ring anyone?

With the stock market being led around this week by the bond market
it was like a bull with a ring in it's nose. The bonds sank on the
inflationary comments by the Fed heads to a 10 month low. The yield
rose to 5.79% and at this level it is becoming a problem. At 6.0% we
could see a significant flight from the stock market and into bonds
as a safe haven from the Y2K problem coming later in the year. A 6%
rate would just accelerate the process. Bond analysts say a +.25%
rate hike in August is already priced into the bonds and the only
uncertainty now is will we make it till August before a hike. The
Fed FOMC meeting is not for two more weeks and nobody expects a
hike then unless the non-farm payrolls and unemployment numbers
really surprise the market tomorrow. The consensus estimates for
jobs is 225,000 with estimates as low as 185K and as high as 375K.
A number on the high end would be a problem but any number under 250K
should result in a relief rally. The unemployment number is expected
to be 4.2%, only a +.3% increase. Any increase over that would be
welcomed by the market and any significant drop would set off a
stampede for the exits. 

VIX rockets to six week high!

The market volatility as measured by the VIX has skyrocketed this
week. Traders are acting like timid movie goers in a Friday the 13th
sequel. Everyone knows there is a scare coming but nobody is leaving
the theater. Traders are expecting the big scare and are pulling the
sell trigger at every sudden shout. As soon as they look around and
see it was not the mother of all drops they ante back up for another
play. As long as traders keep buying the dip we will keep moving
up. When that last drop does occur the ones holding the last ticket
will get a shock they will not forget any time soon.

Fearless Friday Forecast

About the only thing I can fearlessly forecast for Friday is that
the market will open and trading will occur. Other than that the
fate of the market lies squarely in the jobs numbers in the morning.
The up volume and down volume tied today, advancers on the NYSE
tied decliners and we are only 89 points below the Dow closing record.
Market sentiment is still very bullish and we do have the required
number of bears to keep a rally going. I just don't see a big sell 
off on reasonable numbers. Good numbers could propel us to a new 
record. I only hope the Nasdaq gets caught in the updraft if it occurs. 


Wait for an entry point, sell too soon.

Jim Brown
editor




Market Posture
***************
Thursday, May 6th  Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert

DOW Industrials    9,750  11,000  10,947    Neutral   4.30                 
SPX S&P 500        1,300   1,350   1,332    Neutral   4.29         
OEX S&P 100          660     690     675    Neutral   4.29           
RUT Russell 2000     390     435     433    Neutral   4.29    

NDX NASD 100       2,100   2,250   2,079    BEARISH   5.6  * 
MSH High Tech      1,000   1,100     986    BEARISH   5.6  *                

XCI Hardware         900     920     855    BEARISH   4.29                    
CWX Software         600     650     613    Neutral   4.22                   
SOX Semiconductor    390     420     380    BEARISH   4.29             
NWX Networking       450     490     500    BULLISH   4.22                 
INX Internet         550     700     538    BEARISH   5.04            

BIX Banking          700     720     706    Neutral   4.30                          
XBD Brokerage        425     540     426    Neutral   4.14             
IUX Insurance        630     655     642    Neutral   4.29                  

RLX Retail           900     970     863    BEARISH   4.29             
DRG Drug             390     425     376    BEARISH   4.29             
HCX Healthcare       780     850     767    BEARISH   4.29                      
XAL Airline          170     180     185    BULLISH   5.04      
OIX Oil & Gas        260     285     300    BULLISH   3.30                        



Posture Alert

Reaction to Alan Greenspan's speech sparked a volatile day 
of trading. We have turned Bearish over the near term
across NASD 100 and Morgan Stanley High Tech indices after
falling under continued pressure.

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

/members/marketposture
 





Market Sentiment
Pinnacle Capital Advisors
*************************

Don't Be Too Quick to Pull This Trigger

Although there are positive developments that could support continued 
advances (ie., improved market breadth and new highs for the
Transportation Index-TRN), other trusted technical and sentiment
indicators create a mixed picture and could serve as early warning 
signs of a precipitous selloff.

First, is the declining bond market and rising bond yields. 
OptionInvestor.com first alerted investors in February that the TYX
broke its long term trendline and could prove problematic for the
stock market in the months ahead.  What's more, strong economic
reports may cause the FED to raise rates on or before their August
meeting. 

Next, is the recent rotation out of Technology stocks, considered by 
many to be a key market leader. Although the Dow has powered into
record territory several key technology sectors have violated their
short-term moving averages and are beginning to roll over. 

When option traders pounder the direction of the market over the near
term, it's also important to isolate and track the shifting market
currents sector by sector. In a period of market volatility, the need
for a closer analysis has never been greater. 

Unlike other firms that only state a broad market posture, 
Pinnacle states its market posture by industry sector (20)
and is the only options advisory website to do so.  For example, the
firm is currently BULLISH across the transportation sectors but
NEUTRAL across broad market indices and BEARISH across select
technology sectors. This schematic is one of the most popular
links on the website and is helping investors get on the right side 
of the trade. 

Finally, Pinnacle is concerned about what option speculators
are likely to do over the near term, especially as more and more
investors open online trading accounts, take control of their own
investment decisions and blindly assume that the market will climb
higher.  The market is already up 19% for the year. 
Pinnacle tracks this activity through a contrarian investor
sentiment indicator called the Pinnacle Index.

This index analyses the cluster of strike price at key turning points
in the market and the powerful tool helped presage the market selloff
last August ('98) when other generally accepted indicators missed the
correction. 

The Pinnacle Index is simply the ratio of calls to puts at key
benchmarks.  Unlike other index and equity put-call ratios reported by
the trade press, the Pinnacle Index is easy to use and apply because
the average index is 2.0  (two calls to every one put.  A Pinnacle
Index of 5.0, for example, means that there are five times as many
calls as there are puts at key overhead benchmark levels (Strike
clusters) and has bearish implications. With a current Pinnacle
index reading of 4.9, excessive optimism remains in check but this 
could change quickly and one reason why OptionInvestor.com reports 
it regularly. 

Pinnacle also tracks the level of out-of-the-money calls 
between 680-740 strikes among option speculators for early warning
signs of a speculative bubble.  As shown below out-of-the-money (OTM)
call open interest has been climbing since Aril 16th and may serve as
overhead resistance.

May Expiration Cycle
OEX OTM Call Analysis (Open Interest May 680-750)
Date                 Open Interest      Change %    

Tuesday, May 4              70,112        -  
Tuesday, May 6              85,162      +21.4%  


From a sentiment perspective, take a look at what happened during
this week's investor's intelligence survey - the Bullish camp
jumped 3.5%. This has bearish implications from a contraian 
viewpoint. 

                                   Bullish      Bearish
April 28, 1999                        56.1        30.7
May 5, 1999                           58.1        27.6  *




BULLISH Signs:

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


BEARISH Signs:

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.


Investor Intelligence:  
As a contraian indicator, the pecent of Bullish investor spiked 
from a week ago suggesting bullish sentiment picking up steam. 

Pinnacle Index:  
Our Pinnacle Index has spiked to 4.9 on the OEX (680-750) suggesting
 that option speculators are expecting the market to advance higher.

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

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%
Thursday, May 6             85,162      +177.4%     *



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       2.1
Underlying Support  (645-660)     2.2        2.3       2.6

Put/Call Ratios:
CBOE Total P/C Ratio               .5         .6        .5
CBOE Equity P/C Ratio              .4         .4        .4
OEX P/C Ratio                     1.9        2.0       1.5


Peak Open Interest (OEX):
Puts                              650        650       650
Calls                             720        720       700
P/C Ratio                        1.18       1.16       .88 *


Market Volatility Index (VIX):	
CBOE VIX                        26.07      27.32     29.45 *



Investors Intelligence:
Bullish                         56.1%      56.1%     58.6% *
Bearish                         30.7%      30.7%     27.6% *



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         2.1

OEX Close                       675.65    673.20      674.54

Underlying Support  (645-660)      2.2       2.3         2.6



 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

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


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

CBOE Total P/C Ratio               .53        .58        .54
CBOE Equity P/C Ratio              .38        .42   .     39
OEX P/C Ratio                     1.92       2.02       1.49



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

Puts                 650 / 11,650   650 / 12,935  650 / 13,094
Calls                720 / 9,915    720 / 11,068  700 / 14,834
Put/Call Ratio       1.18           1.16          .88



 


Market Volatility Index VIX
Date          Major 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 
May 5, 1999                             29.45 



 


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

May 5, 1999                           58.1        27.6  *





CHANGES THIS WEEK
******************
Please view this in COURIER 10 font for alignment

Index     Last    Mon     Tue   Wed  Thur   Week
Dow    10946.82 225.65 -128.58 69.30 -8.59  157.78
Nasdaq  2472.28  -7.27  -50.46 49.33-62.17  -70.57
$OEX     674.54   9.43  -11.80  9.06 -7.80   -1.11
$SPX    1332.05  19.45  -22.63 15.31-15.26   -3.13
$RUT     433.38   0.47   -0.69  1.68 -0.89    0.57
$TRAN   3735.78  49.30   35.29  3.38  0.52   88.49
$VIX      29.27  -0.68    2.44 -0.79  3.29    4.26

Stock            Mon    Tue   Wed  Thur   Week

QCOM   216.06  18.38  -8.50 14.75 -8.56  16.07 Trend is still up
BRCM    84.88   4.38  -2.50  1.50  4.38   7.76 Looking strong
AET     93.38   3.81  -1.00  3.06 -0.19   5.69 New, hitting new highs
TMX     81.00   4.25  -1.25  0.50  1.75   5.25 Looking strong
UNP     64.63   1.62   1.06  1.38  0.69   4.75 New, momentum looks good
CMVT    67.00   2.88   1.88  1.00 -2.88   2.88 Normal profit taking
FD      48.00   3.31  -0.94 -0.56 -0.50   1.31 Strong numbers
IBM    209.25   3.06  -0.25  0.13 -2.64   0.30 Buying opportunity
CTXS    40.94   1.88  -1.19  0.06 -2.31  -1.56 Wounded tech stock
HWP     77.31   1.06  -0.44  0.75 -2.94  -1.57 Wounded tech stock
DELL    39.44   0.88  -1.25  0.50 -1.88  -1.75 Buying opportunity
FNM     68.56  -1.81  -2.88  1.81  0.50  -2.38 Channelling up!
WMT     42.88   0.13  -2.13  1.06 -2.19  -3.13 Dropped, broke support
LU      56.50  -0.50  -1.63  0.06 -1.44  -3.51 Upgraded After Bell
SUNW    55.63  -0.25  -2.38  0.63 -2.19  -4.19 Dropped, outgunned?
ANF     90.50   0.81  -3.50 -2.44  0.81  -4.32 Upgraded After Bell
MDT     67.19   0.06  -3.06  0.31 -2.06  -4.75 Dropped, broke pattern
COF    168.75  -3.69  -0.75  2.56 -3.06  -4.94 Entry point?
CSCO   106.94  -0.44  -5.00  2.34 -4.03  -7.13 Ouch! When will it stop?
VISX   120.88   4.75 -11.63  6.38 -7.38  -7.88 What is your target?
MFNX    74.75  -5.56  -2.69 -1.75  0.50  -9.50 Still time left
EGRP   105.06  -4.00  -8.50  9.00 -6.94 -10.44 Day trader's dream
NITE   140.13   0.19 -21.38 16.50 -8.38 -13.07 More volatility
NTBK   170.50   8.38 -24.31  3.94 -6.50 -18.49 Split is coming
RNWK   197.75 -21.44   1.50  4.19 -8.00 -23.75 Target shoot

Puts

NSOL    67.00  -5.63  -2.63 -1.31 -1.19 -10.76 Dropped, successful play
MSPG    86.56  -5.69  -3.25  6.38 -7.81 -10.37 Trend is still down
BVSN    48.06  -1.69  -1.38 -0.94 -6.00 -10.00 New, looking for bottom
SFE     73.88  -3.88  -1.50  2.87 -4.63  -7.12 New, too far too fast
SEEK    50.63  -3.25  -2.88 10.19 -4.50  -0.44 Buying opportunity
LOW     52.75   0.94  -0.44 -0.19 -0.31   0.00 A real inspiring upgrade
JNJ     97.63   0.25  -2.75 -1.00  3.63   0.13 Ouch! Confirm direction
GIS     74.44   1.38  -0.75  0.38  0.31   1.32 Tech alternative
DD      72.69   1.06  -2.06  1.25  1.75   2.00 Confirm direction




PICKS WE DROPPED
****************
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.


CALLS:
******

WMT $42.88 -2.19 (-3.13)  We had been waiting and waiting for 
WMT to break out on an earnings run.  On Wednesday, our hopes 
seemed justified when the stock gained +$1.06 and bounced off 
its price support of $44.  However, we are dropping WMT as a 
call due to its actions on Thursday.  WMT dropped below its 
support on news of "lackluster" same store sales.  They were 
up 4.6% but some analysts were looking for numbers ranging 
from 5-6%.  (What is worse, the company reported a +13.2% 
increase last year in the same quarter.)  Even though WMT is 
still expected to beat analyst expectations when it announces 
its earnings on May 11th, we feel there are better plays 
to be in.

MDT $67.19 -2.06 (-4.75) We are dropping MDT as a channeling
stock.  Though it is possible the bottom has been reached,
we don't like the fact that it broke below the projected
bottom of about $69-$70.  If $67 is the new lower range of
the channel, then the upper range will be around $73.  We'll
keep an eye on MDT to see if it resumes a consistent channel.

SUNW $55.63 -2.38 (-4.18) In the words of Barry Diller 
after a failed buyout attempt, "They won; we lost.  Next."  
Scott McNealy, Sun's chairman has to be thinking the same 
thing as he was just trumped (again) by Bill Gates of 
Microsoft, whose new motto seems to be "talk softly and 
carry a big wallet."  Here's the deal: Microsoft agreed to 
make a $5 billion investment in AT&T, which will put 
Microsoft's CE operating system on 2.5 mln. to 5 mln. set-
top boxes (a non-exclusive deal) that AT&T will use for its 
broadband communications service.  That leaves Sun and Java 
as just another competitor that will have to win business 
from AT&T in the future.  As much as anything, this is a 
moral defeat for Sun, which already has, and will affect 
the stock price in the near future.  Thus we are dropping 
this play tonight.



PUTS:
******

NSOL $67.00 -1.19 (-10.75) More bad news hit the wire on 
Wednesday for NSOL.  The Justice Department has apparently 
revived its probe into NSOL for antitrust violations.  A 
spokesman for NSOL confirmed that the government has recently 
asked for more information under the probe that began in 1997.  
This sent shares plummeting again on a day when the Internets 
were already weak.  The stock hit $60, which was the short-term 
low established a few weeks ago.  That gave the stock support 
and it bounced up to end the day only down a few points.  This 
may be the beginning of the bottom since it didn't follow through 
Thursday when the NASDAQ took a beating.  Its tough to abandon 
such a successful play but it looks like time to lock in profits 
and move to another.  



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



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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.




The Option Investor Newsletter         Thursday  5-6-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


PICK NEWS - CALLS
*******************************************************

COF $168.75 -3.06 (-4.94)   The financials were hit hard on 
Thursday as Greenspan's speech put fear into the hearts of 
investors that there are possibilities of a rate hike in the 
future.  COF crashed and burned to a -$3.06 loss on the day.  
Looks like COF is consolidating further as we had predicted 
in Tuesday's write-up.  If it breaks through its support of 
$168, it could fall all the way to its 30 dma at the $162 
level.  That is OK by us though.  COF will be cheaper to get 
into before it makes its split run.  The ex-date is June 2nd.  
Be patient with this one.  We have plenty of time to wait 
out the rough waters.

FD $48.00 -0.50 (+1.31)  Even though the markets were weak 
on Thursday due to concerns over Greenspan's future actions 
involving rates, FD only lost -$0.50.  Sales figures for the 
major retailers were released on Thursday.  FD reported that 
its total sales for April were up 12.9% over that of last 
year's sales.  Some more good news, same store sales increased 
1.5%, ahead of the previously expected 1% decline.  FD will 
announce its earning on May 12th.  Before opening any new 
positions, wait for the FD to resume its upward trek.  Don't 
try to pick the reversal point.  Let it come to you.

QCOM $216.06 -8.56 (+16.07)  Up.  Down.  Up.  Down.  What's 
next? Probably another up.  Even though trading QCOM has been 
nothing but a rocky ride in the past week, its general trend 
is up.  It is climbing higher even though there are huge day 
to day fluctuations.  We feel that QCOM still has nice chances 
of heading higher overall.  It will split is stock 2:1 on May 
11th.  Thursday's dip could be an entry point if it is followed 
by green on Friday.  (That fact that QCOM set an intraday high 
of $229.50 on Thursday before the markets sold off could be a 
sign of good things to come.)

TMX $81.00 +1.75 (+5.25)  TMX managed to set a new all time 
high on Thursday even though a scare for the bond markets 
caused the overall markets to stumble.  TMX's strength could 
be stemming from the fact that it departed from its alliance 
with Sprint.  Now, Telmex can increase its level of investment 
in the US by finding other partners.  As an example, its 
relationship with SBC Communications is expected to greatly 
increase especially since SBC has a 9.8% stake in Telmex.  
Watch for TMX to ascend higher if the markets can stabilize.

BRCM $84.88 +4.38 (+7.75)  After losing over 5 points yesterday 
morning, BRCM came right back to post a small gain on the day 
(along with the rest of the market). Today it added another 
$4.38 on nearly double its average volume. With heavyweights 
like AT&T signaling intentions to make high speed Internet 
access more widely available, this young market is ready to 
explode. BRCM is positioned to benefit from the coming growth 
because it develops and manufactures the chips that make high 
speed data transmission possible--over BOTH ordinary telephone 
lines AND cable wires. The deals currently being made by AT&T 
will help to call investor attention to companies like BRCM.

HWP $77.31 -2.94 (-1.57) After a $.54 gain yesterday, HWP dropped 
$2.94 today, but thankfully, volume was a little light. Most 
of the computer stocks were down today after Greenspan's speech 
raised fears of an interest rate hike. The high growth tech 
sector (especially PC makers) would suffer more than many other 
sectors if rates climbed. Meanwhile, HWP's earnings date (5-17) 
creeps ever closer. With only 11 days left for an earnings run, 
we don't need the specter of higher rates spoiling this play. 
Watch the payroll report tomorrow, and look for positive news 
(i.e. unemployment not TOO low) before starting new positions. 
In the news: Yesterday, as expected, HWP signed a deal with 
Hitachi to sell its high-end storage products under the H-P 
name. (EMC had been supplying these storage products.) Also, 
Electronic Identification, Inc. and HWP have agreed to jointly 
provide a complete electronic identification solution to the 
marketplace. Finally, HWP has agreed to acquire Dazel, a 
privately held maker of electronic information-delivery software.

VISX $120.88 -7.38 (-7.88) After dropping to $116 yesterday, VISX 
came back with the market's recovery to close at $128.25, up 
$6.37 on the day. Today, however, it lost $7.38 on fairly light 
volume. The seesawing action in this stock allows for repeated 
profit-taking and re-entries, if you are a nimble trader. The 
volatility is not for everyone, though. Today Wade H. King, M.D., 
of BancBoston Robertson Stephens reiterated his 'buy' rating 
on the stock, saying the "company's business momentum remains 
very strong, both in terms of LVC procedure volume and system 
sales. Any significant weakness should be viewed as a buying 
opportunity." He also said VISX stands out from its competitors 
due to its broad regulatory approval and its established track 
record.  Look at a 10 day chart and try and target shoot.

ANF $90.50 +.81 (-4.31) ANF closed positive today after a 
roller coaster ride.  ANF opened at $93.75, well above its
prior day close.  As the day went on, ANF trended downward
and reached a day low of $88.38.  With the buying in the
Dow toward the end of the day, ANF finished positive, though
well off its intra-day high.  After the market close, ANF
was upgraded from "attractive" to "buy".  This should provide
some strength in the stock on Friday.  We don't like the fact
that ANF broke below its 30-dma, but it has bounced and never
did break support at the 50-dma. 

CMVT $67.00 -2.88 (+2.87) CMVT reached another 52 week high
on Thursday, as it traded as high as $71.00.  Unfortunately,
CMVT fell with the market and closed down close to $3.  We
still like CMVT, especially with its earnings coming up the
first of June.  CMVT should be a top performer once the 
NASDAQ decides to head higher.  There isn't any news to 
report.

FNM $68.56 +.50 (-1.38) FNM has done as planned so far. (knock
on wood) FNM hit $66 a few days ago and immediately started
heading up.  It now has gained $2.56 since hitting the bottom
of the channel.  The plan is for FNM to continue higher and
reach its upper channel at about $73.  Don't try to catch the
whole channel, just get a few dollars profit and get out.

RNWK $197.75 -8.00 (-23.75) RNWK fell a bit on Thursday, but
did close about $9 above its intra-day low.  RNWK is sitting
just above its 10-dma and is still above its strong support
at $180.  RNWK is right in the middle of its conference in
San Francisco, and market permitting, could give the stock
a boost on Friday, which is the last day of the conference.

NITE $140.12 -8.38 (-13.06) Its hard to keep a hot stock down.
That's what traders learned on Wednesday as NITE recovered from
a morning pullback that put the stock at $119.  That is just
under where we have talked about support before in the mid $120's
so if you used this as an entry point, then pat yourself on
the back.  The stock came right back despite the market.  Chief 
Equity analyst Art Hogan at Jefferies & Co. reiterated his outlook 
on NITE with a price target of $220 within the next 12 months.  
Hogan told Stockhouse.com "It has the sexiness of the Internet 
and the safety of being able to get business as an off-shoot 
of the Internet."  The stock ran into resistance around $148 
which previously provided support but with the stock split set 
for an ex-date of May 17, we see more upside to go.

MFNX $74.75 +0.50 (-9.50) No news; just momentum.  Target 
shooters could have nailed this one yesterday all the way 
down to $67.  Having lost all that value, then recovered it 
by the end of the yesterday to close just over $74, MFNX 
eked out only $0.50 today on low volume.  As we noted 
Tuesday, "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."  MFNX splits on May 18 and will likely announce 
earnings then too.  (We'll pass on the exact date when we 
get it)  Support was at $78, but in this market, we may 
drift more.  Like Tuesday, "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."  Either way, confirm market direction 
before playing.

DELL $39.44 -1.88 (-1.75) OK, that's it.  We are tired of 
so many buying opportunities.  Dell will be the last of the 
large techs to report earnings on May 18, and we are 
waiting for it to move up into earnings, wherein lots of 
hopes are pinned.  As we mentioned Tuesday, if earnings are 
stellar, Dell could pull the whole NASDAQ with it, but it 
won't happen in this turbulent environment.  Short-term 
support was $40.50, now it's looking like $39.25.  
Resistance has been met at $42.50 +/- in the last 5 trading 
days.  We'd really like to see more volume in this stock. 
That said, if the market is willing, Dell could get to $45 by 
earnings.  But, we need to let Dell come to us.  There is 
no need to force this play.  If it never meets your entry 
criteria consistent with your risk profile, don't enter 
this play.  Just because it's Dell doesn't mean it always 
comes back.  Take your ball ($$$) and find another game.  
See the commentary for a couple of comments on Dell.

EGRP $105.06 -6.94 (-10.44) With $15 intraday swings, 
daytraders have got to love EGRP.  Since our last update, 
EGRP has had a trading range of $97.13 to $116.00, which 
has given us some good trading opportunities.  But like 
other Internet-related issues it's not for the weak-kneed.  
In the news, EGRP as part of its media blitz for mind-share 
renewed its contract with AOL and upped its presence in the 
process.  It also helps that "Pacific Crest Securities 
raised FY00 EPS estimate to $0.55 from $0.49.  They also 
raised FY99 and FY00 revenue estimates to $524 mln. and 
$897 mln. from $511 mln. and $860 mln., respectively 
(briefing.com).  None of this will matter however, if 
tomorrow's non-farm jobs numbers are greeted 
unenthusiastically by investors.  Even if the numbers are 
not that bad, general pessimism over Greenspan's comments 
today could submarine this high-flyer.  Internet = Risk!  
Of course, confirm market direction before playing

IBM $209.25 -2.75 (+0.06) After IBM blew away earnings 
estimates, increased its dividend, announced a $3.5 bln. 
share repurchase and a 2:1 split due on May 26, you have to 
take your hat off for this senior statesman of technology.  
IBM is one of the few tech stocks keeping its head above 
water in rough seas.  No wonder investors love it.  Still, 
it's a tech stock and we urge caution given the greater 
than usual possibility of market meltdown that could result 
from the non-farm jobs numbers tomorrow.  Even IBM won't be 
safe.  Technically, IBM's chart is still positive, with 
support moving up to $207.  Wait for the non-farm job news 
before you play.  Brave soles will target shoot their way 
in while more conservative traders will wait to confirm 
market direction first.  Careful, it's Friday and there is 
a lot of profit to wring out of IBM on any pessimistic news 
before the weekend.

CSCO $106.94 -4.03 (-7.12)  CSCO rallied yesterday afternoon 
to close up +2.34 points.  Today the stock didn't fare as well.  
It opened above $110 and even bounced up there again mid-morning, 
but then steadily fell to finally close just under $107. CSCO 
is in a high-growth group that is known for "lofty" valuations 
and the rising interest rates in the bond market is causing 
concern among the analysts.  Thus, the high volume of sellers.
Earnings are due Tuesday after the bell. If you're still in the 
market, consider closing out your positions by then.  It's too 
risky to hold over an earnings report. Even if they do announce 
a 3:2 split, you can always jump in at a more appropriate time.

CTXS $40.94 -2.31 (-1.56)  Yesterday CTXS exhibited some vigor 
and closed near its daily high at $43.25.  But today the story 
had a different ending. The stock did maintain a solid intraday 
range above $42 for the first part of the day.  Then came the 
pressure and CTXS lost its grip and started to slide. In a last 
minute effort to finish positive, CTXS bounced back off its low 
of $40.88, but just couldn't hold the momentum. CTXS is presently
positioned just under its 10 dma.  Look for upward confirmation 
before you initiate a new play.

LU $56.38 -1.56 (-3.62)  Mr. Greenspan warned of tight labor 
markets and rising interest rates; and analysts are squirmy about 
the "lofty" tech group, but someone still likes this stock. 
AG Edwards stepped in (after the bell) and upgraded LU from 
a "maintain" to an "accumulate. LU needed a boost.  Today it 
crept just below its new support of $57-58. It'll be interesting
tomorrow to see how the investors react.  If upward confirmation
presents itself, you have a solid entry point.  But remember, 
LU has opposition at $62-63. 

NTBK $170.50 -6.50 (-18.50)  This Internet stock is certainly 
giving us a roller coaster ride so hang on tight.  After amateur 
hour yesterday morning, NTBK offered great entry points in the 
150s and then climbed all day to peak at an intraday high of 
$182.50.  The stock opened strong this morning, but along with 
others in the Internet Financial Services it sank deeper as 
the day progressed.  NTBK is perched right on its 13 dma. This 
tends to indicate bullish sentiment, yet the MACD, STO, and MOM 
are all in downtick mode.  In other words: BEWARE OF EXTREME
VOLATILITY. If you want in on this HIGH RISK SPLIT-PLAY consider 
target shooting. The 3:1 stock split is Friday, May 14th.  Please 
give your position undivided attention and keep a firm rein on 
those stops.



PICK NEWS - PUTS
*******************************************************

MSPG $86.56 -7.81 (-10.37)  We warned on Tuesday that "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 did exactly as we had forewarned and recovered +$6.38 in 
trading on Wednesday.  However, the rebound was cut short.  We 
felt MSPG could rally for at least 2 days before resuming its 
downward path.  But, the markets folded on Thursday and MSPG 
dropped -$7.81.   If the markets remain skeptical, MSPG could 
continue lower.  Keep in mind that it could have some support 
at the $80 level so set those stop losses tight.

SEEK $50.63 -4.50 (-.44) Investors of Infoseek are cheering 
for Warburg Dillon Reed who jumped in to save the sinking company.  
On Wednesday, Warburg announced an upgrade from hold to buy 
for the Internet services provider.  They based the change 
on valuation and the prospects for the quarter.  From revenues 
to sponsorship, they expect SEEK to be turning the corner. 
The stock reacted as you would expect with a big move to the 
upside.  Fortunately the comments were made before market open
and prevented us from even getting started on a play.  In fact, 
it has created on opportunity to open a play as the stock could
only buck the trend for one day before sinking with the NASDAQ.
We still see the 50-dma at $45 being the next stop for the 
stock.  Keep you stops set tight due the volatile market and 
Internet sector. 

LOW $52.75 -.31 (0.00) Lowe's received an upgrade on Wednesday
from a Schroder analyst.  They moved the rating to an Outperform 
Significantly from an Outperform.  But this was unable to push
the stock above its 10-dma.  We are encouraged by lack of strength
the stock has shown in reversing the current downtrend.  It 
has been consolidating after a big fall last week and looks
poised to start another move lower.  Keep your stops in place
as an exit strategy in case of a reversal.

GIS $74.43 +.31 (+1.31) General Mills is struggling to start
a basing pattern and move back above resistance.  The stock 
has rallied as investors leave high growth stocks for more 
secure investments.  We are watching the $75 range carefully
as being resistance and any break above that area might
be viewed as a turn around.  So far it can't find the strength 
to break through.  We may be seeing a top here and a new move 
down ahead.  

DD $72.69 +1.75 (+2.00) Another shake out in the NASDAQ has 
caused the push to cyclicals to continue.  DD flirted with
key support levels on Wednesday after a downgrade from HBSC
Securities Tuesday afternoon but the rotation out of technology 
into safe haven stocks such as DuPont has kept the stock afloat.  
There is no particular news driving the stock as industry data
shows continued weakness.  Watch for a rally in the NASDAQ 
to trigger a sell-off in DD.  Most investors will take a high
growth technology stock over a cyclical any day.

JNJ $97.63 +3.63 (+2.73). The stock dipped as low as $92.81 
on Wednesday and closed off a point for the day. The trading today
had a bullish twist. JNJ opened low at $94, but once it got going 
the momentum never let up. By the time all was said and done it 
had tacked on $3.63.  This behavior doesn't seem to be related to 
any earth-shattering news event. All is quiet on the Street. There
hasn't been anymore whispering about the merger talks with Centacor
since Tuesday. Yet according to rumors, negotiations could reach 
agreement within the next few days.  Confirm the direction before 
you begin a new play.  


******************
NEW CALL PLAYS 
******************

AET - Aetna $93.38 -.19 (+5.69this week)(+3.31)

Aetna is traditionally known as one of the leading providers 
of insurance in the U.S.  It also has diversified to become 
one of the largest financial services, health insurance, and 
managed-care providers.  Aetna's products include retirement 
services, variable life annuities, long-term care insurance, 
and pension administration just to name a few.  These products 
and services are offered in countries all over the world.

AET set a new 52 week high today at $93.94 and closed just
below this level.  AET has been following the fluctuations of
the Dow and with a move up, we feel AET will perform well. 
AET had outstanding earnings on April 28th, which has provided
a boost to the stock. The $90 level had been prior resistance
and we feel by breaking out above this level, AET is poised
for more gains. 

We need to be cautious with any stock that is sensitive to
interest rates on Friday.  If indicators show that the Fed
will be biased to raise rates, AET or any other financial
stock will suffer.  We feel that the bias will not be to
raise rates, but we won't know until we see the non-farm
payroll report.  

(about 2 weeks left for May options)
BUY CALL MAY-90 AET-ER OI=1031 at $4.75 SL=3.50 ITM $3.38
BUY CALL MAY-95 AET-ES OI=  75 at $1.88 SL=1.00
BUY CALL JUN-90 AET-FR OI=  27 at $6.00 SL=4.50 ITM $3.38
BUY CALL JUN-95 AET-FS OI=  53 at $3.38 SL=1.50

Picked on May 6th at  $93.38   PE = 80
Change since picked    +0.00   52 week low =$60.19
Analysts Ratings   5-3-7-0-0   52 week high=$93.94
Last earnings  4/99 est=1.01   actual=1.08 
Next earnings  8-06 est=1.09   versus= .95
Average daily volume = 561.1K
Chart = http://quote.yahoo.com/q?s=AET&d=3m

******

UNP - Union Pacific Corp $64.63 +0.69 (+4.75 this week)(+2.88)

Union Pacific Railroad is the largest railroad in the US with 
almost 40,000 rail miles in 23 states.  Their territory is 
primarily west of the Mississippi, but extends into Mexico and 
Canada. The UNP operates its rail transportation through its 
subsidiary Union Pacific Railroad and its trucking venture is 
by a secondary business, Overnite Transportation. 

Not only has UNP been making consistent advances since last 
Friday, but it's been setting new 52-week highs everyday too!  
The latest record is $64.63.  The interest has been growing 
in the transportation sector and in UNP's case, it can be seen 
in the high volume levels. The charts show a steep ascent since 
leaving its comfortable support of $51-52 at the beginning of 
April. The stock consolidation mid-month at around $56-57 and 
so far hasn't looked back.  Take a look at the 5-day chart and 
it's easy to recognize a pattern of opening low and closing high.  
This is very bullish.  However, use discipline when entering 
a new play. Consider waiting for a dip (which could be intraday).

April 20th marked the beginning of upgrades and good reports.  
Merrill Lynch upgraded UNP and on two accounts.  For the long
term it raised its rating from "accumulate" to "buy" and for 
the near term it went from "neutral" to "accumulate".  Two days 
later, Union Pacific came with better-than-expected earnings at 
.56 p/s; beating the Street estimates by 27%!  Gruntal & Co 
followed up the next day by raising its estimates for 1999 and 
2000, increasing its target price for UNP to $77 from $70, and 
reiterated its "strong buy" rating. Just last week, Business Week 
reported Joseph Battipaglia, from Gruntal & Co, listed UNP among 
its "favorites" out of the larger transportation stocks.

(about 2 weeks left for May options)
BUY CALL MAY-55 UNP-EK OI=1466 at $9.00 SL=6.75 *No Volume
BUY CALL MAY-60 UNP-EL OI= 208 at $5.13 SL=3.25
BUY CALL MAY-65 UNP-EM OI=  85 at $1.69 SL=1.00
BUY CALL JUN-65 UNP-FM OI= 121 at $3.13 SL=1.50
BUY CALL AUG-60 UNP-HL OI= 144 at $7.00 SL=5.25

Picked on May 6th at $64.63   PE = 21
Change since picked   +0.00   52 week low =$37.31
Analysts Ratings  3-6-6-0-0   52 week high=$64.63
Last earnings 3/99 est= .44   actual=  .56   surprise= 27.27%
Next earnings 7-29 est= .70   versus= -.60
Average daily volume = 819.4K
Chart = http://quote.com/q?s=unp&d=3m



******************
NEW PUT PLAYS 
******************

BVSN - Broadvision $48.06 -6.00 (-10.00 this wk)

Broadvision provides integrated software application systems.  
These systems enable users to create applications for marketing
and selling their services on the World Wide Web.  Broadvision's
software is designed as a platform to conduct e-commerce 
transactions, offer online financial services, and deliver 
information to customers.  Their One-to-One software enables 
venders to tailor their marketing efforts directly to each 
visitor based on a set of business rules.  Thus making it 
easier for both parties to interact.

BVSN made a nice run ahead of their earnings report in mid-April.
But as usually is the case, the stock has given back most of
it as the earnings were only slightly above average.  With a
correction in the Internets in full swing, BVSN appears over
priced.  Momentum has taken the stock below its 50-dma at $56.  
The stock closed right near the day-low and the technical pattern 
indicates further losses ahead.  The 200-dma is the next clearly
defined support but due to the steep run up, it is down in the
low $30 range.  Pick your entry points carefully as the stock
will continue to be volatile until the market establishes some
direction.  

BUY PUT MAY-50 QVB-QJ OI=158 at $5.88 SL=4.25
BUY PUT MAY-45 QVB-QI OI= 91 at $3.13 SL=1.50

Average Daily Volume = 446 K

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


******

SFE - Safeguard Scientifics $73.88 -4.63 (-7.12this wk)(-7.00)

SFE's business practices revolve around the information 
technology business.  The company identifies, invests in, 
and develops primarily high-tech ventures.  SFE's 
stockholders profit mainly through rights offerings 
(where they have the right to buy shares in the companies 
Safeguard invests in.)  

SFE has been nose diving ever since it announced its earnings 
back on April 21st.  After handily beating 0.15 from the year 
before by reporting a big 0.71, SFE has fallen back considerably.  
Part of the sell off could be from simple profit taking on a 
stock that has moved too far too fast.  The rest could be 
stemming from Michael Miles' comments.  The CFO of Safeguard 
Scientifics stated, "We expect to see more volatility in our 
earnings as we continue to increase our holdings of Internet 
companies." (-PRNewswire)  Looks like a warning that the next 
quarter could hold some turbulence.  SFE is now resting below 
30 dma.  Its next support is at its 50 dma of $67.75.  Look 
for SFE to sink further especially if the Internet sector 
continues to take a beating like it did on Thursday. 

BUY PUT MAY-75 SFE-QO OI=266 at $7.63 SL=5.75
BUY PUT MAY-70 SFE-QN OI=343 at $5.00 SL=3.25

Average Daily Volume = 776.6 K
Chart = http://quote.yahoo.com/q?s=SFE&d=3m


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

COMBINATION PLAYS   (in section three)

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

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                      DISCLAIMER
*************************************************************
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.



The Option Investor Newsletter         Thursday  5-6-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

*****************************************************
COMBINATION PLAYS   
*****************************************************
Greenspans Silences The Crowds...

Wednesday, May 5

U.S. stocks moved higher Wednesday, recovering from big intraday
losses as investors' worries over rising interest rates subsided.
The Blue-chip average closed up 69 points at 10,955. The Nasdaq
index ended higher for the first time this week, moving up 49
points to 2,534. In the broader market, advancers led decliners
by a thin margin on active volume of 893 million shares on the
New York Stock Exchange.

Tuesday's new plays (positions/prices):

TOM  LJAN70/MAY75C  $11.12  debit
IBI  OCT55C/MAY55C  $4.00   debit
ORCL LJAN25/MAY25C  $4.00   debit

Portfolio plays:

Murphy's law lives! WCOM made a nice recovery today, just three
days after we closed the play for a small loss. I hope some of
our readers benefitted from the move. XCIT is another play that
we closed early, for small profits, only to watch it climb back
into the clouds.

NSM was the big attraction, moving up almost $3 on news that it
will sell its PC chip business (Cyrix) and lay-off about 500
employees. This strategic move will save the company millions of
dollars and they now see a return to profitability by the second
half of the year 2000. Analysts responded with numerous upgrades
& revised earnings estimates, causing the stock price to gap-up,
through recent resistance near $15, at the open. It consolidated
somewhat around 10 AM and we took that opportunity exit the short
position for a debit of $2; a small loss. We expect to sell the
long position when the current rally fades, to cover the expenses
from rolling-out of the MAY15C.

Thursday, May 6

U.S. markets fell Thursday as another jump in bond interest rates
increased investor's worries over lofty valuations in the Internet
and tech sectors. The Nasdaq index plunged 61 points to 2,473 and
the Dow closed down 8 points at 10,946. In the broader market,
declining issues led advances by a small margin on active volume
of 878 million shares on the New York Stock Exchange.

Portfolio plays:

NSM continued its recent rally, climbing another $2 to the next
resistance level near $20. The stock bounced-off $19.62 three
times at mid-day and with that short-term failure, we decided to
sell the JUN15C to close the speculation play. We also rolled the
long-term spread forward and up to a higher strike price; the new
position is NOV15C/JUN17C at a debit of $0.62. As expected, NSM
went on to close at another 'new high' after we sold our options.
Other current plays we are watching closely include CNCX, DRIV &
WCII. All of these bullish spreads are trading near break-even
but the charts are less than outstanding. You might consider any
rally as an opportunity to exit these positions and move your 
money into more profitable plays.
 
Good Luck!

Please send questions and comments to ray@OptionInvestor.com
******************************************************************
				- NEW PLAYS -
******************************************************************
CS - Cabletron Systems  $11.12     *** Volatility Play ***

Cabletron Systems, a premier provider of enterprise networking
solutions, delivers dependable network access and communications
to millions of people worldwide. With scaleable products designed
for Fortune 1000 enterprise networks, service providers and small
businesses, Cabletron is the e-business communications specialist
for the information age.

Today, Cabletron stock moved higher after the company said it is
considering selling off parts of its business. CS is considering
spinning off a stake in its prize Spectrum unit, which makes
network-management software, and possibly a portion of its other
services business. They are considering the action based on the
successful initial public offering recently of a similar company,
Extreme Networks.

Cabletron's share value has slumped over the past year as their
earnings widened to $240 million, almost double the $127 million
from the previous period. Last month, the company said it would
sell its manufacturing division and further reduce its workforce,
which would save the company $50 million in its first year. This
will certainly help the small rebound in Cabletron's bottom line.

One analyst suggested the spin-off should be done sooner, rather
than later but the company confirmed that this divestiture is not
a 'done deal', just another option they are considering.

We will speculate on the short-term outcome of the stock activity
with a favorable entry based on the overpriced May options.
 
BUY  CALL JUL-12.50 CS-GV OI=2666 A=$1.43
SELL CALL MAY-12.50 CS-EV OI=966  B=$0.38
INITIAL NET TARGET=$1.00 TARGET ROI=50%

Chart = http://quote.yahoo.com/q?s=CS&d=3m
******************************************************************
AOL - American Online  $119.75     *** AOL Free-fall? ***

America Online is the world's leader in interactive services,
Web brands, Internet technologies, and e-commerce services. The
company operates two worldwide Internet services; America Online,
with more than 16 million members, and CompuServe, with 2 million
members; several leading Internet brands including ICQ & Digital
City; the Netscape Netcenter & AOL.com portals; and the Netscape
Navigator and Communicator browsers. AOL also develops and offers
end-to-end e-commerce and enterprise solutions for new companies
operating in the Net Economy.

Today America Online fell $9 as investors wondered about the plans
to offer broadband services to its 17 million customers. The recent
purchase of Comcast by AT&T is the "big" problem for AOL but most
experts agree that the development of broadband is in its infancy,
and any meaningful impact on AOL is years away. A leading company
executive, Bob Pittman, assured investors that AOL is prepared for
a broadband world, but added that these high-speed services are
not yet ready to become a widespread reality. To help offset the
loss in market share, AOL is considering several ways to increase
its offline media presence. Last month, rumors circulated that AOL
was interested in aquiring CBS. Previously, AOL was reportedly in
talks to invest in Chancellor Media, one of the nation's largest
radio broadcasters. This week, AOL took another step out of the
online world by announcing a new partnership with IDG Books to
release a line of AOL-branded books.

AOL is covered at length on a regular basis in the main section of
the OIN and our conclusion is that AOL is still the #1 long-term
Internet stock. The recent pummeling should end soon and we can
speculate on the bottom of the current sell-off with a favorable
OTM put-credit spread.

PLAY (conservative/credit spread):

BUY  PUT MAY-100 AOO-QT OI=11094 A=$1.87
SELL PUT MAY-105 AOO-QA OI=4736  B=$2.75
INITIAL NET CREDIT TARGET=$1.00 ROI=25%

Chart = http://quote.yahoo.com/q?s=AOL&d=3m
******************************************************************
CPQ - Compaq Computers  $24.62     *** LEAPS / Covered-calls ***

Compaq Computer Corporation is the 2nd largest computer company
in the world & the largest global supplier of personal computers.
Their products are sold and supported in more than 100 countries
through a network of marketing partners. CPQ develops and markets
hardware, software, solutions, and services, including industry
leading enterprise computing solutions, fault-tolerant business
critical solutions, enterprise and network storage solutions,
commercial desktop and portable products and consumer PCs. The
company is also an industry leader in environmentally friendly
programs and business practices.

The rubble is finally being cleared after an earnings warning
from the PC giant roiled the entire technology sector and also
destroyed the companies' share value. Optimistic investors are
starting to pick up the pieces. CPQ has significantly changed
many of their internal practices inluding a housecleaning of
management (the CEO took the fall for sour sales and the drop in
the share value in very public departure) and they appear poised
to attempt a comeback.

One of the areas that may help is the service division. Compaq
services include installation, system management and business
critical services. Compaq services currently account for about
$7 billion of the company's annual revenue and they are now
expecting to more than double its revenue in services by the
year 2002. CPQ was also recently chosen, for the second straight
year, to receive Novell's Support Connection Service Excellence
Award; recognizing partners who consistently deliver high value
to their customers. Maybe their long standing reputation for good
service will help turn the company around.

PLAY (long-term/calendar spread):

BUY  CALL JAN00-25 LKP-AE OI=29226 A=$4.75
SELL CALL MAY-25   CPQ-EE OI=29002 B=$1.06
INITIAL NET DEBIT TARGET=$3.50 TARGET ROI=80%

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



*****************************************************
Please send your questions on spreads and combination 
plays to:

ray@OptionInvestor.com
*****************************************************






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