Option Investor
Newsletter

Daily Newsletter, Tuesday, 05/18/1999

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The Option Investor Newsletter         Tuesday  5-18-99
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)
************************************************************
        5-18-99          High     Low     Volume   Advances Decline
DOW    10836.95 - 16.52 10930.75 10740.80  741,082k  1,364   1,577
Nasdaq  2558.36 -  3.48  2576.43  2543.32  861,731k  1,987   1,977 
S&P-100  673.01 -  2.05   679.68   667.06   Totals   3,351   3,554
S&P-500 1333.32 -  6.17  1345.46  1323.37            48.5%   51.5%
$RUT     442.45 +  1.10   443.99   440.90
$TRAN   3650.16 -   .96  3652.23  3598.29
VIX       28.21 -   .03    31.89    27.80
Put/Call Ratio      .54    
*************************************************************

The currency knights prepare for battle with the inflation dragon. 

The Fed heads shot the bull market in the foot today with the 
change in bias to a "tightening" stance. The Dow, up +60 at 
the announcement, quickly dropped -170 points to -108 before 
recovering to close almost even for the day at -16. The Feds
fired the warning shot in the inflation war just to make sure
everybody knew they were on watch and to reinforce their harsher
rhetoric in the future.


 

 

The good news was the quick recovery. After bouncing off
support in the 10,750 range three times in the last two
weeks the bull does not look ready to go quietly to slaughter.

The Nasdaq dropped -30 points in about three minutes but
quickly recovered to also close within 3 points of even. 


 

Again, I was impressed. In the last three weeks Rubin
resigned, the CPI was a blowout, the Fed changed their
bias to "tighten" and the long bond yield has traded over
5.9% repeatedly. In spite of these market killing news
events the market refused to die. Yes, we have had some
selling but even today the volume was anemic. If fact the
volume would have been really low except for a last hour
buying binge that lifted the markets +65 points off the
bottom.

Why did the markets behave so badly and then recover so
quickly. First, nobody expected the Fed to change their
bias on the basis of only one CPI report. Secondly the
drop in housing starts this morning was a sign of a 
possible cooling of the robust economy. When the Fed
raised their bias it simply caught the market off guard.
The change had already been factored in but the market
was in denial that it would really occur. The -170 points
from the high was simply a knee jerk reaction to the 
announcement.

Most Fed watchers will agree that the change in bias was
a non-event. News worthy, but the moment of fame has
passed. Historians who cared to research it know that the
Fed has met 26 times since March of 1996. Fifteen times
they raised the bias to "tighten." Only once, in March of
1997 did they actually raise rates after the change. 

What is all the noise about? It is just that, noise.
Remember the "anatomy of a rate hike" from Sunday? The 
first step is "talk" the market down, the second is change
the bias to warn the market. Then the Fed tries to "talk" 
the market down again. Third is the actual rate hike and
it is normally anticlimactic. Now the noise is like a big
clap of thunder that shocked the markets for a few minutes
and now can only barely be heard in the distance. Now we 
will go through another period of reporters beating the dead
horse into hamburger until the story loses its attraction.

The real news today was the stunning difference between the
Hewlett Packard earnings announcement yesterday and Dell's
announcement today. HWP, with 1 bln shares outstanding and
an average daily volume of 3.5 mln, traded 14 mln shares
today and gained over 7 points after beating estimates by
$.08. Dell however, with 2.4 bln shares outstanding and a
daily volume of 25 mln shares, only met expectations and
missed the whisper number by a mile. Dell dropped -2.69 in
after hours trading. The CFO said on the conference call
that their revenue increase for next quarter would drop to
single digits and then pick up again in the last qtr. With
Dell posting record earnings and profits what part of the
conference call do you think analysts remember? "Single digits"

This is a clear lesson in why not to hold over earnings. Dell,
which is far more profitable and has a stronger business model
got beaten badly for only meeting estimates. With 2.4 bln shares
Dell needs to sell $343 mln in product in one qtr to add .01
cent in per share profit. To hit the whisper number of $.18
Dell would have to have sold $700 mln more than analysts have
expected or +13% more. With Dell producing $5.5 bln in sales
last qtr, adding another $700 mln would have been quite a
feat. The problem is in the expectation. Because of its
past history of rapid growth the standard and expectations
for Dell have exceeded Dell's reach. HWP however has 
disappointed analysts so many times that nobody expected
them to beat estimates so badly. This cold, hard analysis
of the facts is what has had the fund managers moving out
of Dell since last quarter. Here is a comparison you will
not hear on the news and have not heard for several years.
Dell, at the high of today, was still selling for less than
it sold for on the same day in the February earnings period.
Yes, Dell actually went down in the last 90 days. Heresy but
true. And you can bet it will go down more tomorrow.


 

For the rest of the week we recommend a watchful stance.
I think the market showed remarkable strength today but
after sleeping on the bias change traders could come back
to the market tomorrow with a little less bullish attitude.
Interest sensitive stocks like financials are sure to be
soft. Oil stocks are going to be hit again tomorrow after
the API report showed much more oil in inventory than
expected. Big drugs have been hit hard recently and don't 
show any life. Techs may drift on the weak Dell numbers
after being up on the HWP numbers today. Internets took
the interest rate news hard with YHOO -5. CMGI -8.94,
EBAY -8.88, AMZN -5.00.  I would have to see a real nice
uptrend in ANY stock after today before I would start 
any new plays this week. The market looks strong but it
could be the calm before the storm. Remember we are up
+1200 points without any significant profit taking. With
earnings now over we have no news to drive the market.

Advances are declining again at a rapid rate. Buyer beware! 
 



Do you see the new downward tilt on this chart?
Definitely, pick your entry points carefully and sell
too soon until a new direction is established. 

Jim Brown
Editor





***************
Market Posture
***************
As of Market Close - Tuesday, May 18, 1999 

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

DOW Industrials   10,500  11,000  10,837    Neutral   5.14  
SPX S&P 500        1,325   1,360   1,360    Neutral   5.14  
OEX S&P 100          660     690     673    Neutral   4.29  
RUT Russell 2000     435     450     442    Neutral   5.14  

NDX NASD 100       2,100   2,250   2,159    Neutral   5.7 
MSH High Tech      1,000   1,100   1,052    Neutral   5.11     

XCI Hardware         900     920     912    Neutral   5.18 *
CWX Software         625     650     646    Neutral   4.22
SOX Semiconductor    390     420     413    Neutral   5.11             
NWX Networking       450     490     533    BULLISH   4.22
INX Internet         550     650     561    Neutral   5.18 *            

BIX Banking          700     720     693    BEARISH   5.18 *  
XBD Brokerage        425     475     453    Neutral   5.14              
IUX Insurance        630     660     646    Neutral   5.14 

RLX Retail           900     970     881    BEARISH   4.29 
DRG Drug             390     425     365    BEARISH   4.29  
HCX Healthcare       780     850     746    BEARISH   4.29  
XAL Airline          170     210     183    Neutral   5.14       
OIX Oil & Gas        285     310     289    Neutral   5.13 



Posture Alert

Adopting a bias towards tightening, the FED announcement 
prompted broad markets to retreat from early morning gains. 
We have turned Bearish on the Banking sector while changing 
our posture on Hardware and Internet to Neutral.. 



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

Bunker Down

After the FED adopted a bias towards interest rates tightening, 
the broad market could very well come under pressure over the 
near term.  What's more several of our trusted sentiment 
indicators are telling us that option speculators are ignoring 
deteriorating technicals and buying OTM calls. 

As shown below, the key benchmark for the DJIA is 10,800.  The 
mark has been tested several times over the past two weeks should 
serve as an early warning sign should the DJIA close below this mark.



 


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

Friday, April 30            65,936        -       
Friday, May 7               89,736      +36.0% 
Friday, May 14              97,861      +48.4% 
Tuesday, May 18            109,613      +66.2% 

These indicators suggest that option speculators are betting that 
the S&P 500 and 100 will climb to new heights.  This could still 
happen but if it doesn't, savvy investors have hedge strategies in 
place.


BULLISH Signs:
 
Mixed Signs:

Russell 2000: 
Could prove problematic from a technical standpoint if the Russell 
2000 fails at the 450 benchmark.  Although the index advanced above
its prior high of 425-430 in January '99, the RUT 52-week high is 
480 and a sell off from here could represent a failed rally (lower 
high) across a two year view. 

Investor Intelligence:  
As a contraian indicator, the percent of Bullish investors spiked 
from a week ago suggesting Bullish sentiment is picking up steam. 

Advance/Decline Line:
After recovering from its low on April 1st, the A/D line is beginning
to flatten and roll over.  


BEARISH Signs: 

Interest Rates:           
Trading ABOVE 200dma and 5.50 Benchmark (5.887%).

Market Volatility (VIX):  
Trading ABOVE its 50-day moving average (25.60) indicating the 
end of the recent bullish trend which began on March 5th.  

Pinnacle Index:  
After evaporating some late last week, the Index has surged to 
5.5 suggesting that option speculators are expecting the market 
to advance higher.

Peak Open Interest:  
The lowest in some time, the contraian put-call ratio clocking 
in at .67 suggesting bullish sentiment picking up steam.


 

 

OTM Call Analysis

As we move through May's expiration cycle, Pinnacle is tracking 
the level of call buying (OTM) between 680-750 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 680-750)
---------------------------------------------------------
Date                 Open Interest      Change %    Alert

Friday, April 16            30,697          -
Friday, April 23            53,887       +75.5%      
Friday, April 30            65,936      +114.8%       
Friday, May 7               89,736      +192.3%     
Friday, May 14              97,861      +218.8%     
Tuesday, May 18            109,613      +257.0%     





Market Sentiment at a Glance    Friday     Tues      Thurs  
Indicator                       (5/14)     (5/18)     (5/20)Alert
*****************************************************************

Pinnacle Index (OEX):          
Overhead Resistance (680-700)      1.7       2.7  *
Underlying Support  (645-660)      3.2       3.2

Put/Call Ratios:
CBOE Total P/C Ratio               .6         .6
CBOE Equity P/C Ratio              .4         .4
OEX P/C Ratio                     1.7        1.2


Peak Open Interest (OEX):
Puts                              650        600
Calls                             700        700 
P/C Ratio                         .81        .67  *

Market Volatility Index (VIX):	
CBOE VIX                        29.66      28.15    



Investors Intelligence:
Bullish                         56.9%       56.9%  *
Bearish                         31.0%       31.0%  *	



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                        (5/14)     (5/18)     (5/20)
-----------------------------------------------------------------
               
Overhead Resistance (680-695)      1.7        2.7

OEX Close                       673.57     673.00

Underlying Support  (645-660)      3.2        3.2

 
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                 (5/14)     (5/18)     (5/20)
-----------------------------------------------------------------
CBOE Total P/C Ratio               .67        .60
CBOE Equity P/C Ratio              .43        .41
OEX P/C Ratio                     2.44       1.18



OEX
Peak Open Interest   Friday         Tues          Thurs
Strike/Contracts     (5/14)          (5/18)        (5/20)
-----------------------------------------------------------------
Puts                 650 / 14,250    600 / 13,853
Calls                700 / 17,593    700 / 20,820
Put/Call Ratio      .80              .67



 


VIX
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 14, 1999                            29.66 
May 18, 1999                            28.15


 

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
May 12, 1999                          56.9        31.0





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

Index     Last    Mon    Tue   Week
Dow    10836.95 -59.85 -16.52 -76.37
Nasdaq  2558.36  33.98  -3.48  30.50
$OEX     673.01   1.49  -2.05  -0.56
$SPX    1333.32   1.69  -6.17  -4.48
$RUT     442.45  -1.78   1.10  -0.68
$TRAN   3650.16 -15.22  -0.96 -16.18
$VIX      28.21  -1.42  -0.03  -1.45

Stock           Mon    Tue   Week

RMBS    79.75   0.63   4.25   4.88  Looking strong
BRCM    98.38  -2.81   7.63   4.82  Roaring back
SWS     69.31  -0.94   4.56   3.62  New 52 week hi
LVLT    86.00   3.94  -2.50   1.44  Tricky play
DLJ     74.00   1.38  -0.13   1.25  Resilient Financial
SUNW    63.81   2.13  -0.94   1.19  Strong support at $61
DRMD    14.69   0.38   0.56   0.94  New, Estrogen drug hot!
ASND    94.56   2.56  -1.81   0.75  A bang for your buck
BA      43.69  -0.50   1.19   0.69  Showing strength
VRSN   128.75   1.09  -0.41   0.68  Resisting profit-taking
LU      59.06   1.00  -0.44   0.56  Dropped for ASND instead
ROK     63.13  -0.56   0.81   0.25  Great technical chart
EMC    105.38  -2.50   2.63   0.13  Strong Bounce off $100
MCHP    43.38  -0.44   0.31  -0.13  Dropped, not really moving
PEP     37.75  -0.56   0.13  -0.43  Waiting for the breakout!
NXTL    37.81   0.25  -0.75  -0.50  Dropped, weak volume
SQNT    13.13  -0.81   0.25  -0.56  Dropped, announced alliance 
IBM    238.50  -1.75   1.00  -0.75  Thanks HWP!
TV      45.50  -1.50   0.31  -1.19  Dropped, not moving 
KEA     27.63  -0.56  -0.81  -1.37  Resting before next run
CB      72.31  -1.00  -0.81  -1.81  Wait for a bounce
ETH     52.38  -0.75  -1.25  -2.00  Dropped, technical weakness
CTXS    45.44  -0.63  -1.81  -2.44  Dropped momentum play
TBH     99.50  -2.69   0.19  -2.50  Dropped,looking weak
COF    166.69   1.69  -4.56  -2.87  Splits 3:1 June 2nd
NEON    45.88  -1.19  -1.94  -3.13  Off to a rough start

Puts

TBFC    83.75  -6.75  -1.75  -8.50  Analyst with sell rating
FNM     67.69  -0.75  -2.06  -2.81  Continuing its descent
GM      81.00  -2.81   0.69  -2.12  Dropped, turning over
CHV     92.63   1.44  -3.25  -1.81  New, What OPEC cutbacks?
MOB     96.31   0.00  -1.69  -1.69  New, Crude prices heading south
VO      52.69   0.31  -1.63  -1.32  Bearish behavior
BVSN    46.13  -1.50   1.13  -0.37  Possible resistance at $46
SEEK    48.25   1.56  -1.25   0.31  Dropped, teeter-tottering
AXP    124.38   0.88   2.75   3.63  Dropped, no change in rates
MSPG    87.13   4.75  -0.63   4.12  Dropped, successful play




*****************
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:
******

MCHP $43.38 +.31 (-.12) Going nowhere fast it seems.
Microchip has not been the performer we expected.  Sure,
we are virtually even on the week, but the consolidation
should be over by now. We not saying you should sell,
but we don't want to recommend it for new readers.  Look
for a break over $44 on strong volume as a positive sign.
Short interest is still high and could be a factor if 
the market rallies.

NXTL $37.81 -.75 (-.50)  The numbers don't show the whole
story.  Yes, we only lost a fraction of a dollar on weak
volume...but the intraday action looks bad.  There are 
strong tops in the daily trading that do not bode well
for the short term performance of NXTL.  Sometimes, a 
new play just doesn't work out.

ETH $52.38 -1.25 (-2.00)  The Fed now leans toward raising rates, 
but did not actually raise them today. For the short term anyway, 
it will not cost furniture buyers any more to finance their 
purchases. However, industries like this one which are affected 
by the new stance toward higher rates may suffer further losses. 
The fact that housing starts were down 10% in April helped 
counter Friday's CPI report, but lower housing starts are not 
good for furniture makers. In addition, ETH is now trading below 
its 10 dma and beginning to show technical weakness. With only 
a few days left before it splits, we are dropping ETH. If you 
threw caution to the wind and bought ahead of the FOMC meeting, 
be sure to set your stops and remember that we never recommend 
holding over the split, which will occur May 24th.

CTXS $45.44 -1.81 (-2.44) There was no burst of volume or 
positive direction this week to suggest another rewarding
bounce. The stock has provided lucrative cycles over the weeks,
but now is a good time to end this momentum play. CTXS seems to 
have lost its steam.

TBH $99.50 +0.19 (-2.50)  TBH's run for the gold has come to 
a halt.  After breaking through the $100 hurdle and holding its 
own above its new support of $101-102, TBH is slipping.  
Yesterday, it traded as low as $98.06 losing -2.69 by the finish.
Today TBH managed slightly better holding a fractional gain and 
peaking at $101.  However, this is not the best environment 
to begin a new play so we're dropping it. 

SQNT $13.13 +0.25 (-0.56) Well, that was quick.  Whaddaya 
know?  An announcement of an alliance with IBM came 
yesterday and not much happened.  Technical chart looks 
good, but the volume has tapered off.  Since this is only a 
rumor play (with added positive technical twist), we think 
the play is over.  It appears to us that there's nothing to 
be gained by staying with this play, so we're dropping it 
tonight.

TV $45.50 +0.31 (-1.19)  The instability of the US markets 
has impacted TV in recent trading.  The company is fighting 
to stay above its 15 dma at the $45 level.  TV is no longer 
moving fast enough for us to keep it as a play.  Even though 
we believe it has the potential to rebound, we feel there are 
better money makers out there to play at this time. 


PUTS:
******

SEEK $48.25 -1.25 (+.31) Infoseek has traded back and forth 
this week with the Internets.  The stock hasn't had much news
so is left to trade on technicals.  The announcement by the 
Fed that they have adopted a tightening bias triggered a sell-off 
around 12:30 Tuesday.  It quickly pushed the stock down to 
its 200-dma at $46 before finding support.  Higher borrowing
rates will hurt smaller firms.  We expect to see SEEK to
challenge the 200-dma and possibly push through it.  
Unfortunately, LCOS turned in some good numbers and announced
a 2:1 stock split.  This might spur the net sector forward
(especially those that have recently felt unloved, like SEEK).

AXP $124.38 +2.75 (+3.62) Today's move by Alan Greenspan not to
raise interest rates signals an end to our play of AXP.  When
we initially recommended it last Thursday we mentioned it 
would be a short play to capitalize on a quick move.  We got
the move we wanted thanks to the CPI report and new inflation
fears.  The stock traded lower before showing support around
$120.  That is where we tighten the stops and exited the play.
At this point, the short-term down move appears to be over.

GM $81.00 +0.69 (-2.13)  GM was the 2nd biggest decliner in the 
DJIA on Monday falling 3.4% (-2.82) at the close. Early on, MSDW 
piped right up and downgraded GM (Ford and DaimlerChrysler too) 
to a "neutral" from an "outperform". The prospect of lower sales
pressuring corporate profits certainly dowsed any sizzle left in 
the Auto Sector.  GM fell as low as $77.69 yesterday.  The
move down on Monday probably happened too fast for most traders 
to take advantage of it.  What is worse is the late day turn 
around (as evidenced in their chart).  Sigh, yet another play
that moved too quick for us to jump into.

MSPG $87.13 -0.63 (+4.13)  It is now time to say goodbye to 
MSPG.  The company has performed extremely well as a put play.  
It has slumped over -$25 in the past three weeks of trading.  
On Monday it dropped all the way to $81.38 and then bounced 
off this support level with some force.  The bounce actually
pushed it to finish the day of trading up +$4.75.  Today's
lack of profit taking may give MSPG strength in the shadow
of LCOS's strong earnings report and 2:1 split announcement.



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

EMC $105.38 +2.63 (+1.63) EMC lost a dollar on Monday, but 
had a strong day on Tuesday.  The stock continues to be 
mentioned by different fund managers as one of their top
picks.  EMC bounced strongly off of the $100 mark on Monday,
and stayed positive all day today.  Definite support is at
$95, but the $100 level has also showed some support.  On
Monday, Motorola announced they will be using EMC's Network 
Attached Enterprise Storage to speed process development.
This is not a big surprise, being that EMC is the market
leader.  Target shooting an entry point may be the best
way to play this stock.  Split coming up soon.

SUNW  $63.81 -.94 (-.82) SUNW didn't do much on Monday and lost 
just under a dollar on Tuesday.  SUNW traded in a very narrow 
range on Tuesday and has strong support at the site of its 10 
and 20-dma ($61).  SUNW did announce today that they are 
providing a comprehensive warranty on their products dealing 
with the Y2K problem.  This will help customers feel confident 
in buying products during 1999, instead of waiting to see what 
happens with Y2K.  Since SUNW has consolidated its gains, we 
could be in for a nice move.  Remember, always plan your 
move into a play.  Don't buy on impulse.

NEON $45.88 -1.94 (-3.12) NEON has had a bad week so far.  Losing 
over $3 on the week.  The stock is still above its 10-dma ($45) 
and we did see a bounce off this level on Tuesday.  Make sure 
the stock starts a new up trend before buying in.  If we see a
bounce off $45 on nice volume, it could signal a buy.  NEON is
in a strong industry, and if you have been following this stock
you know that business has been growing.  The recent 10Q showed
that revenues had tripled from $9.6 mln in March of 1998 to 
$29.6 mln by March of 1999.  Watch the sector in addition to the
Nasdaq when timing your play.

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




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

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         Tuesday  5-18-99  

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

BRCM $98.38 +7.63 (+4.82)  BRCM lost a bit in yesterday's down 
market, but it came roaring back today with a gain of $7.63 on 
triple its average volume, after Morgan Stanley Dean Witter's 
Mark Edelstone raised his price target to $120 from $95. He also 
reiterated his "outperform" rating. Edelstone said that AT&T's 
buyout of MediaOne and Microsoft's $5 bln investment in AT&T 
will result in increased use of BRCM's new integrated circuits 
for cable set top boxes to be released in the second half of 
the year. He also said he expects BRCM to maintain its dominant 
position in the cable modem market, which will more than double 
in each of the next 3 years. Other big pluses he sees for BRCM: 
its new LAN products and its purchase of Epigram. Broadcom needs 
to clear the $100.63 high it set next week. Watch out for Internet
like swings in the price of BRCM.

VRSN $128.75 -.41 (+.69)  After an early $8.00 drop in price 
yesterday, VRSN clawed its way back to gain $1.16 by the close.
This is a great show of strength. Today it traded in a $5.00 
range, and closed down $.41. Volume was strong on Monday when 
it ended the day higher, but somewhat light today when it dropped. 
Following a $21.06 gain last week, the stock has done well to 
resist profit taking and it actually shows a small gain on the 
week so far. In the news, a week after signing a deal with Visa 
U.S.A., VRSN has made another deal to use its Internet security 
solutions, this time with Critical Path, inc. VRSN is an Internet 
related stock, so it has additional risk, but the risk is somewhat 
offset by the 2:1 stock split scheduled for May 31st.

CB $72.31 -.81 (-1.81)  Chubb lost $1.00 yesterday on light volume 
and another $.81 today on even lighter volume--about half the 
average. Given the inflation uncertainties, that's not too bad 
for an insurance stock, especially one that had run up $10.00 
in the previous 2 weeks. In the news today: Friedman Billings 
initiated coverage of CB with a "buy" rating.  Yesterday, Hiscox 
Plc (of Lloyd's of London) reported a 36% increase in pre-tax 
profits for 1998. Hiscox is 28% owned by Chubb. Watch for CB to 
bounce off its 10 dma at about $72 in the next day or two. To 
drop significantly below it would be a negative sign.

SWS $69.31 +4.56 (+3.62)  The market pressure and some mild
consolidation continued on Monday resulting in a fractional 
loss for the stock.  But today SWS rose to the occasion.  
With no overhead resistance, SWS peaked at $69.75 and set 
another new 52-week high. Certainly the new "buy" rating by 
L. Russell Keene of Putnam Lovell helped.  The analyst also 
set a $100 12-month target price.  This stock is presently 
in uncharted territory and no support level has been establish 
as of yet.  Keep your stop losses in place.

IBM $238.50 +1.00 (-0.75) Thank you Hewlett Packard!  
Having lost -$1.75 yesterday, IBM came back today, trading 
over $240 (up $3 from yesterday's close, most likely on 
HP's positive surprise earnings) until the Fed meeting gave 
us a "bias tightening" announcement.  We'll just have to 
settle for a +$1 gain today on volume that was 
uncharacteristically low.  With an e-commerce focused 
strategy, great earnings, dividend increase, stock 
repurchase and $260-$280 price targets, we still have a 2:1 
split due on May 26.  Market willing, we could still get a 
nice run up to the split.  The long-term chart looks strong 
but the 10-dma shows resistance at $240.  Wait for a clean 
break over $240 with strong overall market volume.  Target 
shooting is OK too, but be on the lookout for profit 
taking.  Confirm market direction before playing.

ROK $63.13 +0.81 (+0.25) What a great looking technical 
chart.  This pure technical play was unmoved by the Fed's 
bias tightening announcement and again closed at a new high 
on stronger than average volume.  Nothing but technicals 
and momentum are driving this play.  Based on the chart and 
the relative volume, we'd expect the trend to continue, 
market willing.  No price-moving news to be found.  As 
always, watch out for profit taking by keeping stops in 
place, and confirm market direction first before making a 
new play.

RMBS $79.75 +4.25 (+4.87) Though squeaking out less than 
+$1 yesterday, RMBS jumped today on only average volume.  
There is no press-generated news available, but we suspect 
Intel will adopt RMBS technology for its newest chipset, 
which should spark OEM memory order bookings.  See Sunday's 
write-up for details.  Technically, RMBS is looking strong.  
However, keep your eyes open for signs of profit taking and 
keep your stops in place.  Rambus is volatile and can swing 
either direction quickly.  Of course confirm the direction 
of the market if you start a new play.

COF $166.69 -4.56 (-2.87)  On Tuesday, though there was no 
change in the existing rates, but the Fed did tightened its bias.  
That was enough to send COF spiraling downward.  Fear of an 
interest rate hike down the road caused a major reversal in 
the majority of financials.  Before the news, COF had traded 
to as high as $175.  After the information was out, COF dove 
to its 30 dma.  The picture could get even worse in the next 
few days of trading if the sell off continues.  However, we 
are keeping COF as a play.  The company splits 3:1 on June 
2nd.  We still have faith that our battered financial will 
make a split run.  But, be careful not to jump in too early.  
Let the cheaper option prices come to you.  Keep in mind that 
the day after a Fed meeting is usually down.  Wait for the 
investors to fully digest the Fed reports.  Be on the lookout 
for the markets and a COF rebound before jumping in.  Again, 
pick your entry point carefully!        

BA $43.69 +1.19 (+0.69)  On Tuesday, BA was one of the few 
bright spots in the market.  The company's chairman announced 
that "the drop in demand in Asia for jet airliners was unlikely 
to go further." (-Reuters)  BA could benefit as orders from 
Asian carriers rebound.  However, he pointed out that the 
renewed Asian demands may only minimally affect BA profits in 
the next year or two.  In any case, BA showed strength by 
trading in a narrow trading range even though the greater 
markets were all over the place.  BA even managed to close 
trading at $43.69, just off its high of the day of $43.94.  
This could prove to be the confirmation we were looking for. 
But, keep in mind that the day after the Fed meets is usually 
down.  BA looks to have some support at the $42 level.  

PEP $37.75 +0.13 (-0.44)  PEP was caught in a tight trading 
range on Monday and Tuesday.  It would reach as high as $38 
and then drop back to about $37.  We are looking for a 
breakout.  What could cause PEP to bust out?  Possibly the 
opening of Star Wars this week.  Pepsi owns the exclusive 
rights to use Star Wars characters to help promote its 
products.  If excitement for the new release picks up, there 
is a strong possibility that Pepsi's revenues could also 
increase.  This is a slower play but target shooting may
help boost your returns.

KEA $27.63 -0.81 (-1.37)  After heading higher everyday in 
trading last week, KEA decided to take a rest on Monday and 
Tuesday of this week.  It slipped -$1.37 and could possibly 
dip further due to simple stock cycling.  A stock that has 
been up for 5 straight days tends to pullback for at least 2.  
Market pressures could also add to the profit taking since 
the day after the Fed meets is usually down.  Even though DLJ 
downgraded KEA to a market perform on Tuesday, KEA was named 
Company of the Year by The Boston Globe in its annual "Best 
of Massachusetts Business Globe 100."  Keane was the 
"best-performing company among Massachusetts-based public 
corporations due to its consistent growth and revenue 
increases."(-PRNewswire)  We feel that KEA could head higher 
but it is imperative to confirm market and stock direction 
before opening any new positions.  Don't try to guess the
bottom.

DLJ $74.00 -0.13 (+1.25)  DLJ showed its resiliency by only 
sloughing off thirteen cents as the Fed announced that it was 
tightening its bias towards increasing interest rates.  Many 
of the other financials faired much worse.  Even though DLJ 
showed strength, we would still like to see it break through 
its overhead resistance of $77.  DLJ does have the potential 
to head higher if the markets can settle down.  On Monday, 
DLJ was named the top web-based discount broker by a supplement 
of Time magazine, Time Digital.  DLJ lead the pack and was 
recommended for "Fundamentalist, Long Viewer, and All-In One 
types of individual investors." (-Business Wire)

LVLT $86.00 -2.50 (+1.44) Like we said Sunday, "a tricky 
play".  Volume has been exceptionally low, not unlike the 
rest of the market.  Buying opportunities under $86 were 
short lived as were prices over $89.  In short, a narrow 
trading range.  Nonetheless, today's drop may give the 
agile trader a buying opportunity before LVLT attempts 
another ascent to $94.  Remember, this is a channeling 
stock on its way back up, market willing.  Technically, 
it's looking a bit long of tooth.  It isn't helpful that 
LVLT's President is selling 1 mln. shares, about 9% of his 
total holdings (to repay personal debt and take some off 
the table).  The good news is that his trustee must sell 4 
K shares daily for the next 250 trading days, no more, no 
less, no matter what.  It's irrevocable, which may have 
only a psychological affect on investors, but won't affect 
the performance of the company.  Wait for a good entry by 
target shooting and use stops to protect your profits if it 
falls back further.

LU $59.06 -.44 (+.56) LU still has a lot of potential as
a play, but we've decided to switch out focus to ASND
instead.  If you are familiar with either company, you know
that LU decided to purchase/merge with ASND last January.
Essentially, the play is still LU, but with ASND we are
gaining more leverage in our options.  See the details 
below with ASND.

ASND $94.56 -1.81 (+0.75)  This stock may be Lucent's little 
shadow, but it packs quite a bang.  That is - a bang for your 
buck! If you remember, last January 13th Lucent announced they'd 
be taking over Ascend Communications by the end of June in a 
$18.7 bln. stock deal.  For every 1 share of ASND, the stockholder
would receive .825 of a share of LU.  Now because LU split 2:1 
last month that ratio has doubled.  So let's look at it this way.  
For every 1 point LU moves, ASND will now move 1.65 resulting in 
greater $$ profits (assuming the play goes our way). So it's 
easy to understand why we've decided to replace LU with ASND. 
Remember, the essence is the same - it's a momentum play.  Over 
the past couple of days, ASND has been forming support in the 
$94-96 range.  This may be a good entry point.  The stock's 
recent resistance was tested last week and is around $99-100.  
Today ASND managed to close slightly off its lows on pretty 
strong volume.  We want to say thanks to Ken (a reader) for
helping us improve the LU play.  This time you are going to need
to watch both LU's and ASND's news and stock performance.  
As always, confirm direction before you initiate a new play and 
keep those stops in place for protection.    

BUY CALL JUN- 90 QQA-FR OI=5530 at $9.25 SL=7.00
BUY CALL JUN- 95*QQA-FS OI=2502 at $6.25 SL=4.50
BUY CALL JUN-100 QQA-FT OI= 627 at $4.25 SL=2.75


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

BVSN $46.12 +1.12 (-.38) BVSN has struggled this week as the
Internet group continues to come under fire.  Any move up in
interest rates has a major impact on a start-up company's 
ability to borrow money.  Most Internet companies fall into 
this category as they are still building the business.  The
stock ran into resistance at the $46 level for most of the
day Tuesday.  Watch the sector for any indication of a rally
and use your stops to exit the play.  But we see more downside
ahead due to the lack of support for the stock itself.

TBFC $83.75 -1.75 (-8.50) Telebanc bore the brunt of a rare move
on Monday as an analyst started the company with a sell rating.
This sent the stock plummeting in an already shaky market.  The
seldom-used sell rating is questionable since it was from Jeff
Runnfeldt of First Security Bank.  You have wonder if the fact 
that First Security's stock is down 20% on the year while TBFC 
is up 170% has any bearing.  But we got what we wanted as the
stock traded down to the 50-dma before rebounding.  Tuesday 
caused more losses as the Fed's tightening bias hurts financial
institutions.  Lock in your profits and choose your entry points
carefully for all new plays.  TBFC is at a crucial point.
Today it actually closed below its 50-dma.  While losing 8.5 
points could prompt a technical bounce, be sure it is not 
a recovery from this support line.  If it continues to fall
through the 50-dma then its standing as a put is stable.

VO $52.69 -1.63 (-1.31)  Yesterday Jessica Cohen of Merrill 
Lynch reiterated a near-term and long-term "buy" on Seagram. 
Ms. Cohen also set a 12-month target price of $70 for VO.  
The coverage resulted in a mere +0.31 gain, but on strong 
volume.  Remember, this increase could also be a slight 
technical bounce considering the sharp 8% drop on Friday 
(due to the announcement for the company's motion for a $2.5 
bln. secondary offering). Today the stock declined steadily 
on moderate volume.  VO then closed a fraction shy of its daily 
low but more importantly confirmed yesterday's close under 
its 50 dma.  This is definitely a bearish indicator.
VO could fall to $50 (100 dma is $49.30) or $45 if the
market cooperates.

FNM $67.75 -2.00 (-2.75) FNM continues to fall within mission
parameters, as the stock makes its way toward the bottom of
its channel.  FNM dropped $.75 on Monday and continued its
drop on Tuesday.  Remember, the range is currently from $66
to $72.  Don't be greedy.  The stock might only hit $67 and
then turn.  We just want to get the middle of the channel.
If the stock hits its bottom channel, wait for a confirmation
of a turn up before buying calls because this time it may
not turn back up.  The FOMC decision to tighten is bad news
for FNM and it might dig a lower end to its recent channel.
This may be one time to let profits run a little bit futher.
Keep an eye on it!


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

DRMD - Duramed Pharm. $14.69 +0.56 (+0.94 this wk.)

DRMD manufactures and sells prescription generic drugs 
to customers mostly throughout the United States.  They 
are distributed through wholesalers, private label 
distributors, drug store chains, HMO's, nursing homes, 
retiree organizations, mail order distributors, mass 
merchandisers, governmental agencies, and other drug 
manufacturers.  Their focus is on women's health and 
hormone replacement therapy.

DRMD received approval from the FDA in March to begin 
marketing a plant-derived form of estrogen to help with 
menopausal side effects, hot flashes and night sweats.  
Through a distribution agreement with Cardinal Health, they 
hope to achieve initial revenue rates of $100 mln. over the 
next 15-18 months.  That may prove overly optimistic for a 
company with current revenues of just $50 mln.  
Nonetheless, barriers to entry are tough and the market is 
growing as baby-boomer women enter menopause.  Technically, 
this company is zipping up the chart at an incredible pace.  
All indicators are maxxed-out including RSI.  One look is 
all you'll need to recognize its beauty.  There are some 
warts too.  It's a very small company with a market cap of 
about $275 mln. and relies on individual investors for 
market support.  There's not much ownership or trading 
volume from institutions, making this a bit more risky if 
investor sentiment moves elsewhere (not uncommon in the 
pharmaceutical business).  

There is also a rumor is that the estrogen drug will 
actually be on sale June 1st. Rumor has it that they 
will also be approved for a new birth control drug 
sometime in the next two weeks.

***Trading Note:  to comply with disclosure rules,
We would like to report that Jim, our editor, does own 
stock in Duramed (but does not own options on DRMD).
Guess he thought the played looked good too.

BUY CALL JUN-12.5 DUQ-FV OI= 715 at $3.13 SL=1.50
BUY CALL JUN-15   DUQ-FC OI=1082 at $1.56 SL=0.75
BUY CALL SEP-12.5 DUQ-IV OI=1358 at $4.50 SL=2.75
BUY CALL SEP-15   DUQ-IC OI=1914 at $3.13 SL=1.50

Picked on May 18 at   $14.69    PE = N/A
Change since picked   +$0.00    52 week high=$17.00
Analysts Ratings     0-0-0-0    52 week low =$2.62
Last earnings  03/99 est N/A    actual N/A 
Next earnings  06-24 est N/A    versus N/A
Average daily volume = 807 K
Chart = http://quote.yahoo.com/q?s=DRMD&d=3m



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

MOB - Mobil Corporation $96.31 -1.69 (-1.69 this wk)(-5.50)

Mobil is ranked as the #2 oil company in the United States 
and #4 in the world.  The company has operations in more than 
140 countries and exploration and production projects in 
approximately 25.  MOB is also involved in the chemical 
business focused on the production of petrochemicals, wood 
and polymer building materials plastics, and other products. 
Mobil will be bought by Exxon in a pending $73.7 billion linkup 
which will create Exxon Mobil, the world's biggest oil company.

We are adding MOB as a put play thanks to the countries that 
have cheated in cutting back their oil production.  
Analysts had expected a possible rise of 2 million barrels
of crude oil in the weekly API report but instead the report
showed an increase of almost 4 million barrels in the crude
oil stockpiles.  Oil stocks have already been weak of late
and MOB has already dipped -$1.69 in trading this week.
Something to watch out for was the unexpected drop in 
gasoline stockpiles which fell about 4 million barrels
this week.  Gosh with numbers this big, you wonder how
they could miss a couple of million from last week?
The wildcard here is how will the market react to such 
a mixed report between the oil and gas numbers.

BUY PUT JUN-100 MOB-RT OI=194 at $5.88 SL=4.25
BUY PUT JUN- 95*MOB-RS OI=254 at $3.00 SL=1.50
 
Average Daily Volume = 1.93 mln
Chart = http://quote.yahoo.com/q?s=MOB&d=3m

****

CHV - Chevron Corporation $92.63 -3.25 (-1.81 this wk)(-0.44)

Although Chevron is an giant in the oil sector, it also 
engages in chemical and coal mining.  The company provides 
administrative, financial, and management support for its US 
and foreign affiliates.     

We are adding CHV as a put for the same reasons that we are 
adding Mobil- somebody cheated.  OPEC had called for cutbacks 
in oil production.  All countries agreed to the terms.  
Analysts had expected a possible rise of 2 million barrels
of crude oil in the weekly API report but instead the report
showed an increase of almost 4 million barrels in the crude
oil stockpiles.  Oil stocks have already been weak of late
and MOB has already dipped -$1.69 in trading this week.
Something to watch out for was the unexpected drop in 
gasoline stockpiles which fell about 4 million barrels
this week.  Gosh with numbers this big, you wonder how
they could miss a couple of million from last week?
The wildcard here is how will the market react to such 
a mixed report between the oil and gas numbers.

BUY PUT JUN-95 CHV-RS OI= 858 at $4.88 SL=3.25
BUY PUT JUN-90*CHV-RR OI=1238 at $2.31 SL=1.25

Average Daily Volume = 1.50 mln
Chart = http://quote.yahoo.com/q?s=CHV&d=3m


COMBINATION PLAYS   
******************
Federal Reserve Stirs Inflation Fears...

Monday, May 17

Blue-chip stocks fell Monday as Wall Street awaited the Federal
Reserve meeting with speculation that a bias will be issued on
future interest rates. Last week's news of a jump in consumer
prices for April may be the final stake in the coffin. The Dow
was off 59 points at 10,853. Internet stocks lifted the Nasdaq
33 points higher to 2,561 but in the broader market, declining
issues still swamped advances 2-to-1 on moderate volume of 668
million shares on the New York Stock Exchange.

Sunday's new plays (positions/prices):

PCS   MAY55C/MAY50C  $0.38 credit (slightly less than our target)
SKYT  SEP22C/MAY22C  $2.50 debit  (disparity faded at the open)
LHSP  MAY40C/MAY30P  $1.25 credit (call side options much lower)
USW   JUN60C/MAY60C  $0.00 debit  (merger announced on Sunday)

The big news on USW came just one day too early as they reached
an agreement Sunday night to merge with Global Crossing. There
was no play available on Monday but it was interesting to see
the stock price perform exactly as expected on the announcement.
USW fell $5 to just under the sold strike price, which left our
volatility spread at a small credit with no potential in the May
positions; an easy buy-back for a short-term profit. SKYT fared
about as well, also opening lower and with far less premium in
the short position than Friday afternoon. A favorable play was
available but the debit was slightly higher than expected.

Portfolio plays:

The other takeover announcement was much more exciting as New
Holland NV agreed to acquire Case Corp for about $4 billion in
cash. CSE gapped up to $50 on the news, providing an excellent
profit our bullish debit spread.

Tuesday, May 18

U.S. markets closed lower Tuesday as Wall Street was numbed by
the Fed's warning that it will raise rates when necessary to
slow inflation. The Dow was off 16 points at 10,836 and the
Nasdaq index of technology stocks was slightly lower at 2,558.
In the broader market, declining issues led advances by a small
margin on moderate volume of 737 million shares on the NYSE.

Portfolio plays:

EGRP continued its rebound today, pushing our short-term debit
spread to a $1.75 profit. You may consider closing the position
now for a small gain rather than risk a potential loss. TXN was
higher on the news of HWP favorable outlook. As we said before,
this week was expected to be volatile for the computer industry
techs with the big companies reporting earnings. PCS fell into
the mid-$40 range, moving our credit spread comfortably OTM. CS
and MOT both made nice moves, finishing at the sold strike price
near the maximum profit point; we hope they remain in that area
for the next few days.

This week, many of the OIN research staff will be attending the
Omega World Options Seminar in Las Vegas, Nevada. I will be one
of the unfortunate traders unable to attend (the newsletter is
still our number #1 duty) as I've been tasked with other duties
for this week's Thursday & Sunday edition. The 'Spreads/Combos'
section will not be published again until this weekend. It is
expiration week and you are on your own for Friday's "roll-out"
to June positions. If you have long-term calendar spreads, plan
to close any short (May) options that are in-the-money to prevent
being exercised. We will post the current summary of this month's
plays in the Sunday edition.

Good Luck!



NEW PLAYS
**********

AMZN - Amazon.com  $132.62     *** Ready To Rebound? ***

Amazon.com is the Internet's #1 music, #1 video, and #1 book
retailer. Amazon.com has expanded to offer free electronic
greeting cards, online auctions, and more than 4.7 million
book, music-CD, video, DVD, computer-game, and other titles,
with secure credit-card payment, personalized recommendations,
streamlined ordering and hassle-free auction bidding. AMZN also
has two international web sites and PlanetAll.com, a Web-based
address book, calendar, and reminder service. It also operates
the Internet Movie Database with comprehensive information on
more than 150,000 movies and entertainment programs and 500,000
cast and crew members dating from the birth of film in 1892 to
the present.

Amazon recently created a frenzy in the online bookselling
business, increasing its discount on bestsellers to 50% below
suggested retail price. The company has reduced prices on all
hardcover and paperback books in three categories: fiction,
nonfiction, and advice/how-to/miscellaneous. Some people are
worried that the price cuts will affect AMZN's bottom-line but
the success of their future business will come from being the
Internet's dominant retailer.

AMZN has also started up an auction site and purchased stakes
in drugstore.com and pets.com, which benefit from exposure to
Amazon's growing customer base. Amazon.com is also entering
the business of selling groceries online with its purchase of
a stake in HomeGrocer.com, an Internet grocery shopping and
home delivery service. The investment is cheap speculation in
what could possibly be another successful online business.

We like the short-term technical consolidation at the current
price and this deep in-the-money position provides an excellent
opportunity to play a conservative spread on a volatile stock.

Note: Please open this position as a spread only - no "legging".

PLAY (conservative/debit):

BUY  CALL JUN-100 YZZ-FT OI=187 A=$35.75
SELL CALL JUN-110 YZZ-FB OI=14  B=$27.25
INITIAL NET DEBIT TARGET=$8.00 ROI(max)=25% B/E=$108.00

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


****************
TECHNICALS ONLY

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy. Current news and market
sentiment will have an effect on these positions so review each
play individually and make your own decision about the future
outcome of the stock price.

*****

WLP - Wellpoint Health Networks  $75.69  ** Multiple Upgrades **

WellPoint Health Networks is one of the nation's largest publicly
traded managed care companies. The company serves the health care
needs of millions of members nationally. WellPoint offers a broad
spectrum of quality network-based health products, including HMO,
PPO, POS, hybrid and specialty managed care products that include
pharmacy benefit management, dental, vision, mental health, life
and disability insurance, flexible spending accounts and Medicare
supplements.

This week, WLP was in the news with upgrades from two well-known
brokerages. Morgan Stanley initiated coverage of Wellpoint with
a 'strong buy' rating and a 12-month price target of $89. Another
analyst from PaineWebber raised his rating on shares of WellPoint
to a 'buy' and increased earnings estimates to reflect higher
assumptions on the synergies and cost savings from the Blue Cross
of Georgia aquisition and continued pricing momentum.

WLP is definitely in a short-term upward trend but we like the
three recent failures at $80 and the solid support near $69 as
a basis for this favorable credit position.

PLAY (aggressive/credit strangle):

SELL CALL JUN-80 WLP-FP OI=4  B=$2.18
SELL PUT  JUN-70 WLP-RN OI=70 B=$1.43
INITIAL NET CREDIT TARGET=$3.75 ROI=24%
UPSIDE B/E=$83.75 DOWNSIDE B/E=$66.25

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

*****

WCOM - MCI Worldcom  $88.88     *** Telecom Merger-Mania ***

MCI WorldCom is a global leader in communications services with
1998 revenue of more than $30 billion and established operations
in over 65 countries encompassing the Americas, Europe and the
Asia-Pacific regions. WCOM is a premier provider of local, long
distance, international and Internet services. MCI WorldCom's
global networks, including its state-of-the-art European network
and transoceanic cable systems, provide end-to-end high-capacity
connectivity to more than 40,000 buildings worldwide.

The last few weeks have been very exciting in the telecom industry
as smaller companies continue to struggle for future market share
with mergers and alliances. Last year, MCI WorldCom completed the
merger of WorldCom and MCI Communications to create the #2 long
distance company and strengthen its hold on the fastest growing
segments of the telecommunications industry: international, data
and Internet services. The company has reaped the benefits and
savings of last year's merger and remains far ahead of many rivals
but they still need a wireless phone business and a high-speed
Internet access service. This year, they walked away from two
opportunities to buy wireless companies; AirTouch Communications
and Nextel Communications at a time when an increasing amount of
phone calls are being made on wireless phones. The company has
focused primarily on high-spending business customers and has
become less aggressive in targeting consumers. That may be their
downfall in the short-term because many customers are adding more
communications services like high-speed Internet access to their
homes.

The company will hold its annual meeting on Thursday and that's
probably the driving force in the recent rally. Regardless of
the outcome of the meeting, the well-established trading range
between $80 and $95 makes this a favorable speculation play.

PLAY (aggressive/credit strangle):

SELL CALL JUN-100 LDQ-FT OI=6650 B=$1.06
SELL PUT  JUN-80  LDQ-RP OI=5325 B=$1.31
INITIAL NET CREDIT TARGET=$2.62 ROI=17%
UPSIDE B/E=$102.62 DOWNSIDE B/E=$77.38

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



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