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Daily Newsletter, Tuesday, 05/25/1999

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The Option Investor Newsletter         Tuesday  5-25-99
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.
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MARKET WRAP  (view in courier font for table alignment)
************************************************************
        5-25-99          High     Low     Volume   Advances Decline
DOW    10531.09 -123.58 10754.66 10530.21  822,488k  1,082   1,909
Nasdaq  2380.90 - 72.76  2466.17  2379.61 1051,000k  1,488   2,528 
S&P-100  647.45 - 10.94   664.78   647.41   Totals   2,570   4,437
S&P-500 1284.40 - 22.25  1317.48  1284.38            36.7%   63.3%
$RUT     434.45 -  5.94   441.20   434.14
$TRAN   3453.33 - 20.47  3517.09  3451.67
VIX       29.58 +   .93    29.88    27.21
Put/Call Ratio      .62    
*************************************************************
 
Y2K, Argentina, China, interest rates, downgrades, just another
normal day in the markets!

Come on guys, I leave the office for the Omega World Seminar for
five days and when I come back this is what I get, -400 points! 
I just hope you took my recent cautions to heart about no profit
taking on the +1300 point Dow. Looks like it is time to pay the
piper. The reasons given are only excuses. When the market is
tired it only take one news event to make people start focusing
on the reasons to be out of the market instead of in the market.

Speaking of excuses there is no shortage today. Of all things
to pop up now, Y2K. For two days now the Y2K warnings have been
in all the headlines. Do you think this is a new problem? Of
course not. They have been there every week, the media just
started focusing on them again now. At our recent seminar series
I spoke briefly about a possible market depression from Y2K and
my first target for Y2K selling was May/Jun. While I have no clue
whether Y2K will actually cause real problems on 1/1/2000, I am
concerned that the "perception" of possible Y2K problems will
cause investors to take money out of the market. I believe this 
will happen after next quarters earnings and continue into the
year end. What I said at the seminar was that very cautious
investors would probably start selling down their holdings after
the earnings period just ended. Why hold through the summer
doldrums only to get caught in the rush to sell after the next
earnings period? The market was at new highs and undoubtedly
traders were thinking, "as long as it keeps going up, I will
hold". Once the market started rolling over Y2K became only one
of the excuses to sell. 

Argentina has now erupted as the new scapegoat in Latin America.
Concerns about them switching to dollars has now rekindled the
entire Latin American economic question. Brazil stocks tumbled
-5% after allegations that President Cardoso may have handled
the TBR breakup in a way that favored certain political groups.

China has now been blamed for stealing secrets for every major
U.S. nuclear weapon and rocket design. The Cox report called it
the biggest security breach ever and warned we could be under
threat of Chinese missiles within two years. Another cold war
anyone?

Interest rates continue to weigh heavily on the financial sector
and the consumer confidence index posted its seventh monthly
rise. Worries that the recently announced Fed bias toward raising
rates would come true sooner rather than later has started taking
it's toll on the markets. The First Union profit warning did not
help the outlook for financial stocks. Coming on the heels of the
multiple bank downgrades on Monday it greased the skips for
bank stocks.

The highly anticipated BarnesandNoble.com IPO was met with a 
lukewarm reception and only gained single digits after the open.
This set the stage for an Internet sell off of major proportions.
Analysts were tripping all over each other to proclaim the 
bursting of the Internet bubble. The rush was on to dump the
Internets in every category. It should be noted that the recent
trend for Internet stocks is for a +75% to +100% rise and then
a pullback of -35%. This cycle has repeated itself several times.
HOWEVER, the pattern could break at any time and this could be it. 
Currently Internet stocks have dropped -25% to 35% from their recent 
highs. According to the pattern we should bounce soon. But with the 
current strongly negative outlook we would strongly advise not 
betting on it. Remember, the trend is your friend and until you
see a new positive trend we recommend playing the downside until
it actually does reverse.

The Dow cyclicals, which have done so well lately, could not hold
up against the bearish sentiment and finally gave way to selling
in the afternoon. When real selling starts nothing is sacred.

So what happened to the +11,000 bull market?

The Fed put the on brakes and the passengers hit the windshield.
Those wearing seatbelts (stops) walked away from the crash only
slightly bruised. All kidding aside, I have cautioned you repeatedly
over the last two weeks that the market was up over +1300 points
with no profit taking and the reason for the rally, earnings, was 
over. Without any positive earnings news the market is left to
focus on things like Brazil, China, Fed rates, and of course the
earnings warnings. 

Advances are getting killed by decliners 6:3 and down volume is
more than twice up volume. New lows (70) far out paced new highs 
(27). Just looking at the market internals should scare an average
person out of the market. However, sometimes that is the best time
to be getting ready to enter the market. Just when things are 
darkest the market tends to reverse. It is a contrarian fact that
the herd is normally wrong. The herd today is running from the
market and creating new buying opportunities. TrimTabs.com reported
that in the last two days over $3 bln dollars was withdrawn from 
mutual funds. Ouch! Obviously if this trend continued the market
would eventually collapse. The benefit of this trend however is
stocks are cheaper. Another more powerful trend is the vast army
of new point-click-buy investors. Every day the market drops we
get closer to the psychological buy targets of every investor. 
If you missed adding Intel at $50 last November then you are only
$2 away from another chance. It was over $70 in February.
CMGI too high at $330 in April then you might think it is a buy
at $190 today, $140 off its recent high. If you sold Dell at $55
in February you can add it back at $34 today. How much is a stock
worth that has a 45% growth rate? How about MSFT at $76, -25% off
its recent high of $95?

Do you see my point? Even though the Dow has been on a record
run, their are many stocks that are approaching levels where 
fund managers and individual investors can't pass up the opportunity.
Of course no one wants to catch a falling knife and we could still
go down from here. Ralph Acompora gave a keynote address at Omega
World on Friday. He was calling for a continuation of the current
"Mega Market" and numbers in the next few years of 17,000 for the
Dow. His global view is nothing short of amazing and I hope he
is right. (A side note: He also said he expected the market to drop
in Nov/Dec due to Y2K concerns. I have never heard him state this
publicly before.) On CNBC today he said the market could still go 
down another -200 to -500 points. Lets see -500 = Dow 10,000 again.

While I doubt we will actually see Dow 10K again anytime this month
we could get close before the oversold indicators start screaming
buy again. There is nothing wrong in the world economy. The Fed
knew this would happen if they changed the bias. This is a normal
market correction process. Our task is to wait for the right
moment to re-enter the market and profit from the next upward move.
Nothing goes up or down in a straight line. There are many changes
in direction along the way. Right now all the indicators are all
pointing down but there could be a silver lining starting to show
through the clouds. We have dropped -713 points from the recent Dow
high. A -6.3% drop. If we dropped -10% then we could hit 10,120.
I don't think it will happen this week. My normal bullish bias is
leaning to buyers coming off the sidelines any minute now. The 
greed factor is too strong for most to resist and it could continue
to drive the market over all the potholes mentioned above.  
 
You can see by these charts that the Dow is showing definite signs
of rolling over and could see 10,000 easy but I doubt it. The
Nasdaq however has tested the mid 2300 range several times only
to recover sharply.



I am out of the market and I strongly advise you to do the same. No one has a crystal ball and no one can pick a bottom. If you must play, BE EXTREMELY CAREFUL! We are listing several Internet stock puts as new plays tonight. However, as everyone knows, the Internet stocks can turn on a dime and gain $20 before lunch. Please do not play these if there is any glimmer of strength in the market or the Internet sector. Like I said, CMGI would appear to be a screaming buy at $190 but that doesn't mean it can't go to $150 first. The keyword here is "appear". One of these Internet corrections will eventually be the downfall of everything Internet and many investors will be hurt bad. Let me remind you that even with the drops from the last few days that Ebay is still up +1060% for the year, AMZN +646% and INKT +473%. That is a lot of profit for a lot of people and everyone has a threshold of pain. Based on the charts above I would be a Dow buyer on any rebound from 10,300 or below and a Nasdaq buyer on any rebound from the 2300 to 2350 range. Both are setting up for technical bounces at those ranges but there may not be any follow through. A one or two day relief rally is almost a given but then the true market strength will be tested. I would plan on trading the rally but then be ready to exit again quickly if there is no follow through. Selling June calls on the second day of any rally could be a good move. Just be sure you are covered on any further rise. Good Luck, and please sell too soon. Jim Brown *************** Market Posture *************** As of Market Close – Tuesday, May 25, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,500 11,000 10,530 Neutral 5.14 SPX S&P 500 1,325 1,360 1,284 BEARISH 5.25 * OEX S&P 100 660 690 647 BEARISH 5.25 * RUT Russell 2000 435 450 434 BEARISH 5.25 * NDX NASD 100 2,100 2,250 1,999 BEARISH 5.25 * MSH High Tech 1,000 1,100 982 BEARISH 5.25 * Key Benchmarks Technology Bearish/Bullish Last Posture/Since Alert **************************************************************** XCI Hardware 900 920 841 BEARISH 5.20 CWX Software 600 675 658 Neutral 5.25 * SOX Semiconductor 390 420 373 BEARISH 5.25 * NWX Networking 450 490 512 BULLISH 4.22 INX Internet 550 650 467 BEARISH 5.20 Key Benchmarks Financial Bearish/Bullish Last Posture/Since Alert **************************************************************** BIX Banking 700 720 655 BEARISH 5.18 XBD Brokerage 450 475 407 BEARISH 5.21 IUX Insurance 645 660 640 BEARISH 5.25 * Key Benchmarks Other Bearish/Bullish Last Posture/Since Alert **************************************************************** RLX Retail 900 970 845 BEARISH 4.29 DRG Drug 390 425 349 BEARISH 4.29 HCX Healthcare 780 850 710 BEARISH 4.29 XAL Airline 180 210 167 BEARISH 5.21 OIX Oil & Gas 285 310 293 Neutral 5.13 Posture Alert Broad market indexes and select industry sectors violated near-term support. As such, we have turned BEARISH on Insurance, Semiconductors, S&P 100 and 500, Russell 2000, and NASD 100. We also turned Neutral on Software. A detailed description of our Market Posture and its applications can be found at: /members/marketposture ************************************************ Market Sentiment - By Pinnacle Capital Advisors ************************************************ Tuesday, May 25, 1999 The Power of Technical and Sentiment Analysis Investors following Pinnacle technical and sentiment analysis got an early jump on the precipitous selloff. We have been alerting subscribers about several of our trusted technical and sentiment indicators including peak open interest, Pinnacle Index and Market volatility index. This analysis, among others, formed the basis our Pinnacle turning Bearish across several key sectors late last week BEFORE the sell-off. If you have not done so, we encourage investors to get familiar with the various technical and sentiment indicators. One of the reason we believe the market sold off was the because of the increase in investor sentiment, a contraian indicator, from last week - a jump of 7% in the Bullish camp. Investors Intelligence Survey Percent Percent Date Bullish Bearish ******************************************************************** May 12, 1999 56.9 31.0 May 19, 1999 60.9 28.7 * BEARISH Signs: Market Volatility (VIX): Closed firmly ABOVE its 50-day moving average (27.65) indicating an end to the current bullish trend that began on March 5th. 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. 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's 52-week high is 480 and a sell off from here could represent a failed rally (lower high) across a two year view. Interest Rates: Trading ABOVE 200dma and 5.50 Benchmark (5.771%). Pinnacle Index: Overhead resistance (OEX 680-750) clocking in at 4.3 suggesting that option speculators are expecting the market to advance higher. Peak Open Interest: The contraian put-call ratio clocking in at .95 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% Friday, May 21 115,336 +275.0% June Expiration Cycle OEX OTM Call Analysis (Open Interest June 680-750) ****************************************************************** Date Open Interest Change % Alert ****************************************************************** Tuesday, March 26 42,999 - Market Sentiment at a Glance ******************************************************************** Friday Tues Thurs Indicator (5/21) (5/25) (5/27)Alert ******************************************************************** Pinnacle Index (OEX): (680-750) 4.3 Overhead Resistance (680-700) 2.5 * 1.5 Underlying Support (640-660) 4.2 (625-640) 3.2 Put/Call Ratios: CBOE Total P/C Ratio .5 .5 CBOE Equity P/C Ratio .3 .4 OEX P/C Ratio 1.1 1.1 Peak Open Interest (OEX): Puts 600 670 Calls 680 670 P/C Ratio .78 .95 * Market Volatility Index (VIX): CBOE VIX 25.36 29.58 * Investors Intelligence: Bullish 60.9% 60.9% * Bearish 28.7% 28.7% * The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index ****************************************************************** OEX Friday Tues Thurs Benchmark (5/21) (5/25) (5/27) ****************************************************************** Overhead Resistance (680-695) 2.5 1.5 OEX Close 671.76 647.40 Underlying Support (645-660) 4.2 (645-660) 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 (5/21) (5/25) (5/27) ******************************************************************** CBOE Total P/C Ratio .55 .54 CBOE Equity P/C Ratio .38 .41 OEX P/C Ratio 1.29 1.14 Peak Open Interest (OEX) ******************************************************************** Friday Tues Thurs Strike/Contracts (5/21) (5/25) (5/27) ******************************************************************** Puts 680 / 14,217 670 / 10,963 Calls 650 / 21,162 670 / 11,525 Put/Call Ratio .67 .95



Market Volatility Index (VIX) ******************************************************************** 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 May 21, 1999 25.36 May 25, 1999 29.58 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 May 19, 1999 60.9 28.7 * Please view this in COURIER 10 font for alignment ***************************************************** CHANGES THIS WEEK Index Last Mon Tue Week Dow 10531.09 -174.61 -123.58 -298.19 Nasdaq 2380.90 -66.48 -72.76 -139.24 $OEX 647.45 -13.37 -10.94 -24.31 $SPX 1284.40 -23.64 -22.25 -45.89 $RUT 434.45 -8.75 -5.94 -14.69 $TRAN 3453.33 -77.46 -20.47 -97.93 $VIX 29.58 3.29 0.93 4.22 Stock Mon Tue Week LXK 134.25 3.31 -2.44 0.87 Near 52 week high DRMD 14.75 0.69 -0.38 0.31 Exhibiting relative strength FNM 66.31 0.50 -0.44 0.06 Still in a trading range KEA 30.00 1.06 -1.69 -0.63 Awarded new contract PEP 37.50 -0.50 -0.31 -0.81 Use the Force, Pepsi! CB 73.38 -1.00 -0.13 -1.13 Will Warren Buffet sell? BA 43.06 -0.56 -1.31 -1.87 Improving aircraft controls PG 94.56 -3.31 0.63 -2.68 On DLJ's "focus list" BMCS 45.50 -2.56 -0.63 -3.19 Suffered in the market sell-off ASND 90.06 -2.25 -1.19 -3.44 Technically looking weak CUST 56.75 15.06 -19.25 -4.19 Price target: $230 in 12 months NT 75.56 -2.88 -1.50 -4.38 New agreement with Tyco EMC 97.88 -1.25 -4.38 -5.63 Dropped, taking a beating ANF 77.00 -5.00 -2.00 -7.00 Dropped, to weak to trust IBM 221.19 -6.63 -2.56 -9.19 Dropped, splits Wednesday RMBS 74.75 -6.88 -3.25 -10.13 Dropped, technology sector weak SWS 67.00 -3.75 -13.25 -17.00 Dropped, selling pressure BRCM 88.38 -4.75 -13.88 -18.63 Dropped, negative indicators VRSN 111.88 -13.19 -12.13 -25.32 Dropped, Internets correcting Puts INKT 86.00 -10.69 -17.31 -28.00 New, selling looks to continue RNWK 58.00 -9.25 -13.75 -23.00 New, drastic drop AMTD 81.88 -10.56 -11.46 -22.12 New, post-split depression DCLK 85.63 -9.63 -12.25 -21.88 New, Internets under fire GNET 97.25 -14.56 -3.13 -17.69 The slide continues XCIT 116.94 -14.88 -1.13 -16.01 Pummeled this week TBH 82.69 -5.63 -4.31 -9.94 Lock in profits with stops! SEPR 60.00 -6.75 -2.00 -8.75 Due for a bounce? PFE 102.13 -4.00 -4.13 -8.12 New, hurt by competition TBFC 61.69 -0.88 -6.31 -7.19 Possible support near $42 AXP 114.50 -3.44 -2.31 -5.75 New, financials look weak LLY 68.75 -0.31 -2.25 -2.56 Still technically weak EK 70.50 -1.50 -1.00 -2.50 Negative technical indicators CHV 91.00 -1.56 -0.88 -2.44 Dropped, not falling fast enough ***************************************************** 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: ****** IBM $221.19 -2.56 (-9.19) Well, it's split time again. IBM splits 2:1 after the close tomorrow. By now most readers know that we never recommend holding over a slit, since 7 times out of 10, it drops after the split. Lately, it seems selling prior to the split has become more popular, as more investors realize the validity of post-split depression. Pre-split depression seems to be the next recognizable trend. It's not just us. Listen to J.J. Cramer of TheStreet.com. "Remember when we bought stocks for splits? We just did a backtest of the last 12 high- profile splits, and it was a push whether you made money. A push. You make no money now." That about sums it up and is the reason we're dropping IBM tonight. RMBS $74.75 -3.25 (-10.13) Tonight, we put Rambus on the bus for a ride out of town. Technology stocks, RMBS included are having a tough time in this market. Having reached a high of $89 just 5 days ago, the $10 given up over the last 2 trading days doesn't look good. Don't get us wrong, RMBS could get more play out of its adoption by Intel into its new chipsets, scheduled to be released later in the year, but short-term support is $75, and here we are. With the current choppiness in this weak market, it's better to sit aside and save this high risk play for a better market. SWS $67.00 -13.25 (-17.00) SWS has had a great run since we picked it up. You should have been stopped out today if you didn't sell. Stocks in general have come under selling pressure from rate hike fears. The industry as a whole was down today and SWS lost $13.25 on more than 4 times the average volume. We feel we should drop this one now until the situation changes. VRSN $111.88 -12.13 (-25.31) We warned you to expect volatility in VRSN. The last 2 days of trading in this stock are what using stops is all about. VRSN has had no negative news and actually had a new "buy" rating yesterday from Matthew D. Barzowskas at First Albany Corp., who also gave the stock a 12 month price target of $183.00. Although VRSN dropped as low as $104.00 today, it managed to climb nearly $8 in the last hour and 45 minutes of trading. That, coupled with its split (still over 4 weeks away) may mean that it can come back, but Internets are correcting now and VRSN might not be able to buck the tide, so we are dropping it now. BRCM $88.38 -13.88 (-18.62) Were you using stops? We sure hope so. It really hurts to let those profits melt away. BRCM is a chip stock that trades more like an Internet stock and that whoosh you hear is the air escaping from the Internet sector. There is no bad news on BRCM, just a lot of profit taking in a stock with a PE greater than 200. The sell-off was abrupt and accelerated toward the close today. BRCM dropped below its 10 dma and several technical indicators turned negative. You should be stopped out. Consider BRCM dropped from the play list. EMC $97.88 -4.38 (-5.63) We are dropping EMC as it has taken a beating this week. The stock is approaching support at $95, but we can wait and play it then if it does. The $100 mark had been support and it went right through it today. Though we feel EMC is a good long term stock, it needs to get above its 50-dma at $115 to really get going. Remember, EMC has a split good for June 1st (ex-date). ANF $77.00 -2.00 (-7.00) ANF continues to fall. Sector rotation and market pressures have dropped ANF below its 100 dma. If investors remain skeptical and continue to sell, ANF could possibly fall all the way to its 200 dma at the $65 level. We are now dropping ANF as a call. We had hoped that the strong bounce off its 100 dma last Friday would hold. We had hoped that the bounce was the beginning of the run on the news that ANF splits 2:1 on June 16th. However, we feel that the markets could continue to pull back and drag ANF even lower. This was one trade we never got a strong entry point (i.e. there was no positive confirmation of upward market direction). PUTS: ****** CHV $91.00 -0.88 (-2.44) Though CHV is finally acting like a put, we are dropping it as a play. It isn't sliding fast enough considering the bearish overtone shading the market. The DOW has dropped 298 points in just two days of trading. On Monday, CHV only fell -$1.56. On Tuesday it dropped a mere -$0.88. Oil prices also broke to the downside on Monday to close at $17.06 a barrel. However, they managed to add a bit on Tuesday to finish higher at $17.14/barrel. If you decide to hold your positions, be very careful. Stop losses become extremely important. If the markets decide to rebound, CHV could follow. Of course those of you who drill down on the charts like we teach can see that CHV appears to have found a bottom at $91 and has been unable to break it. On the plus side for oil, some analysts have increased their forecasts for the oils. On Monday, BT Alex Brown increased its 1999 earnings estimates for CHV. On Tuesday, Deutsche Bank also raised earnings estimates and upgraded Chevron from a "sell" to a "hold." ******************************************************* PICK NEWS - CALLS ******************************************************* DRMD $14.81 -0.31 (+0.38) No news anywhere to be found. So let's look at the technicals. DRMD has traded flat for the last 2 days, bouncing slightly at $14.50 in contrast to the rest of the market, which sank like a stone. Volume has been light too, which is positive. It tells us that investors are in no mood to unload at these prices, and they think it's buyable every time the price gets to $14.50. Even following last Friday's closing sell-off, DRMD bounced back from $14. In short, it's exhibiting good relative strength in the face of market headwinds. When the markets turn around, DRMD could resume its upward movement again. You know the drill, confirm market direction before playing and use stops to hang on to profits. A disclosure note: Our Editor maintains a position in DRMD stock, but has no option interests. CB $73.38 -.13 (-1.12) After topping out at $76.38 yesterday, CB closed at only $73.50. There were reports that Warren Buffet would be selling shares in the company, which he had been accumulating for the previous couple of months. Sometimes when he unloads his position in a stock, other investors follow suit, hoping to copy the kind of gains his fund has produced. Suggestions that he had bought CB originally on takeover rumors were denied. On the positive side, insurance rates may have hit bottom and appear to be starting up in some areas. Although shares of CB are up 25% in the last month, its PE is still only 17, and rate hikes could send the stocks in this group higher. CB already saw average rate increases of 2.5% in March and 3.5% last month. It expects 5% more by year's end. CUST $56.75 -19.25 (-4.19) We hope some of you were able to get in and out of this one yesterday to capture gains on the huge jump in price. David Weinstein finally issued a price target: $230 in 12 months! He based his price on the valuation of Verisign (another OI pick). CUST's new online transaction tracking system will allow online shopping without submitting a credit card number over the Internet, something many people have been afraid to do. The technology also uses a larger, more secure bit size than the competition. Weinstein believes CUST can achieve the 1% market that VRSN has. It is also working on other Internet technologies, which could add to the valuation. CEO David Cook developed the SunPass electronic toll system used on Florida highways and worked on the tracking system at Blockbuster Video, which he founded. After trading as high as $90.00 yesterday, CUST sold off and the bloodletting continued today on 5 times the average volume, as investors exited Internet stocks and took profits. CUST closed at its low of the day. The stock will come back eventually, but it may be in for more losses in the meantime. Wait for the tide to turn and use stops when you jump in. WARNING: VOLATILE stock. ASND $90.06 -1.19 (-3.44) Ascend has developed the habit of gapping up at the open and dropping throughout the day, only to gap up again the next day. It has closed a bit lower each day, however. Technically, the stock is looking a bit weak. Both the highs and lows of each cycle are just a little bit lower. One way for the brave to play ASND is to buy it at the close and sell it at the open the next morning following the gap up. Just remember that the pattern could break down. Otherwise, wait for upward movement on good volume. In the news: Lucent Technologies, which plans to takeover ASND on June 24th, shareholder vote permitting, has developed a new technology which allows today's cellular phones to do many of things only third generation cell phones were supposed to be able to do. BMCS $45.50 -.63 (-3.19) BMCS has suffered from the market sell-off this week, but not nearly to the degree of many stocks. MACD is still very strong and the stock did bounce slightly off support of $45. The lack of selling could be attributable to the fact that BMCS does not have a huge PE ratio like many tech stocks. With two huge down days in the market, there is a likelihood of a technical bounce, but we can't depend on this. Place stops tight and watch for an good entry point. FNM $66.31 -.44 (+.06) FNM has given us no reason to doubt that it is still in a trading range. On Monday, FNM bounced off its lower channel around $66 and closed positive on the day. Tuesday saw FNM give up those gains and end the day at the bottom of the channel. We feel the stock will trend to the top of its range, but be careful of jumping in until we see confirmation of an up move. This market is very shaky, and we can afford to wait for FNM to verify its direction. Remember, the range is about $6 to $7 dollars. LXK $134.25 -2.44 (+.88) LXK has been a bright spot this week, though it has only gained just under a dollar. On Monday, LXK rose over $3 though it was up close to $6 at one time during the day. LXK gave much of those gains back today. The stock traded as high $139.25 today before falling with the market. IDC, a research company, reported that using LXK network printers is 50% cheaper than using copiers. This gave LXK a nice bump on Monday. LXK is near 52 week high territory and this would be the only resistance. PG $94.56 +.63 (-2.68) PG was one of the few stocks that were positive today. This is a bullish sign, but the stock is still down $2.68 on the week after it lost $3.50 on Monday. Yesterday, DLJ added many consumer staples to its "focus list", PG being one of them. DLJ noted it is dropping some techs and replacing them with these securities. PG is trading very near its support and we need to see PG hold above $94-95, which it did on Tuesday. BA $43.06 -1.31 (-1.87) Last week, BA managed to post gains for four days in a row even though the DOW's performance was weak. However, on both Monday and Tuesday BA finally yielded to the incredible market pressure. (In the two days of trading the DOW sank over -298 points.) If the markets continue to sink, BA could be pulled lower. Wait for the profit taking to subside before entering BA as a play. On the brighter side, "BA is moving ahead on an important rotorcraft research program that may significantly improve aircraft flight controls. The systems ultimately might improve rotary- and fixed-wing aircraft operations, cost and safety for both military and civilian users."(-PRNewswire) KEA $30.00 -1.69 (-0.63) KEA showed incredible strength on Monday. The market fell over 174 points and KEA still headed higher as it added +$1.06 on the day. Part of the excitement was over the fact that KEA was awarded the Information Technology Support Services contract from the U.S. Department of Justice. The five year contract expands the partnership between the two and is worth $475 million to KEA. Keane also announced an alliance with 1Image. The partnership is expected to enhance current products from both companies. On Tuesday, KEA couldn't repeat the feat as the markets sold off in big style for the second day in a row. The DOW fell an additional -123 points. If the markets turn it around, KEA could rebound. Be careful now...KEA has climbed to its 200 dma. This could prove overhead resistance. Conservative players should wait for the breakout. NT $75.56 -1.50 (-4.38) Since re-hitting its all time high on Monday, NT has dropped back -$4.38 in trading and is now resting at its 10 dma. The sell off was most likely due to the actions of the market. The DOW dropped over 298 points in just two days. NT fought valiantly to hold its gains but weakened as the pressures to sell increased. Hopefully, the market can find a break in the thunder clouds and rebound. However, if investors continue to sell off, the slide downhill for NT might continue. Wait for a solid entry point to enter in light of the current market conditions. In other news, NT announced and agreement with Tyco International. The two will work to provide their customers with optical solutions for global terrestrial and undersea communications networks. "The total cumulative addressable market for such high-speed undersea and terrestrial networking solutions is estimated at over $15 billion by year 2002."(-PRNewswire) PEP $37.50 -0.31 (-0.81) The markets are to blame for Pepsi's losses so far this week. The market sell off continues on fears of an interest rate hike and investors, for the most part, are extremely cautious. Even though Pepsi closed below the magic number of $38 (its 50 dma), the profit taking could have been worse under these bearish market conditions. PEP even managed to send us a sign of hope. In early trading on Tuesday, PEP traded as high as $38.69. In any case, before entering any new Pepsi positions, confirm market and stock direction. Hopefully Star Wars enhanced Pepsi sales can help PEP break back above $38. ***** Play updates continued in section two ***** ***************************************************** FREE TRIAL READERS ***************************************************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to subscribe@OptionInvestor.com with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ************************************************************* 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         Tuesday  5-25-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

Call Drops Continued
********************

BRCM $88.38 -13.88 (-18.62)  Were you using stops? We sure hope 
so. It really hurts to let those profits melt away. BRCM is a 
chip stock that trades more like an Internet stock and that 
whoosh you hear is the air escaping from the Internet sector. 
There is no bad news on BRCM, just a lot of profit taking in a 
stock with a PE greater than 200. The sell-off was abrupt and 
accelerated toward the close today. BRCM dropped below its 10 
dma and several technical indicators turned negative. You should 
be stopped out. Consider BRCM dropped from the play list.

EMC $97.88 -4.38 (-5.63) We are dropping EMC as it has taken
a beating this week.  The stock is approaching support at $95,
but we can wait and play it then if it does.  The $100 mark
had been support and it went right through it today.  Though
we feel EMC is a good long term stock, it needs to get above
its 50-dma at $115 to really get going.  Remember, EMC
has a split good for June 1st (ex-date).

ANF $77.00 -2.00 (-7.00)  ANF continues to fall.  Sector 
rotation and market pressures have dropped ANF below its 100 
dma.  If investors remain skeptical and continue to sell, ANF 
could possibly fall all the way to its 200 dma at the $65 
level.  We are now dropping ANF as a call.  We had hoped that 
the strong bounce off its 100 dma last Friday would hold.  We 
had hoped that the bounce was the beginning of the run on the 
news that ANF splits 2:1 on June 16th.  However, we feel that 
the markets could continue to pull back and drag ANF even lower. 
This was one trade we never got a strong entry point
(i.e. there was no positive confirmation of upward market
direction).


PUTS:
******

CHV $91.00 -0.88 (-2.44)  Though CHV is finally acting like 
a put, we are dropping it as a play.  It isn't sliding fast 
enough considering the bearish overtone shading the market.  
The DOW has dropped 298 points in just two days of trading.  
On Monday, CHV only fell -$1.56.  On Tuesday it dropped a mere 
-$0.88.  Oil prices also broke to the downside on Monday to 
close at $17.06 a barrel.  However, they managed to add a bit 
on Tuesday to finish higher at $17.14/barrel.  If you decide 
to hold your positions, be very careful.  Stop losses become 
extremely important.  If the markets decide to rebound, CHV 
could follow.  Of course those of you who drill down on 
the charts like we teach can see that CHV appears to have found
a bottom at $91 and has been unable to break it. On the
plus side for oil, some analysts have increased their 
forecasts for the oils.  On Monday, BT Alex Brown increased 
its 1999 earnings estimates for CHV.  On Tuesday, Deutsche 
Bank also raised earnings estimates and upgraded Chevron 
from a "sell" to a "hold."


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

DRMD $14.81 -0.31 (+0.38) No news anywhere to be found.  So 
let's look at the technicals.  DRMD has traded flat for the 
last 2 days, bouncing slightly at $14.50 in contrast to the 
rest of the market, which sank like a stone.  Volume has 
been light too, which is positive.  It tells us that 
investors are in no mood to unload at these prices, and 
they think it's buyable every time the price gets to 
$14.50.  Even following last Friday's closing sell-off, 
DRMD bounced back from $14.  In short, it's exhibiting good 
relative strength in the face of market headwinds.  When 
the markets turn around, DRMD could resume its upward 
movement again.  You know the drill, confirm market 
direction before playing and use stops to hang on to 
profits.  A disclosure note: Our Editor maintains a 
position in DRMD stock, but has no option interests.

CB $73.38 -.13 (-1.12)  After topping out at $76.38 yesterday, 
CB closed at only $73.50. There were reports that Warren Buffet 
would be selling shares in the company, which he had been 
accumulating for the previous couple of months. Sometimes when 
he unloads his position in a stock, other investors follow 
suit, hoping to copy the kind of gains his fund has produced. 
Suggestions that he had bought CB originally on takeover rumors 
were denied. On the positive side, insurance rates may have 
hit bottom and appear to be starting up in some areas. Although 
shares of CB are up 25% in the last month, its PE is still only 
17, and rate hikes could send the stocks in this group higher. 
CB already saw average rate increases of 2.5% in March and 3.5% 
last month. It expects 5% more by year's end. 

CUST $56.75 -19.25 (-4.19) We hope some of you were able to 
get in and out of this one yesterday to capture gains on the 
huge jump in price. David Weinstein finally issued a price 
target: $230 in 12 months! He based his price on the valuation 
of Verisign (another OI pick). CUST's new online transaction 
tracking system will allow online shopping without submitting 
a credit card number over the Internet, something many people 
have been afraid to do. The technology also uses a larger, more 
secure bit size than the competition. Weinstein believes CUST 
can achieve the 1% market that VRSN has. It is also working on 
other Internet technologies, which could add to the valuation. 
CEO David Cook developed the SunPass electronic toll system 
used on Florida highways and worked on the tracking system at 
Blockbuster Video, which he founded. After trading as high as 
$90.00 yesterday, CUST sold off and the bloodletting continued 
today on 5 times the average volume, as investors exited Internet 
stocks and took profits. CUST closed at its low of the day. The 
stock will come back eventually, but it may be in for more 
losses in the meantime. Wait for the tide to turn and use stops 
when you jump in. WARNING: VOLATILE stock.

ASND $90.06 -1.19 (-3.44) Ascend has developed the habit of 
gapping up at the open and dropping throughout the day, only 
to gap up again the next day. It has closed a bit lower each 
day, however. Technically, the stock is looking a bit weak. 
Both the highs and lows of each cycle are just a little bit 
lower. One way for the brave to play ASND is to buy it at the 
close and sell it at the open the next morning following the 
gap up. Just remember that the pattern could break down. 
Otherwise, wait for upward movement on good volume. In the 
news: Lucent Technologies, which plans to takeover ASND on 
June 24th, shareholder vote permitting, has developed a new 
technology which allows today's cellular phones to do many of 
things only third generation cell phones were supposed to be 
able to do.  

BMCS $45.50 -.63 (-3.19) BMCS has suffered from the market
sell-off this week, but not nearly to the degree of many
stocks.  MACD is still very strong and the stock did bounce
slightly off support of $45.  The lack of selling could be
attributable to the fact that BMCS does not have a huge PE
ratio like many tech stocks.  With two huge down days in the
market, there is a likelihood of a technical bounce, but we
can't depend on this.  Place stops tight and watch for an
good entry point.

FNM $66.31 -.44 (+.06) FNM has given us no reason to doubt 
that it is still in a trading range.  On Monday, FNM bounced
off its lower channel around $66 and closed positive on the
day.  Tuesday saw FNM give up those gains and end the day at
the bottom of the channel.  We feel the stock will trend to
the top of its range, but be careful of jumping in until we
see confirmation of an up move.  This market is very shaky,
and we can afford to wait for FNM to verify its direction.
Remember, the range is about $6 to $7 dollars.  

LXK $134.25 -2.44 (+.88) LXK has been a bright spot this week,
though it has only gained just under a dollar.  On Monday, LXK
rose over $3 though it was up close to $6 at one time during 
the day.  LXK gave much of those gains back today.  The stock
traded as high $139.25 today before falling with the market.
IDC, a research company, reported that using LXK network 
printers is 50% cheaper than using copiers.  This gave LXK a
nice bump on Monday.  LXK is near 52 week high territory and
this would be the only resistance.  

PG $94.56 +.63 (-2.68) PG was one of the few stocks that were
positive today.  This is a bullish sign, but the stock is 
still down $2.68 on the week after it lost $3.50 on Monday.  
Yesterday, DLJ added many consumer staples to its "focus list",
PG being one of them.  DLJ noted it is dropping some techs and
replacing them with these securities. PG is trading very near
its support and we need to see PG hold above $94-95, which it
did on Tuesday.  

BA $43.06 -1.31 (-1.87)  Last week, BA managed to post gains 
for four days in a row even though the DOW's performance was 
weak.  However, on both Monday and Tuesday BA finally yielded 
to the incredible market pressure.  (In the two days of 
trading the DOW sank over -298 points.)  If the markets 
continue to sink, BA could be pulled lower.  Wait for the 
profit taking to subside before entering BA as a play.  On 
the brighter side, "BA is moving ahead on an important 
rotorcraft research program that may significantly improve 
aircraft flight controls.  The systems ultimately might 
improve rotary- and fixed-wing aircraft operations, cost 
and safety for both military and civilian users."(-PRNewswire)  

KEA $30.00 -1.69 (-0.63)  KEA showed incredible strength on 
Monday.  The market fell over 174 points and KEA still headed 
higher as it added +$1.06 on the day.  Part of the excitement 
was over the fact that KEA was awarded the Information 
Technology Support Services contract from the U.S. Department 
of Justice.  The five year contract expands the partnership 
between the two and is worth $475 million to KEA.  Keane also 
announced an alliance with 1Image.  The partnership is expected 
to enhance current products from both companies.  On Tuesday, 
KEA couldn't repeat the feat as the markets sold off in big 
style for the second day in a row.  The DOW fell an additional 
-123 points.  If the markets turn it around, KEA could rebound.
Be careful now...KEA has climbed to its 200 dma.  This could
prove overhead resistance.  Conservative players should wait
for the breakout. 

NT $75.56 -1.50 (-4.38)  Since re-hitting its all time high 
on Monday, NT has dropped back -$4.38 in trading and is now 
resting at its 10 dma.  The sell off was most likely due to 
the actions of the market.  The DOW dropped over 298 points 
in just two days.  NT fought valiantly to hold its gains but 
weakened as the pressures to sell increased.  Hopefully, the 
market can find a break in the thunder clouds and rebound.  
However, if investors continue to sell off, the slide downhill 
for NT might continue.  Wait for a solid entry point to enter 
in light of the current market conditions.  In other news, NT 
announced and agreement with Tyco International.  The two will 
work to provide their customers with optical solutions for 
global terrestrial and undersea communications networks.  "The 
total cumulative addressable market for such high-speed 
undersea and terrestrial networking solutions is estimated at 
over $15 billion by year 2002."(-PRNewswire)  

PEP $37.50 -0.31 (-0.81)  The markets are to blame for Pepsi's 
losses so far this week.  The market sell off continues on 
fears of an interest rate hike and investors, for the most 
part, are extremely cautious.  Even though Pepsi closed below 
the magic number of $38 (its 50 dma), the profit taking could 
have been worse under these bearish market conditions.  PEP 
even managed to send us a sign of hope.  In early trading on 
Tuesday, PEP traded as high as $38.69.  In any case, before 
entering any new Pepsi positions, confirm market and stock 
direction.  Hopefully Star Wars enhanced Pepsi sales can 
help PEP break back above $38.

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

SEPR $60.00 -2.00 (-8.75) Yesterday was downright ugly for 
SEPR as it gave up $6.75.  Today, it gave up another $2.  
Market uneasiness is sure making this put look good.  
Recall also that Johnson and Johnson recently pulled out of 
a non-drowsy antihistamine development deal that will cost 
SEPR another $25 mln. per year until the drug can be 
officially prescribed in 2001.  However Brokerage firm, 
Gruntal and Co. upgraded the stock to "strong buy" 
yesterday, with a new price target of $124.  It didn't seem 
to matter in the context of the rough market.  Nonetheless, 
strong buying activity occurred at $55 today signaling that 
unless things get really terrible for the bulls, $55 may 
prove to be support.  Technically, the chart says support 
is about $60, a level not seen since October of last year.  
After 5-day downdraft, SEPR is due for a bounce.  While it 
sits balanced at $60, please confirm market direction 
before starting a new play.

LLY $68.75 -2.25 (-2.56) LLY closed below $70 today on 
heavy volume, just $0.25 off its low of the day.  LLY has 
been in free fall just like SEPR.  Only today LLY had no 
bounce.  It still looks technically weak.  Again, not since 
last October have we seen levels this low.  There is no 
news to drive the stock, just investor disfavor with drug 
stocks and an uncooperative market in general.  As long as 
the market remains in a funk, expect LLY to fall further.  
Beware though, as LLY has fallen quite a bit below its 30 
dma, signaling that a small recovery may be in order, 
especially after 6 straight days of downward price 
pressure.  Everyone should that stocks tend to move in
cycles.  Nothing travels in a straight line up or down
for long.

TBFC $61.69 -6.31 (-7.19) Telebanc fell this week despite an
upgrade from Merrill Lynch.  That held the stock up on Monday 
while other Financials took a hit but sellers came back in 
on Tuesday.  The late day hit on the market did the most damage
to TBFC.  Today's close puts us right back to the short-term
low established last week.  The stock still has no clear support 
level until the 200-dma down near $42.

TBH $82.69 -4.31 (-9.94) Articles have been steadily coming out 
of South America as old fears are re-ignited.  The trick is to
determine which rumors are significant and which are irrelevant.  
The news this week is concerning alleged wrongdoing by Brazil's
President Fernandez Cardoso.  This has caused traders to panic 
and sell stocks and the local currency.  As Brazil's Real has 
been dropping against the dollar, it has been pressuring the 
market.  One local trader in Brazil said he expects the Bovespa 
to continue to drop until all the facts get sorted out.  There 
is lots of room for profit taking since the market is still up
60% for the year. We have already had a very profitable move 
in our play and would exercise caution at this point.  Lock in 
your profits with your stop losses.  TBH does have more room to 
drop if bad news keeps flowing out of South America.  Any dip 
in the Dow Jones will also take Brazil's market lower.

XCIT $116.94 -1.12 (-13.06) XCIT was pummeled this week due 
to continued weakness in the Internets.  The stock began dropping
right out of the gates on Monday.  It lost over 14 points from
It's opening price.  It actually tried to rally today as most 
Internets lost but gave way to the late day sell-off.  XCIT has
had some positive news and new products but not enough to 
influence trading dramatically.  We should see continued 
volatility as the stock tries to find support.  Tighten your 
stops to lock in the profits and watch for bargain hunters.  
But we expect the downward momentum to continue for the sector.

GNET $97.25 -3.12 (-17.69) Go2Net picked up where it left off 
last week with a continual slide.  The chart still shows a very
weak technical picture.  It had such a big run up in March that
it has no support until it reaches the $60 range.  There is 
no particular company specific news weighing on the stock.   
It is just a matter of a high valuation and recent price rise 
that has left the company's stock vulnerable.  Watch for any 
rally to be short-lived.  Also lock in those profits with your
stop losses.  The NASDAQ closed right at its low and unless 
we get some positive news, we could pick right up on the selling
on the open.     
 
EK $70.50 -1.00 (-2.50) Kodak continued its slide this week. 
All technical indicators are negative and the stock just dropped 
below its 50 dma. We expect EK to go lower still, as film price 
competition continues. In the news: EK has just launched a 
camera promotion that will last through June. Buyers of several 
Avantix models can send a second Avantix (a model worth $49) to 
anyone they choose for free. 


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

NONE TODAY


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

AXP - American Express $114.50 -2.31 (-5.75 this wk.)

American Express Company, through its subsidiaries, 
provides travel services, international banking services, 
and financial advice.  Of course, most of us know it by its 
most apparent forms, the American Express Card and American 
Express Travelers Cheques.

Just another finance company suffering from the perception 
that financials are not the place to be in a high 
inflation/interest rate environment.  We thought AXP might 
have some short-term support at $117.50, than again at 
$115.  AXP fell right through near the close today.  AXP's 
technical chart is negative territory too, as it's been on 
a steady descent since early May when it traded around 
$135, significantly below its 50 dma.  It didn't help that 
First Union warned of a $0.50 shortfall, nor that South 
American countries were again talking about devaluation and 
currency problems.  An already inflation-spooked market 
didn't need that to help AXP down the steps.  If things get 
ugly for the remainder of the week, the financial sector 
will be hit harder.  AXP is a giant bull's eye for negative 
market arrows.  Just realize when the market turns around, 
buyers may jump in just as quickly as they sold it.  
Confirm market direction before playing.

No AXP specific news, just overall market fear.

BUY PUT JUN-120 AXP-RD OI=696 at $8.13 SL=6.25, ITM 5.50
BUY PUT JUN-115*AXP-RC OI=212 at $5.13 SL=3.25, ATM
BUY PUT JUN-110 AXP-RB OI=288 at $2.94 SL=1.50, OTM

Average Daily Volume = 1.81 mln.
Chart = http://quote.yahoo.com/q?s=AXP&d=3m

*****

INKT - Inktomi Corporation $86.00 -17.31 (-28.00 this week)

Inktomi Inc. develops, markets and supports software applications 
which enhance performance, intelligence and manageability of
large scale networks. Its applications offer scalability without 
limit or significant deterioration in performance as additional
workstations are added. If one station fails, work is automatically 
distributed without the whole cluster failing. One workstation 
can handle thousands of operations. Current applications include 
a large-scale network cache called Traffic Server which addresses 
capacity constraints in high traffic network routes. The company 
also has a network search engine (not branded). Its newest 
developing application is a shopping engine, initiated with the 
Sep 98 acquisition of C/2/B Technologies. (Baseline Financial 
Services)

Selling in the Internet group has been particularly hard on 
INKT.  The stock has lost 25% in the first two days this week. 
The stock is now at a 50% haircut to its all-time high reached in 
April.  Unfortunately the selling looks to continue.  The trigger 
came this week as the stock broke through it's 50-dma at $105.  
There is no change in the fundamentals for the company lately 
and the sector dip is mainly due to a technical pattern.  The 
Internets had such strong gains in April that there is room to
take some money off the table.  Also we are entering the typical
summer slowdown for the sector.  And there is no clearly defined 
support in sight.  Watch for a bounce though.  Internets are still
a Street favorite and investors will be waiting in the wings for
a bottom to buy in again.  Stops are crucial on these plays.

BUY PUT JUN-90*QYK-RR OI=303 at $12.13 SL=9.50
BUY PUT JUN-85 QYK-RQ OI=224 at $ 9.00 SL=7.00

Average Daily Volume = 1.72 mln

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

*****

DCLK - Doubleclick Inc. $85.62 -12.25 (-21.88this week)

DoubleClick Inc. provides Internet advertising services for 
advertisers and Web publishers worldwide. The DoubleClick 
Network provides fully-outsourced ad sales, delivery, and 
Related services to publishers of highly trafficked Web sites, 
including AltaVista, The Dilbert Zone, Macromedia, and U.S. 
News Online. The DoubleClick Network focuses on meeting the
advertising needs of Internet advertisers who target users 
on a national, international, or local basis. The company's 
DART Service enables Web publishers, advertisers, and ad 
agencies to control the targeting, delivery, measurement, 
and analysis of their online marketing campaigns on a real-time 
basis. DoubleClick's DART technology delivers some 34 billion 
ads around the world every year. (Baseline Financial Services)

Welcome to the volatile world of Internet trading.  DCLK is 
learning all about volatility this week as their stock price
has shed over 20 points.  The Internet group has come under 
fire the past couple weeks as most stocks are breaking their 
50-dma's.  The heavy volume has confirmed that this may be 
a correction phase.  For instance, DCLK has had a lot of positive
product announcements on Monday but has been unable to sustain 
any rally.  It is actually one of the most beaten up stocks 
of the sector.  Pick your entry points carefully to avoid being
caught in a bounce and use your stops effectively.  The support 
lines for DCLK and most Internets are still far away.  We don't 
see much support in DCLK until the mid $50 range but keep in
mind bargain hunters are always anxious to own this group.  

BUY PUT JUN-90*QWE-RR OI=992 at $12.75 SL=10.00
BUY PUT JUL-85 QWE-SQ OI=200 at $13.75 SL=11.25

Average Daily Volume = 2.49mln

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

*****

AMTD $81.88 -11.56 (-22.12 this week)

Ameritrade Holding Corporation provides discount securities 
brokerage and clearing execution services. The company provides 
retail discount brokerage services through subsidiaries
Ameritrade (Inc.) and Accutrade, Inc. Retail customers can 
trade stocks, options, mutual funds, and bonds through the 
Internet, PC-based software, personal digital assistants, 
touch-tone telephones, and fax machines, and through
registered representatives. Advanced Clearing, Inc. provides 
clearing and execution services to its discount brokerage 
businesses, as well as to independent broker- dealers, 
depository institutions, investment advisors, and financial
planners. Subsidiary AmeriVest, Inc. provides discount 
brokerage services wholesale to depository institutions. 
(Baseline Financial Services)

Once a upon a time AMTD was known as a financial services 
company but now it is lumped in with the Internets and left 
to trade with the sector.  Actually it is also suffering from
post-split depression.  The online traders as a whole went 
through such a euphoric period for the previous two months 
that there is no wonder that they are vulnerable to profit 
taking.  The stock broke its 50-dma yesterday and is falling 
fast.  The valuation is still extremely high and the next 
support level isn't until $60 where the stock broke out in 
April.  Watch for any signs of a reversal from its current 
trend but we expect to see more downside.

BUY PUT JUN-85 TAZ-RQ OI= 68 at $12.63 SL=9.50
BUY PUT JUN-80 TAZ-RP OI=144 at $ 9.63 SL=7.25

Average Daily Volume = 1.04 mln

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

*****

RNWK - RealNetworks, Inc. $58.00 -13.75 (-23.00)  

RealNetworks, Inc. develops and markets software products and 
services.  The Company's software and services enable the 
creation and real-time delivery and playback of audio, video, 
text, animation, and other media content over the Internet 
and intranets on both a live and on-demand basis.  Products 
and services include "RealSystem G2."  (from Bloomberg.com)

We are adding RNWK as a put as it has dropped off drastically.
The stock is now trading below its 50 and 100-dma.  The stock
seems headed for its 200-dma at $38.  This does not mean we
won't see a technical bounce after two big down days, so don't 
just go out and buy puts on Wednesday morning.  Wait for a bump
up by target shooting this one.  We could see some resistance
around $62, which might be a good chance to buy as the stock
bounces off this point.  The Amex Internet Index has dropped
below its 50-dma and this has technical analysts crying for
further drops.  Unfortunately for RNWK, it has had such huge
gains, that an overused cliche seems appropiate.  What goes
up... (or according to OIN, Gravity does rule the universe.)

BUY PUT JUN-60*QRN-RL OI=509 at $ 9.00 SL=7.00
BUY PUY JUN-65 QRN-RM OI=238 at $12.63 SL=8.50

Average daily volume = 2.07 mln.
Chart = http://quote.yahoo.com/q?s=RNWK&d=3m

****

PFE -  Pfizer Inc. $102.13 -4.13 (-8.12 this wk)(-2.94)

Is it any wonder that one of the world's top producers of
veterinary medicines for farm and domestic animals is also
the creator of Viagra (the infamous male anti-impotence drug).  
Pfizer makes a number of consumer products in addition to their
prescription drugs (like BenGay muscle rub and Visine eyedrops).
They also co-market Lipitor (cholesterol drug) with 
Warner-Lambert (WLA).

PFE's graph looks like heaven to put players.  The company has 
been hurt by competition and a weakened market.  The DOW looks 
like it is tired and rolling over.  The profit taking could 
very well continue- sending the leaders like PFE even lower.  
On Tuesday, PFE dropped -$4.13 on an incredible trade volume.  
Over 7 mln. shares traded hands when the norm is much lower 
at 3.59 mln.  The picture gets gloomier due to the fact that 
one of PFE's major competitors just received additional FDA 
approval for its drug.  Merck's painkiller Vioxx will be 
available for sale by the middle of June and will be a 
formidable competitor to PFE's Celebrex.  We feel that PFE 
has a lot of negative potential.  Look for PFE to head lower 
as investors continue to take their money elsewhere.
One caution, though, the drug stocks, while recently weak
will eventually come back.  Not many other sectors out there
have a annual earnings growth in the high teens.  When the
buyers jump in, they will do in force.  Use your stop losses.

News:  Pfizer will split 3:1 on July 1st.  Even though some 
companies do make a split run, we feel PFE will head lower 
if the markets continue to sell off.  PFE is now trading 
well below its 200 dma. 

BUY PUT JUN-110 PFE-RB OI=5498 at $9.38 SL=7.25
BUY PUT JUN-105*PFE-RA OI=4429 at $5.75 SL=4.25
BUY PUT JUN-100 PFE-RT OI=3727 at $3.38 SL=1.75

Average Daily Volume = 3.59 mln  
Chart = http://quote.yahoo.com/q?s=PFE&d=3m



**** Combo plays in section three ******


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The Option Investor Newsletter         Tuesday  5-25-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

*****************************************************
COMBINATION PLAYS   
*****************************************************
Fear And Uncertainty Dominate The Markets...

U.S. stocks moved lower for the second straight day as investors
adjusted portfolios for the uncertain times ahead.

Monday, May 24

U.S markets tumbled Monday as investors dumped technology & bank
stocks on inflation fears and Y2K concerns. The Dow closed down
174 points at 10,654, and also finished below a recent technical
benchmark. Lead by a retreat in Internet shares, the Nasdaq index
was sharply lower, finishing 66 points lower at 2453. On the New
York Stock Exchange, declining issues outnumbered advancers by a
2-to-1 margin with consolidated volume at 910.81 million shares.

Sunday's new plays (positions/prices):

AG   AUG12C/JUN12C   $0.87 debit   (easy entry at target price)
CIEN JUL30C/JUN30C   $0.87 debit   (slightly less than target)
COF  JUN120P/JUN125P $0.62 credit  (down $20; $1.25 was the high)
EL   JUN105C/JUN100C $0.93 credit  (unaffected by market slump?)
IONA JUN22C/JUN15P   $1.06 credit  (slightly less than target)
URI  JUN35C/JUN20P   $0.00 No Play (call premium was unavailable)

Portfolio plays:

Today's excitement came in the form of a mass exodus in the bank
stocks as the group suffered the double-barreled blow of the big
market sell-off along with a sector downgrade. The leader of that
group was also one of our disparity plays and we watched from the
sidelines as it fell a total of $20 for the day. There was really
no indication of the drop before the market and even though the
stock opened late, it traded down only slightly until about 10 am.
By then, a 40 contract position had been opened at $0.62 credit.
The stock price moved lower near 11:00 as the news of a downgrade
filtered through the market and from there it was all downhill.
It seems like we have atleast one of these surprises a month so
maybe we are just getting this one out of the way early.

Elsewhere in the portfolio; just lots of red! Lets hope this is
just a consolidation and not the beginning of a small-scale bear
market.

Tuesday, May 25

U.S. stocks moved lower for the second straight day on Tuesday as
investors adjusted portfolios for the uncertain times ahead. The
Dow was off 123 points at 10,531 after dropping 175 points Monday.
Falling Internet shares again led the Nasdaq index as it plunged
72 points to 2,380. In the broader market, declining issues led
advances 2-to-1 on active volume of 822 million shares on the New
York Stock Exchange.

Portfolio plays:

Overall, the market continued lower today and while that creates
trouble for some of our bullish debit spreads, atleast there are
a few calendar positions that pulled back to the (short) strike
price. These include CS, COMS and UK. You might consider closing
any of these ATM time spreads for the small profits that are now
available. Another of our debit straddles; GET, is profitable
and we will watch for a change in the character of the stock
before closing the play. AMZN is falling quite rapidly and our
last chance may be the psychological barrier at $100. We will
watch this one closely for signs of a rebound before exiting the
debit spread.

Good Luck!
******************************************************************

         - SUMMARY OF CURRENT POSITIONS FOR MAY 23, 1999 -

******************************************************************
			- CREDIT SPREAD SUMMARY -
******************************************************************
Stock Pick     Last      Position   Credit   Cost    G/L   Status

AOL  $119.75  $126.44 MAY100P/M105P $1.00   $0.00   $1.00  Closed
AEOS $39.38   $40.25  MAY32P/MAY35P $1.00   $0.00   $1.00  Closed
DELL $46.81   $37.31  MAY40P/MAY42P $0.81   $0.87  ($0.06) Closed
PCS  $47.31   $46.44  MAY55C/MAY50C $0.38   $0.00   $0.38  Closed
TXN  $105.63  $113.00 MAY85P/MAY90P $0.62   $0.00   $0.62  Closed
WCOM $87.62   $84.88  MAY75P/MAY80P $0.62   $0.75  ($0.12) Closed

* WCOM was actually OTM at expiration but we had previously closed
the position to avoid excessive losses.

Credit spreads are profitable if both positions remain OTM until
expiration. The cost-to-close price can be used to compare the
initial opening credit to the current spread value.
******************************************************************
	            - CALENDAR SPREAD SUMMARY -
******************************************************************
Stock  Pick     Last      Position    Debit   Value   G/L   Status

BTC   $16.75   $16.50     MAY15C      $1.50  $1.62   $0.12  Closed
CS    $11.12   $15.38  JUL12C/JUN12C  $0.18  $0.25   $0.06   Open
CSCO  $113.06 $113.25  OCT115C/J115C  $5.25  $9.25   $4.00   Open
CIEN  $22.44   $30.06  JUL20C/MAY20C  $0.00  $2.06   $2.06  Closed
CNTO  $43.00   $45.00  JUL45C/JUN50C  $1.38  $2.75   $1.38   Open
COMS  $25.81   $29.44  OCT25C/JUN25C  $2.00  $2.25   $0.25   Open
EMC  $124.63  $103.50  OCT130C/J115C  $3.75  $4.75   $1.00   Open
FDX   $49.06   $55.25  JUL50C/JUN50C  $0.38  $0.75   $0.38   Open
FFD   $10.81   $16.50  JUN10C/MAY12C  $0.00  $2.38   $2.38  Closed
FLT   $43.06   $41.94  JUL45C/JUN45C ($0.38) $0.38   $0.75   Open
GILD  $46.00   $45.44     MAY45C      $1.38  $2.50   $1.12  Closed
HUM   $19.50   $13.13     MAY20C      $0.12  $0.12   $0.00   Open
IBI   $54.00   $50.19  OCT55C/JUN55C  $3.12  $2.75  ($0.38)  Open
ITWO  $34.87   $32.38     MAY35C      $1.62  $2.38   $0.75  Closed
KLAC  $55.50   $49.25  JUN55C/MAY55C  $0.25  $1.87   $1.62  Closed
MACR  $40.84   $49.50  JUN40C/MAY40C  $1.87  $2.12   $0.25  Closed
NEM   $21.25   $18.81  SEP22C/JUN22C  $1.00  $1.00   $0.00   Open
NSM   $12.56   $19.94  NOV15C/JUN20C  $1.50  $5.00   $3.50   Open
NSM   $12.56   $19.94  JUN15C/MAY15C  $2.43  $4.00   $1.56  Closed
NWAC  $25.00   $34.94  JUN25C/MAY30C  $2.00  $5.00   $3.00  Closed
QNTM  $20.38   $19.88  JUN20C/MAY20C  $0.62  $1.38   $0.75  Closed
QNTM  $20.38   $19.88  AUG20C/JUN20C  $0.81  $1.50   $0.69   Open
SKYT  $26.38   $20.06  JUN25C/MAY22C ($1.88) $0.68   $2.56  Closed
SKYT  $20.87   $20.06  SEP22C/JUN22C  $0.50  $1.12   $0.62   Open
TX    $67.25   $66.13  JUN70C/MAY70C  $1.50  $1.81   $0.31  Closed
UCL   $44.38   $41.88  OCT45C/JUN45C  $1.50  $2.00   $0.50   Open
UK    $48.06   $56.00  JUL50C/JUN50C  $0.12  $0.25   $0.12   Open
WLA   $69.31   $66.88  JUL70C/JUN70C  $0.00  $2.00   $2.00   Open

Covered-Calls on LEAPS

CD    $19.93   $19.19  LJAN20/JUN20C  $1.00   $2.62   $1.62   Open
CPQ   $24.62   $25.06  LJAN25/JUN25C  $2.38   $3.25   $0.87   Open
DIS   $38.00   $29.50  LJAN40/JUN30C ($0.50)  $0.12   $0.38   Open
HAL   $31.00   $41.75  LJAN30/JUN40C  $7.75  $10.00   $2.25   Open
HD    $58.43   $58.13  LJAN60/JUN60C  $2.62   $5.50   $2.87   Open
JNJ   $86.63   $92.50  LJAN85/JUN95C $10.12  $11.50   $1.38   Open
LEH   $57.93   $55.56  LJAN60/JUN60C  $1.00   $7.00   $6.00   Open
MER   $97.00   $75.13  LJAN100/JU80C  $9.25   $3.50  ($5.75)  Open
MOT   $83.00   $86.06  LJAN85/JUN85C  $4.00   $8.50   $4.50   Open
ORCL  $25.19   $25.75  LJAN25/JUN25C  $2.62   $3.50   $0.87   Open
PG   $100.50   $97.25  LJAN100/J100C  $4.50   $6.50   $2.00   Open
SEPR  $99.63   $68.75  LJAN100/JU80C $19.12   $6.87  ($12.25) Open
SGP   $53.88   $48.50  LJAN55/JUN55C  $2.00   $3.00   $1.00   Open
SUNW  $47.25   $60.19  LJAN50C/JUN60 ($5.75)  $8.50   $14.25  Open
TOM   $71.12   $77.00  LJAN70/JUN75C  $8.25  $10.00   $1.75   Open
UAL   $65.38   $74.38  LJAN65/JUN75C  $7.50  $12.50   $5.00   Open
WCOM  $74.25   $84.88  LJAN75/JUN85C  $8.62  $16.50   $7.87   Open

* Some of these long-term positions have been in the portfolio for
months; please don't mistake the large gains (or losses) as 30-day
returns.

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis) at the end of
the expiration period for the long position. However, because we
track the plays based on the current closing cost/value, the gains
for time spreads will rarely be reflected until the play closes.
Each month, as we sell a new call against the long position, the
net cost should decline or the position value should increase.
******************************************************************
			     - DEBIT SPREADS -
******************************************************************
Stock  Pick     Last     Position    Debit   Value    G/L   Status

AMAT  $64.38   $59.56   MAY55C/60C   $3.62   $4.00   $0.38  Closed
AMZN  $132.62  $128.56  JUN100C/110C $8.12    New     Play   Open
BRCM  $78.38   $107.00  JUN70C/80C   $4.75   $8.00   $3.25  Closed
CDO   $22.75   $25.75   MAY17C/20C   $1.50   $2.25   $0.75  Closed
CMNT  $18.69   $26.38   JUN12C/17C   $3.62   $4.38   $0.75  Closed
CNCX  $95.00   $74.00   MAY65C/70C   $3.87   $4.50   $0.62  Closed
CNXT  $29.50   $40.06   MAY22C/25C   $1.75   $2.31   $0.56  Closed
CNXT  $29.50   $40.06   MAY22C/30C   $4.12   $6.75   $2.62  Closed
CSE   $43.00   $48.75   JUN35C/40C   $3.25   $4.25   $1.00  Closed
DELL  $46.81   $37.31   MAY45C/47C   $1.00   $1.25   $0.25  Closed
DRIV  $44.94   $30.06   MAY30C/35C   $4.00   $3.12  ($0.87) Closed
EGRP  $111.68  $106.13  MAY95C/105C  $6.00   $8.00   $2.00  Closed
ESPI  $9.62    $12.94   JUN5C/JUN7C  $1.87   $2.00   $0.12   Open
KEY   $36.63   $35.38   JUN30C/35C   $3.75   $3.50  ($0.25)  Open
MI    $16.50   $17.63   MAY15C/17C   $0.62   $1.62   $1.00  Closed
NXTL  $39.18   $36.06   MAY30C/35C   $3.62   $4.50   $0.87  Closed
PRD   $23.62   $22.88   JUN20C/22C   $1.50   $2.25   $0.75   Open
PTEK  $17.25   $17.50   MAY15C/17C   $1.00   $0.81  ($0.19) Closed
RX    $32.75   $27.69   MAY37P/35P   $1.50   $2.25   $0.75  Closed
TWX   $70.68   $70.00   JUN70C/75C   $2.38   $1.25  ($1.12)  Open
USWB  $26.31   $28.50   JUN22C/25C   $1.50   $1.62   $0.12   Open
UTX   $67.81   $64.13   MAY125C/130C $3.62   $4.50   $0.87  Closed
WCII  $50.81   $49.88   MAY40C/45C   $3.75   $5.00   $1.25  Closed
WMT   $47.50   $43.25   MAY45C/47C   $1.56   $2.12   $0.56  Closed
XCIT  $135.93  $132.94  MAY110C/125C $9.00  $12.00   $3.00  Closed

A debit-spread is profitable if the value of the position exceeds
the initial cost of the spread when the play is closed. However,
because we track plays based on the current cost/value, potential
gains may not be reflected until both positions are closed.
******************************************************************
		          - DEBIT STRADDLES -
******************************************************************
Stock  Pick     Last      Position   Debit   Value    G/L   Status

CSX   $49.25   $49.56  JUN50C/JUN50P $6.25   $5.62  ($0.62)  Open
ETH   $50.68   $50.06  AUG50C/AUG50P $9.12  $10.25   $1.12  Closed
GET   $31.06   $32.44  SEP30C/SEP30P $4.19   $4.87   $0.68   Open
KMT   $30.62   $29.00  SEP30C/SEP30P $6.50   $6.25  ($0.25)  Open
LRW   $39.25   $35.50  JUN40C/JUN40P $6.12   $7.12   $1.00  Closed
PZN   $17.50   $14.00  NOV17C/NOV17P $3.50   $6.00   $2.50  Closed
RHI   $25.43   $28.44  NOV25C/NOV25P $6.75   $6.38  ($0.38)  Open
RSV   $23.50   $23.81  SEP22C/NOV22P $5.12   $4.75  ($0.38)  Open
UMG   $77.38   $75.69  JUL75C/JUL75P $9.87  $10.87   $1.00  Closed

* ETH, LRW, PZN and UMG were closed prior to expiration to lock-in
short-term profits.

A debit-straddle is profitable when the value of the position
exceeds the initial cost of the spread.
******************************************************************
				- CREDIT STRADDLES -
******************************************************************
Stock  Pick     Last      Position   Credit   Cost    G/L   Status

MTZ   $24.50   $27.56  MAY30C/MAY20P $1.62   $0.00   $1.62  Closed
ACAI  $28.43   $15.88  MAY35C/MAY22P $0.93   $5.00  ($4.06) Closed
LHSP  $37.00   $39.50  MAY40C/MAY30P $1.25   $0.00   $1.25  Closed
TXN   $106.00  $113.00  MAY115C/90P  $2.25   $0.00   $2.25  Closed
WCOM  $88.88   $84.88   JUN100C/80P  $2.50      New Play     Open
WLP   $75.69   $79.25   JUN80C/70P   $3.75      New Play     Open

* ACAI dropped on the last day of expiration - What bad luck!

A credit-straddle is profitable if the cost to close the position
is less than the initial credit from the spread.
******************************************************************
				- NEW PLAYS -
******************************************************************
NOVL - Novell  $23.75     *** Excellent Outlook ***

Novell is the world's leading provider of directory-enabled
networking software. Novell solutions give businesses total
control of their private networks and the Internet, simplifying
the management of user access and identity. Novell's worldwide
channel, developer, education, and technical support programs
are the most extensive in the network computing industry.

Novell's announced today that second quarter profits doubled on
strong sales of new software to help manage computer networks.
The company said its net income for the period rose to $38.7
million, or $0.11 a share, from $19.3 million, or $0.05, just a
year ago. The results topped analyst expectations by $0.01.

Novell's business objective, over the longer-term, is to grow its
revenue as network deployments of Novell Directory Services (NDS)
increase the market potential for directory-enabled applications
that rely on NDS. NDS is intended to integrate enterprise systems
and manage supply chain and e-commerce relationships. Over 90% of
Novell's revenue came from directory products, where sales jumped
35% from a year ago. The company believes the directory market
creates an opportunity for Novell to enter software categories
where it has not historically competed.

NOVL was up slightly in after-hours trading so the option prices
will probably different in the morning. We are going to play the
$25 strike price; the highest time premium and a fair disparity
exist at that position. NOVL's current technical resistance is
also near that price range.

PLAY (conservative/calendar spread):

BUY  CALL AUG-25 NKQ-HE OI=2409 A=$2.43
SELL CALL JUN-25 NKQ-FE OI=2761 B=$1.12
INITIAL NET DEBIT TARGET=$1.12 TARGET ROI=100%

Chart = http://quote.yahoo.com/q?s=NOVL&d=3m
******************************************************************
SGI - Silicon Graphics  $12.18     *** Cheap Speculation ***

SGI is the leader in high-performance computing technology with
the world's most powerful servers, supercomputers and visual
workstations. The company's systems, from desktop workstations to
the most powerful supercomputers in the world, deliver advanced
computing and 3D visual capabilities to scientific, engineering,
and creative professionals and large enterprises. In addition,
SGI creates innovative software for the Internet and entertainment
applications. SGI provides solutions in several key industries,
including manufacturing, government, communications, energy, and
sciences & education.

It appears that traders were opening bullish positions on Monday
as implied volatility and volume both increased in the front-month
call options. The large volume relative to open interest in some
strikes indicated new positions were being opened and the implied
volatility rose 20 points higher than that of recent months.

Today's retreat in the stock price deflated the ATM premiums but
still left us with a favorable, low risk position in a long-term
speculation play.

PLAY (speculative/calendar spread):

BUY  CALL AUG-15 SGI-HC OI=1583 A=$1.12
SELL CALL JUN-15 SGI-FC OI=204  B=$0.38
INITIAL NET DEBIT TARGET=$0.62 TARGET ROI=50%

Chart = http://quote.yahoo.com/q?s=SGI&d=3m
******************************************************************
CD - Cendant  $20.25     *** Revised Outlook ***

Cendant Corporation is a global provider of consumer and business
services. Core activities include building franchise systems,
providing outsourcing solutions and direct marketing. Cendant is
the world's leading franchisor of hotels, rental car agencies and
real estate brokerage offices. They are a leading fleet management
company; the world's largest vacation exchange service; a major
provider of mortgage services to consumers and the global leader
in employee relocation. Cendant provides direct marketing access
to insurance, travel, shopping, auto, and other services. Cendant
intends to sell its Central Credit, Global Refund, North American
Outdoor Group, Spark Services and NUMA publishing arm.

Cendant has struggled ever since they discovered major accounting
irregularities of more than $500 million in fictitious income on
CUC's books last year. Their failed bid for American Bankers
Insurance Group didn't help matters and soon they became the most
frequently targeted company in 1998 for class-action lawsuits.

It appears as though the company may finally be back in favor and
the CEO's comments on 'Moneyline" last night may have convinced
institutional investors that the worst of times is now behind
them. Today, Merrill Lynch upgraded its rating on shares of CD
after the company announced it completed a major overhaul of its
core franchise and travel service operations with the sale of its
auto leasing and fleet-management unit to Avis Rent A Car Inc.

The short-term technical outlook for the stock is favorable and
maybe it will be supported by the current flight from large-cap
stocks into smaller issues.

PLAY (conservative/debit spread):

BUY  CALL JUN-17.50 CD-FW OI=8902  A=$2.50
SELL CALL JUN-20.00 CD-FD OI=12036 B=$0.87
INITIAL NET DEBIT TARGET=$1.50 ROI(max)=66% B/E=$19.00

Chart = http://quote.yahoo.com/q?s=CD&d=3m
******************************************************************
AAPL - Apple Computers  $41.50     *** Elevator Going Down ***

Apple Computer ignited the personal computer revolution in the
1970s with the Apple II, and reinvented the personal computer in
the 1980s with the Macintosh. Apple is now recommitted to its
original mission to bring the best personal computing products
and support to students, educators, designers, scientists,
engineers, and consumers around the world.

Analysts had mixed reviews last week after Apple Computer's recent
meeting with industry experts at the company's headquarters. One
of the well-known institutional brokerages (PaineWebber) said it
found "no significant change in Apple's strategy" as a result of
the meeting and they maintained their "neutral" rating on the
company. A neutral rating from an institutional broker is almost
equivalent to yelling 'fire' in a crowded theatre. On that same
day, Apple's popular IMAC computer dropped out of the top-five
retail sellers as customers continued to flock to lower priced
machines. In general, PC sales in retail computer stores were
robust last month, but the move to cheaper units hurt high-end
products like Apple's IMAC.

This play is based primarily on technicals. The recent failure of
of the stock price at $45 and the mass exit from computer stocks
are both contributing to the new bearish trend. Even with a change
in character, it appears that this issue would have little chance
of remaining above the sold position at expiration.

PLAY (aggressive/credit spread):

BUY  CALL JUN-47.50 AAQ-FW OI=43   A=$0.62
SELL CALL JUN 45.00 AAQ-FI OI=1505 B=$1.06
INITIAL NET CREDIT TARGET=$0.56 ROI=29%

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


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