Option Investor
Newsletter

Daily Newsletter, Thursday, 06/17/1999

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The Option Investor Newsletter            Sunday  6-20-99  1 of 6
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

Published three times weekly, Sunday, Tuesday, Thursday evenings.
New plays and market wrap updated daily on the website. 
******************************************************************
Entire newsletter best viewed in COURIER 10 font for alignment
******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
         WE 6-18          WE 6-11           WE 6-4          WE 5-28
DOW     10855.56 +365.06 10490.50 -309.34 10799.84 +240.10  -269.54 
Nasdaq   2563.44 +115.64  2447.80 - 30.54  2478.34 +  7.82  - 49.62 
S&P-100   683.47 + 28.60   654.87 - 17.55   672.42 + 13.76  - 13.10 
S&P-500  1342.84 + 49.20  1293.64 - 34.11  1327.75 + 25.91  - 28.45 
RUT       445.05 +  7.04   438.01 -  4.32   442.33 +  3.65  - 10.46 
TRAN     3396.34 + 51.87  3344.47 -118.26  3462.73 + 47.03  -135.56 
VIX        22.34            27.01            23.45            26.38
Put/Call     .43              .64              .56              .54
******************************************************************

A triple witching Friday and a triple whoopee week!

You just cannot ask for better than we got this week. A +365 point
gain for the Dow and a +115 point gain for the Nasdaq. (Equivalent
to +500 Dow points) All this on a week where the CPI was lurking
like a Titanic size iceberg and Alan Greenspan said the Fed would
raise rates. Can you believe it? Where is the beef? Apparently it
is all on the hoof and stampeding into earnings season. Even the
new downgrade of Intel by Morgan Stanley on Friday and the highest
first hour volume on the NYSE in history did not break the market
stride. The volume was related to the triple witching but did not
move the market as an equal number of positions on both sides just
closed each other out.


 

 
In reality today could have been a good day for profit taking and
after the morning spike we did retreat into negative territory
several times before breaking the end of day tape with a last
minute surge. Every dip was met with buyers but -30 was the most
damage the sellers could do and it only lasted a moment. Almost
all sectors took part with the exception of drugs and semiconductors.
Drugs were only fractionally weak with PFE -.88, MRK -.50, SGP -.34,
BMY -.66 and WLA bucking the trend with a +1.38. 

Intel was downgraded by Morgan Stanley, making the second downgrade
in two days. Citing a manufacturing problem with .18 micron Pentium
III processors, the analyst thought the delay would change the
product mix to a lower margin ratio and impact profits. Intel at
first declined to comment but later in the day announced that they
indeed were having some challenges in yields but "it would have no
impact on their results". The damage had already been done and the
semi sector had already suffered some profit taking from their great
run the last two weeks. KLAC -1.56, LSI -.38, AMAT -2.56, NVLS -1.94,
XLNX -1.44. Minor damage only and about one days gains from last week.
We took the precaution of dropping all the semiconductor stocks
tonight just in case the pause here is not temporary. We will pick
up the leaders again once the pack turns back around.

Gillette, however took heavy fire, as traders nailed it for -5.13
after their profit warning Thursday. Gillette cited weaker global
sales but in reality analysts said things are not good under the 
shave cream and razors. Several units are losing money and repeated
efforts to jump start them are failing. Look for Gillette to continue
bleeding as analysts knick them with downgrades next week.

Things are looking up. Actually, things are looking too good. The
VIX at 22.34 has not been this low since December and indicates
that volatility is non-existent. The put/call ratio at .43 is very
low and indicates everybody is looking for a move in the same
direction. This is fine as long as nobody blinks but the calmness
will start making many old time traders skittish. The old saying
"when the VIX is low its time to go" is bound to start echoing in
the subconscious's of serious market timers. In the meantime we
are in limbo. We have a week with no serious economic reports. 
Yes, the Fed meets the following week but everyone knows what the
outcome is there. The earnings feast will be served starting in 
two weeks and traders are already salivating with anticipation.
I can find no reason not to start new positions and it scares
even a bull like me. The only excuse I could even barely see
using is possible profit taking from this week but I would view
any pullback here as a gift. 


 
The sector to watch would be the Internets. After pulling themselves
out of the depths last week they stalled on Thursday afternoon.
Several followed Yahoo's lead and peaked Thursday morning and then
pulled back in the afternoon and did nothing Friday. This could
just be natural. Some are up +$15-$20 from their lows last week
and normal end of week profit taking could have caused the stall.
Yahoo will announce earnings the second week of July and should
continue their pre-earnings run next week. If Yahoo falters then
they will all falter. Watch them for guidance. Others may move
faster once Yahoo signals the coast is clear. Doubleclick, which
has a new product coming out, Realnetworks, Amazon and of course
AOL, which we made a pick tonight. 

We added several new leverage plays tonight. ASND which is being
bought by Lucent and Honeywell which is being bought by Allied
Signal. Both are being acquired for more than one share of the
purchaser which provides a bigger bump for the acquired company.
For instance a 2 for 1 purchase would result in the company being
bought jumping $2 for every $1 the purchaser gained. Check the
plays for details. 
  
Without a global meltdown over the weekend, none is expected,
and assuming there is no catastrophic earnings warning on Monday
before the bell, then we could see 2600 on the Nasdaq again and
11,000 on the Dow. Simply incredible. The last four weeks were
rocky with sector rotation and selloffs occurring daily. Now that
reports prove that Goldilocks is alive and well and not gaining
weight, the buyers are out in force again. All is forgotten. NOT!
Those who lived through February were hopefully better traders
in the recent correction. If not then surely you will be better
in the next one. Next one? You bet! It is only a matter of time
and you can bet on it. When the earnings bloom starts to wither
in late July you need to be ready to pull in those bullish horns
again. Remember it is not going to be written in three inch 
headlines on the Wall Street Journal and Investors Business Daily
that the rally is over. It is up to all traders to recognize the
warning signs and withdraw safely. Many of our readers only think
markets go up and when markets correct they wrongly interpret is
as just bad picks on our part. Sorry folks but we all know the
market determines stock direction. The best call plays in the
world will go down when the market drops -700 points. You would be
surprised how many people who email us do not understand this 
simple point. We will try to warn you again that things are not
right in the markets. Go back to the May 18th commentary:


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. 

Just superimpose July 1st (earnings month) over April 1st (earnings 
month)on the chart above and you will see what could happen starting 
in July. Yes, summer rally! But as on the chart above, when the 
earnings are over the profit taking begins. Lest you doubt me look 
at the last month on this chart again. Earnings run from April 8th
to May 15th for most. (July 8th to August 15th this time)


 
Sounds simple dosen't it? It is if you follow the rules. Remember
to trade according to our trading plan. "Only trade when the odds
are in your favor". Or as you have heard me say many times, "only
trade when profitable". Many of our readers have a different plan,
"trade whenever the market is open". There is a difference.

Have a great week, pick your entry points, sell too soon!

Jim Brown
Editor


****************************************************
JIM'S PLAYS
****************************************************

Last week I wrote that I was still in Vegas at the Money Show
and had not been trading. The dip in the Nasdaq and Internet
stocks on that Friday had been too tempting and I could not
pass up making a play on Yahoo before the earnings run.
I had bought July-140 calls and sold July-125 puts. I made
a foolish statement about I could not conceive of Yahoo trading
below $125 before earnings. Boy, was I wrong. After spending
Sunday night at the tables, (studying, right?), no the gaming
tables, I woke up late Monday morning to a real shocker. The
Internets had crashed and I was without protection. I had 
failed to place my short order to cover my open put position.
With Yahoo down -$17 at $119 I was seriously in trouble. I
considered the facts. Three weeks till earnings, Internets
down -50% from highs, etc. I elected to wait until Tuesday to
cover while hoping for a dead cat bounce from the -$17
pounding on Monday. Sure enough, Tuesday morning it bounced
back up to almost $130 again. I breathed a sigh of relief
and based on the other bounces across the Internet sector
I elected to stay naked and not cover the puts by shorting
YHOO at $125 as planned. The rest as they say is history.
Yahoo continued on up to $150 on Thursday and I sold my calls
for $18 for a $4.12 profit and I am holding my puts and the
premium is decaying nicely. The calls continued up to over
$21 on Thursday but you know I sell too soon.

I did not trade the rest of the week but I am looking to 
get back into Yahoo calls on Monday if the Internets start 
moving up again. Once I see upward movement I have several
trades planned. Check out the low volume on Friday for YHOO.


Sold Calls JUL-140 YHV-GH @ $18.00 cost = $13.88

Current position:

Short YHOO Puts  JUL-125 YHU-SE @ $10.25 (current $7.25)

 


***************************************************
SEMINAR UPDATE
***************************************************

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BOSTON /Crown Plaza

June 27 & 28
LOS ANGELES / Burbank Airport Hilton

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DALLAS / Airport Marriott

July 25 & 26
SAN FRANCISCO / Crown Planza


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Go here for details: 
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We guarantee you will not be disappointed!



*********************************************************
Market Sentiment - By Pinnacle Capital Advisors
*********************************************************
Sunday, June 20, 1999 

Is the Summer Correction already Over?

Every year, right about this time, everybody talks about the slow 
summer months and to stay away from technology stocks. Well, we've been 
hearing about the summer slowdown for the last two months. Every year, 
it seems to be starting a little earlier. Pretty soon, we'll start 
talking about the slowdown in December/January. Anyway, this week we 
learned that interest rates will officially rise soon, and that Compaq 
and Intel will be light on their earnings. Usually, with a 1-2-3 punch 
like this, we would all be running for the exit gates, or lying on the 
mat getting a 10-second count. However, technology stocks in general 
had a great week, with the Software, Semiconductor, and Networking 
index's breaking into new 52-week highs. Not to bad.

Here at Pinnacle Capital, we are always weighing market sentiment and 
studying to see which indexes have the next potential run. We have 
mentioned in previous newsletters about particular indexes and the 
bearish sentiment that accompany them, only to see those indexes take 
off shortly afterward. The two indexes that are still extremely bearish 
based upon put/call ratios are the Nasdaq 100 and Internet. The 
Pinnacle Index for these two are .57 and .74 respectively, which 
suggests that the bears still dominate and are expecting a great drop. 
The bearish overtone is so great, that from a contrarian standpoint, 
we would expect to see a rally. When you combine the news the market 
received this week and the reaction to this news + great bearish 
sentiment for these two respective sectors + July earnings season just 
around the corner = what you get is a huge potential short covering 
with the bears getting slaughtered.  


 

 

 
Bullish Signs:

Market Volatility (VIX):  
Closed BELOW its 50-day moving average (22.54) indicating the end of 
the bears.

NWX/CWX:
Networking, and Software indexes breaking out into all-time highs.


Mixed Signs:

Advance/Decline Line:
After checking up last week, the A/D line is beginning 
to roll over and could prove Bearish if decliners out pace advancers 
in the week ahead. 

Russell 2000: 
After recent rally failed just below the 450 benchmark, the small 
cap stocks are beginning to roll over just above its 50 day moving
average. 

Interest Rates:
Trading ABOVE 200dma and 5.50 Benchmark (5.95%), but below key 6% 
level.


BEARISH Signs:

 
Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors is over 
58.8% and the amount of bearish investors decrease by 2%. 


Pinnacle Index:  
Overhead resistance (OEX 680-700) did decrease but is still high 
clocking in at 16.00 suggesting that option speculators are expecting 
the market to advance higher.

Peak Open Interest:  
The contraian put-call ratio clocking in at 1.14 suggesting bullish
sentiment picking up steam.


OTM Call Analysis

As we move through June'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
******************************************************************

Friday, May 28           53,502        -
Tuesday, June 1          53,293        -.4%
Thursday, June 03        58,515        +9.7%  
Friday, June 04          61,255        +5%   *

July Expiration Cycle
OEX OTM Call Analysis (Open Interest June 680-750)
******************************************************************
Date                 Open Interest     Change %    Alert
******************************************************************

Friday, June 19           35,225        -




Market Sentiment at a Glance
********************************************************************
                                 Friday     Tues      Thurs  
Indicator                        (6/18)    (6/22)    (6/24) Alert
********************************************************************

Pinnacle Index (OEX):          

                    (680-750)     16.0  *
Overhead Resistance (680-700)      8.7  *
Underlying Support  (645-660)      2.6  *
                    (510-660)      9.0  *

Put/Call Ratios:

CBOE Total P/C Ratio                .6  *       
CBOE Equity P/C Ratio               .4  *       
OEX P/C Ratio                      1.7  * 


Peak Open Interest (OEX):

Puts                              670   *
Calls                             670   *
P/C Ratio                          1.14 *

Market Volatility Index (VIX):	

CBOE VIX                           22.3 *



Investors Intelligence:

Bullish                         58.80%  *
Bearish                         26.60%  *



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                        (6/18)    (6/22)    (6/24)
******************************************************************

                    (680-750)     16.0  *     
Overhead Resistance (680-700)      8.7  *

OEX Close                        683.5  *
 
Underlying Support  (645-660)      2.6  *
                    (510-660)      9.0  *

 
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                (6/18)    (6/22)     (6/24)
********************************************************************


CBOE Total P/C Ratio             .61      
CBOE Equity P/C Ratio            .39      
OEX P/C Ratio                   1.69     


Peak Open Interest (OEX)
********************************************************************
                     Friday           Tues            Thurs
Strike/Contracts     (6/18)           (6/22)         (6/24)
********************************************************************


Puts                 670 / 21,014   
Calls                670 / 10,862    
Put/Call Ratio       1.14             


 

 
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 14, 1999        Tops                25.01 

June 18, 1999                           22.34  *


 

 
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 07, 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 05, 1999                          58.1        27.6     
May 12, 1999                          56.9        31.0     
May 19, 1999                          60.9        28.7      
May 26, 1999                          61.6        27.7 
June 2, 1999                          61.6        27.7  
June 10, 1999                         58.3        28.7  
June 16, 1999                         58.8        26.3  *



 
*********************************************************
Market Posture
*********************************************************
As of Market Close – Friday, June 18, 1999 

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

DOW Industrials   10,500  11,000  10,855    Neutral   6.15  
SPX S&P 500        1,315   1,355   1,343    Neutral   6.17    
OEX S&P 100          660     690     683    Neutral   6.15  
RUT Russell 2000     435     450     445    Neutral   6.17   

NDX NASD 100       2,100   2,250   2,205    Neutral   6.17    
MSH High Tech      1,000   1,100   1,110    BULLISH   6.19  *     

                   Key Benchmarks
Technology         Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
XCI Hardware         900     920     933    BULLISH   6.17  
CWX Software         660     675     734    BULLSIH   6.17  
SOX Semiconductor    400     425     457    BULLISH   6.10               
NWX Networking       510     565     570    BULLSIH   6.19  *
INX Internet         500     600     469    BEARISH   5.20             

                   Key Benchmarks
Financial          Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
BIX Banking          680     720     690    Neutral   6.17  
XBD Brokerage        425     475     403    BEARISH   5.21             
IUX Insurance        645     660     662    BULLISH   6.17   

                   Key Benchmarks
Other              Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
RLX Retail           900     970     888    BEARISH   4.29 
DRG Drug             390     425     354    BEARISH   4.29  
HCX Healthcare       780     850     718    BEARISH   4.29  
XAL Airline          180     210     164    BEARISH   5.21      
OIX Oil & Gas        285     310     305    Neutral   5.13



Posture Alert
 
Now that Wall Street is more at ease with interest rates, the market 
is beginning to trend higher. With this latest move, we have turned 
Bullish on High Tech and Networking.

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

/members/marketposture



*****************************************************
Coming Events
*****************************************************

Monday: 

None scheduled

Tuesday:

BTM Schroders       6/19   Forecast:  --     Previous: 0.3%
LJR Redbook         6/19   Forecast:  --     Previous: -0.3%
API Oil Stocks      6/18   Forecast:  ---    Previous: 4.635M 

Wednesday:

None scheduled

Thursday:

Jobless Claims      6/19   Forecast:  304K   Previous: 297K 
Durable Goods Orders May   Forecast:  1.1%   Previous: -2.1%
Help Wanted Index    May   Forecast:  ---    Previous: 87.0  
Money Supply (M2)   6/17   Forecast:  ---    Previous: -$5.9B

Friday:

Real GDP  (final)   Q1     Forecast:  4.2%   Previous: 4.1%  
Existing Home Sales May    Forecast:  5.23M  Previous: 5.24M 
Univ Michigan Sent  June   Forecast:  108.9  Previous: 106.8 


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

The Option Investor Newsletter         Thursday  6-17-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

*******************************************************
PICK NEWS - CALLS (continued)
*******************************************************

BRCM $113.00 -.50 (+0.00)  BRCM saw a nice $2.87 gain in 
yesterday's strong market, but volume dropped off to less 
than half of average today and the stock lost $.50. BRCM is 
still trading above its 10 dma. June Options expire tomorrow, 
and BRCM has occasionally seen some wild trading in the past on 
options expiration day, but then, this stock can see big swings 
at any time. Approaching split territory. No new news.

IBM $120.19 -.50 (+5.88)  Big Blue moved up with a strong market 
on Wednesday, adding $4.81 and trading as high as $121.50. Today 
it reached $122.00, only $1.00 below the 52 week high it set 
on May 13th, before closing at $120.19. Earnings warnings from 
both Compaq Computer and Western Digital sent a shiver through 
the hardware stocks early in the day, but IBM shrugged it off 
and come in with a modest loss of $.50 on the day, still 
leaving it up $5.88 for the week so far. Today, IBM introduced 
the IBM 340 MB microdrive, the smallest hard drive available, 
and a much faster and more powerful alternative to flash memory 
cards. The size of a coin, and weighing less than an AA battery, 
it can hold up to 1,000 digital photographs or a similar amount 
of other data. 

CNXT $57.94 -1.06 (+1.94)  CNXT set another new high yesterday 
of $59.31 and closed up $3.37 on the day. Today, on only half 
its usual volume, it lost $1.06. Yesterday, another analyst 
chimed in with raised expectations for the company. Lehman 
Brothers new price target is $65.00, up from $51.00. They raised 
earnings estimates per share for 1999 from $.26 to $.42 and for 
2000 from $.68 to $.93. An earning announcement for the current 
quarter is not expected for over 4 weeks, and this could be a 
long earnings run. Just be aware that any profit-takers out 
there are looking at 50% in gains just since the beginning of 
the month. At some point those juicy profits will be to 
tempting to resist!  Play with stops.

NOK $83.88 -.13 (+3.13)  ADRs rallied along with stocks of U.S. 
companies yesterday, following the release of the CPI numbers. 
NOK rose $2.00 Wednesday, and gave back a trivial $.13 today. 
The stock is now less than $2.00 from its all-time high. All 
technical indicators are very positive. It could see resistance 
at its previously set of high of $85.69, but if the market 
continues to be strong, NOK should be able to push through it. 
More conservative players will wait for NOK to clear resistance.

ADPT $34.19 -.56 (+1.56) ADPT had a nice day, with the rest 
of the market, after the CPI numbers came out on Wednesday.  
The stock gained $1.75 yesterday, but traded as high as $35.44.  
On Thursday, ADPT closed about in the middle of its daily range.
Though there is no recent news to report, we still like ADPT
going forward.  The stock trades with a PE well below the
average in its sector and stock has nice support at around
$32.50.  ADPT could have a short squeeze, if we can break
through resistance at $35 on strong volume.  

GE $108.44 +1.63 (+4.25) GE has performed well this week. 
We like the fact that the stock went right through resistance 
at $105 on Wednesday and held.  GE also broke above its 50-dma 
today.  We have not found any news on the rebuilding of
Kosovo, but GE did announce a contract today to build $600
million worth of engines for Embraer, Latin America's largest
aircraft maker.  The market seems to be digesting the fact
that a 25 basis point interest rate hike has been figured
into the market and it should not have much of an affect
from here out.  Watch for intraday pullbacks as possible
buying opportunities.

TXN $133.50 -.06 (+5.88) TXN has been involved with some profit
taking the last few days, though the amount given back is very
small compared to what it has gained.  On Wednesday, TXN lost
about a dollar, but traded down close to three dollars during
the day.  On Thursday, TXN again traded down, about $4, but 
battled back to close virtually even.  This seems to be
a good sign, considering the semiconductor sector lost about
2% today.  Though the stock closed flat today, it did reach
another 52 week high of $135.56.  Over the last few days, it
seems the $130 area has provided some support, with only TXN's
52 week high providing resistance.  TXN announced today that
it will be part of the first all digital full feature film
showing June 18th.  The showing is in conjunction with LucasFilms,
and TXN is providing the projector that will produce the 
digital images.  TXN is currently the only producer of digital
film projectors and sees themselves as being the natural 
choice for this technology going forward.  The movie to be 
shown is, of course, Star Wars - Episode One.

NT $86.00 +1.13 (+2.13) We mentioned on Tuesday that NT dropped
in sympathy for its President, David House, leaving.  We also 
mentioned that we thought the drop was over done.  This seems
to have been the case, as NT gained over $3 on Wednesday.  Of
course a good portion of this was because of the favorable
CPI numbers.  NT continued up on Thursday and closed just shy
of a new 52 week high.  NT is sitting right at resistance, so
we would like to see a break above $86.50 on strong volume.
This should send NT up for bigger gains.  A news article from
the Business Wire on Wednesday, showed continuing growth in
cable modems and ASDL technology.  The article stated that
Motorola and NT control 64% of the cable modem market.  As of
late, NT has traded down a dollar or two before heading up.
This can provide an opportunity to target shoot an entry.

TER $66.81 -1.63 (+4.56) TER had an extremely good day on 
Wednesday, as the stock rose $2.50 on strong volume, but the
stock gave a good portion of these gains back on Thursday.  
The stock is still up over $4.50 for the week.  In general,
chip stocks suffered today, as the sector was down about
2%.  We have mentioned before that TER closely follows the chip
stocks, though they don't produce chips.  Volume on Thursday
returned to normal, so the selling looked to be just a lack
of buyers.  A little profit taking was likely anyway, since
TER had risen almost 10% in just three trading days.  The only
resistance is at the site of TER's 52 week high of $69.38.
There isn't any recent news to report on TER, but for those
that want detailed information on the stock, TER has a 10-Q
dated May 19th that can be viewed online.

LSI $44.25 +0.81 (+0.25) An upgrade from Lehman Bros. helped
LSI hit a new 52-week high on Wednesday.  They raised their
price target for the stock from $50 to $66.  They cited an
upside potential to LSI's second quarter for the revision.  
That helped the stock remain positive after what has already 
been a steep run up.  The volume also continues to come in 
above average showing further proof of renewed interest in 
not only LSI, but the sector as well.  It is likely that LSI 
will continue attract investors but be cautious since the 
stock has run up over 25% in two weeks.  We are in the midst 
of earnings warning season and any pre-announcement shortfall 
may trigger a round of profit-taking.  So use stop losses!      

AA $67.38 +2.44 (+4.38)  AA continues to show strength at 
levels above $64.  We've warned that consolidation should 
occur sooner than later, but with increased volume AA tacks 
on more points.  It's now solidly positioned above its 10 
dma of $63.  Today brought on more good news.   AA set a 
new 52-week high when it peaked at $67.38 at the close 
breaking through its only opposition.  Also, CSFB 
reiterated a "strong buy" on the stock citing that the 
"global expansion" of major economies should help generate 
more growth.  The 12-month target price was set at $80.   

AMAT $69.19 -1.00 (+3.38)  Today AMAT suffered slightly in 
sympathy with INTC, the mother of chip stocks, who received
sort of a down grade today with an earnings trimming. Not 
good for chip stocks though most came back by the end of the 
day. AMAT is still well above its 10 dma of $64.  Yesterday 
AMAT forged ahead +2.81 on strong volume to close above $70.  
Even today it traded in the $70 range showing determination to 
break near resistance.  Remember the yearly high is merely 
a skip and hop away at $71.62.  In the news, Applied 
Materials announced a 12.5% private placement equity deal 
worth $22 mln. for Triant.  This will give AMAT exclusive 
rights reselling Triant's detection software.    

LGTO $57.31 +1.38 (+2.56)  LGTO left the safe support of 
$54 and began trading consistently around $56.  Granted the 
volume levels were only about 50% of the norm, but LGTO 
made $3.26 in gains.   Both days the stock traded over $57 
and today it closed a fraction from its daily high.  With 3 
straight days of gains, the stock direction appears to be 
establishing itself (even without the backing of strong 
volume), but remember stocks move in cycles and this one 
may naturally pullback for a day or two.  However, tomorrow
may be positive as ADBE (Adobe) just beat estimates, which
coupled with the recent ORCL blowout might put buying 
pressure on the software sector.

YHOO $142.25 +0.63 (+7.00) YHOO led the way as the 
Internets went "WILD" with double-digit gains on Wednesday! 
With inflation fears diminished by the positive CPI data, 
bargain hunters swooped down on the Internet sector with 
cash in hand.  The momentum pushed trading volume to 100% 
above normal and YHOO gained an impressive $16.38!  Today 
Mary Meeker, Internet analyst for Morgan Stanley, reported 
she thought the "worst is over" and the sector should begin 
its recovery.  YHOO traded in a much tamer manner today, 
but nonetheless, the stock stayed positive and peaked at 
$149.94.  And importantly, the recent surge popped YHOO 
right onto its 10 dma.  Hopefully this may be the start of a 
successful and profitable earnings run.  The report date is 
right around the corner on July 7th.  Again I caution, this 
is a HIGH RISK INTERNET PLAY.  YHOO can move just as quickly 
down as it did up.  Watch your positions.


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

none, all dropped but our new CLX.



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

GNET - Go2Net, Inc. $119.50 +4.50 (+13.50)

Go2Net, Inc. is a network of branded, technology, and community 
driven Web sites focused on personal finance, information search, 
commerce, and games.  The Company's properties include Silicon 
Investor, a financial discussion site; MetaCrawler, a search/
index guide; and HyperMart, a Web hosting service.  Other sites 
include 100hot, StockSite, PlaySite, and WebMarket. 
(profile from Bloomberg.com)

GNET has been on a tear this week, as it has gained over 12%
so far.  GNET is being added as a new call on a very short
term basis.  The stock splits on June 24th.  We will most
likely just play this until next Tuesday.  GNET has performed
better than the industry in general lately and reiterated
on Thursday that it is comfortable with FY'99 earnings and
Q3 EPS.  We like the fact that GNET has jumped the last two
days on above average volume.  GNET traded as high as $125
today before tailing off late in the day.  The chart shows
a nice consolidation over the last few weeks as the stock 
price hugged the 100 dma while the rest of the sector plunged
even further.  With the stock breaking out over the last couple
of days it may be trying to establish a quick split run.  
Watch for intraday pullbacks, especially after two strong days 
in the Internet sector.  Remember, we don't advise holding
over splits... too many times stocks tend to hit post-split
depression (some even start to sell off the day of or the
day before the split).  Of course there is always the exception
to the rule and investors jump in (Gosh! GNET for less
than $70, I'll buy it!).  You never know when this sort of 
thing might happen, but it is usually not worth the risk.  

In the news, GNET shareholders approved the investment of
Paul Allen.  This will bring the total investment his 
company, Vulcan Ventures, has invested to $300 million.  
Shareholders also approved an authorization to increase
shares from 50 million to 500 million.  This will give GNET
plenty of shares to due further stock splits.

BUY CALL JUL-110*GQI-GB OI=206 at $18.63 SL=14.50 ITM $9.50
BUY CALL JUL-120*GQI-GD OI=654 at $13.50 SL=10.00 
BUY CALL JUL-130 GQI-GF OI=122 at $ 9.38 SL= 7.25
BUY CALL OCT-140 GQI-JH OI=232 at $20.88 SL=15.25

If you can afford it, play the ITMs, you'll grow with a 
higher Delta.

Picked on June 17th at $119.50   PE = 443
Change since picked      +0.00   52 week low =$  6.41 
Analysts Ratings     2-2-0-0-0   52 week high=$199.00
Last earnings   04/99 est 0.02   actual  0.07 
Next earnings   07-23 est 0.09   versus -0.03
Average daily volume = 923 K
Chart = http://quote.yahoo.com/q?s=GNET&d=3m




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

CLX - Clorox Company  $95.63 -1.25 (-5.63 this wk)(-4.75)

Clorox is most known as the maker of the number one bleach in 
the world.  However, CLX also makes several other laundry, 
cleaning, and household products.  Pine-Sol, Soft Scrub, Tilex, 
and Glad trash and sandwich bags are just a few other Clorox 
goods.  In 1999, CLX acquired First Brands to increase its 
hold in the cat litter and car care business as well as extend 
its reach into the plastic wrap market.  Over 80 countries sell 
Clorox products.  

We dropped CLX back on June 6th as a put as it rallied up to 
its 30 dma.  As soon as it reached the $108 level, it 
progressively headed south.  The drop lasted for several days 
and we had been hesitant to re-add it since the stock seemed 
to be due for another bounce.  However, CLX is still heading 
lower.  We feel that it could possibly fall to its near term
support at the $90 level and quite possibly fall as low as 
$80 (like it did last fall).  This is a risky play.  Even though 
CLX seems to keep on sinking, simple stock cycling could kick 
it back up.  Make sure to confirm stock direction before 
initiating a new play.  

News:   Back on June 11th, Prudential Securities cut its price 
target for CLX down to the $130-135 level.  This new price 
target is considerably lower than the previous 
prediction of $150.

BUY PUT JUL-100*CLX-ST OI=113 at $6.25 SL=4.75 lower premium
BUY PUT JUL- 95 CLX-SS OI= 12 at $3.25 SL=1.75

Daily Volume = 507 K 
Chart = http://quote.yahoo.com/q?s=CLX&d=3m




*****************************************************
COMBINATION PLAYS   
*****************************************************
Markets Rally As Inflation Fears Subside...

Wednesday, June 16,

U.S. markets rallied on Wednesday after a favorable report on
inflation; the May Consumer Price index was relatively unchanged
for the month. Both the Dow and the Nasdaq made significant gains
and bond prices were boosted as well, with the benchmark 30-year
bond up almost a full point while the yield slid to 6%. In the
broader market, advancing issues outpaced declines by a 17-to-8
margin on volume of about 250 million shares on the NYSE.

Tuesday's new plays (positions/prices):

GLM JUL12C/JUL15C $1.87 debit
ESV SEP22C/JUL22C $1.25 debit
HAL JAN50C/JUL50C $4.87 debit

Our new picks in the oil sector moved lower as the overall market
rallied. While no one likes to watch their positions move lower
in a strong market, that is the basic idea of a diverse portfolio.
All of the plays were available at the target entry price.

Portfolio plays:

The big mover was Oracle, up almost $8 on blow-out earnings and a
slew of upgrades. AMZN also rallied back from the recent slump,
climbing $15 after announcing they would take a $45 million stake
in Sotheby's (BID) and form a joint on-line auction site. Other
issues in our long-term portfolio made significant gains; CPQ,
CSCO, EMC, FDX, MER, SEPR and SUNW were just a few. This renewed
investor confidence comes at a great time for those of you in
calendar spread positions (and Covered-calls with LEAPS) as the
roll-out to next month's positions should be much more profitable.
Two of our bullish debit positions; MU and KEY moved higher and
even MER rebounded back into the low 70's.

Our most difficult position continues to be the XNLX credit spread.
The stock broke through $50 on the broad market rally and the best
price we could achieve on the buy-back of the short call; JUN50C,
was $2.25. Our long position is worth about $0.75 and that makes
the overall play about $0.93 in the red. The stock could move
higher on Thursday, but with so little time, probability is not
in our favor. This situation does present us with an opportunity
to discuss a recovery technique for this type of losing play.

Our final position after buying-back the JUN-50 call and selling
the JUN-55 call was a loss of $0.93. On 10 contracts, that's about
$1,000. One of the most common recovery techniques is to write the
minimum quantity of new OTM calls that will produce a net credit.
This strategy offers a high degree of eventual success but there
may be an accumulation of paper losses before a profit is achieved.
In this case, we would try to sell the highest strike XLNX calls
in July. The JUL-55 calls were trading around $3.50 BID near the
close on Thursday. Thus, we might write 3 contracts to offset our
current loss. If the stock price declines, we keep the premium that
was sold. If the stock price rises, we will buy back the calls and
open enough new calls at the higher strike to retain a credit for
the position. If the stock continues to rise, the whole process is
repeated. Eventually, the stock WILL stop rising and the last set
of written options will expire worthless. The original loss will
be covered by the credit received. The most important requirement
in this technique is that the investor must have enough collateral
to cover any continued rally by the stock. A large portfolio is
ideal to finance this type of trading to rescue positions or earn
additional income because it requires no additional cash investment.

Thursday, June 17 - Portfolio plays:

AMZN rallied back into profitability during the morning session
on Thursday (too bad for us as we had previously closed the play
for a loss). At least we know Murphy's law is alive and well!
Almost all of our long-term plays benefited from the continued
rally today; the only negative issues in that portfolio were CD
and UAL. Most of our remaining short-term plays have already been
closed for favorable profits or small losses.

Tomorrow is the end of the June strike period; time to roll the
calendar spreads forward. If you have long-term plays with short
(June) positions that are ITM, be sure to buy back those options.

The summary will be posted on Tuesday, June 22.

Please send questions and comments to ray@OptionInvestor.com
******************************************************************
				- NEW PLAYS -
******************************************************************
GE - General Electric  $108.43     *** On The Rebound! ***

General Electric is one of the largest and most diversified
industrial corporations in the world. The Company has engaged in
developing, manufacturing and marketing a wide variety of products
for the generation, transmission, distribution, and utilization of
electricity. The National Broadcasting Company, a wholly-owned
subsidiary, is engaged in furnishing network television services,
providing cable programming and operating television stations.

GE is a giant in the group of conglomerates and it is also a well
known safety stock when the market finds trouble. Its earnings are
expected to move sequentially higher with a favorable 14% growth
rate over the next two years. Their recent efforts in Japan by
the Capital Services unit should also bolster the bottom line in
the coming months.

The communications industry is hot right now and GE is committed
to success in that sector with their new $30 million investment in
XOOM. In addition, GE's NBC unit recently reached a new 10-year
agreement with AT&T Broadband and Internet Services that includes
a clause giving AT&T retransmission rights to all programming from
NBC's 13 owned-and-operated stations. AT&T's cable systems will
carry CNBC, MSNBC, and NBC programming over the next decade.

GE is covered regularly in the main section of the OIN and the
favorable bullish technical trend in the recent chart history
makes this a conservative, low risk position.
 
PLAY (long-term/diagonal spread):

BUY  CALL SEP-105 GE-IA OI=1270 A=$9.12
SELL CALL JUL-110 GE-GB OI=2621 B=$2.37
INITIAL NET DEBIT TARGET=$6.50 TARGET ROI=40%

Note: In this type of spread, we are reducing the net cost of the
long-term option with the credit from the sale of the nearer-term
option. If the near term call expires worthless, we may hold the
long-term position for future profits or sell a July call to
further reduce our debit. There are many other ways to exit this
type of position and you should review those techniques with your
broker prior to entering the play

Chart = http://quote.yahoo.com/q?s=GE&d=3m
******************************************************************
BAANF - Baan Company  $14.50     *** Second Time Around! ***

Baan company is a leading global provider of enterprise business
software. They offer a comprehensive portfolio of best-in-class,
component-based applications for front office, corporate office,
and back office automation are in use at approximately 12,000
customer sites worldwide. Their products reduce complexity and
improve core business processes; are faster to implement and more
flexible in adapting to business changes. In short, they optimize
the management of information throughout the entire value chain.

This week IBM agreed to cooperate on selling Baan's products and
linking them with IBM's. IBM, the world's biggest computer maker,
will resell Baan software in North America, link Baan's Front
Office product with its own Lotus Notes, train new software users,
and install Baan's e-commerce software. In return, Baan will offer
IBM's DB2 database software with its own products.

Two weeks ago, shares of Baan moved higher after they announced
orders from phone directory publisher VNU World Directories. The
VNU agreement calls for Baan to install front-office software at
VNU World Directories operations in the Netherlands, Portugal,
and Belgium. Baan also said it received a smaller contract from
an aircraft component supplier; Weston Aerospace.
			
Baan has seen its share value drop significantly in the last year
but confidence is being restored in the company with new contracts
and the quality of its products. In addition, they have recently
increased spending on marketing and will begin emphasizing their
brand name in a bid to boost revenue with a centralized ad program.
The Internet commerce boom may also help Baan recover as they have
launched a new E-Enterprise series that focuses on the business
sector.

Baan is still a source of merger speculation in the enterprise
software industry and Oracle's blow-out earnings brought the
group some new attention. The company contends they're going to
stay completely independent but implied volatility on short-term
options continues to remain higher than normal.

Once again, we are going to speculate on the future position of
the stock with a favorable disparity in a short-term, volatility
play.

PLAY (aggressive/calendar spread):

BUY  CALL AUG-15 BQF-HC OI=1679 A=$1.75
SELL CALL JUL-15 BQF-GC OI=344  B=$1.25
INITIAL NET DEBIT TARGET=$0.38 TARGET ROI=50%

Chart = http://quote.yahoo.com/q?s=BAAN&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.
******************************************************************
DD - Dupont  $71.25     *** Range-bound? ***

DuPont is the largest chemical company in the world with six
principal industry segments. These include Chemicals, Fibers,
Polymers, Petroleum, Life Sciences, and Diversified Businesses.
DuPont's subsidiaries conduct exploration, production, mining,
manufacturing or selling activities, and some are distributors
of products manufactured by the company.

The recent technical history of this stock reflects a new trading
range from $65 - $75. In addition, there is a small disparity in
the option premiums that will help us open this position with a
favorable discount.
 
PLAY (neutral/calendar spread):

BUY  CALL JAN-70 DD-AN OI=1949 A=$8.75
SELL CALL JUL-70 DD-GN OI=3412 B=$3.50
INITIAL NET DEBIT TARGET=$5.00 TARGET ROI=50%

Time spreads (horizontal spreads) involve the sale of one option
and the purchase of a more distant option, both with the same
strike price. The philosophy for using calendar spreads is that
time will erode the value of the near-term option at a faster
rate than it will the far-term option. The calendar spread that
is established when the underlying stock is at or near the strike
price of the options used is a neutral spread. If the stock price
remains relatively unchanged until the near-term option expires,
the neutral spread will make a profit. It is generally best to
establish such a spread at least 2 - 3 months before the near
term option expires, capitalizing on the ability to sell another
call against the longer-term option. Ideally, the spreader would
like to have the stock be just below the strike price when the
near-term call expires. If the calls are in-the-money at the
expiration date, he will have to buy them back to preserve the
long-term position.

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



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                      DISCLAIMER
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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 
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