Option Investor

Daily Newsletter, Thursday, 06/24/1999

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The Option Investor Newsletter         Thursday  6-24-99
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

MARKET WRAP  (view in courier font for table alignment)
        6-24-99          High     Low     Volume   Advances Decline
DOW    10534.83 -132.03 10666.86 10471.20  691,818k    951   1,961
Nasdaq  2553.99 - 44.13  2596.71  2550.14  909,605k  1,626   2,204 
S&P-100  670.85 -  7.75   678.60   665.67   Totals   2,576   4,165
S&P-500 1315.78 - 17.28  1333.06  1308.50            38.2%   61.8%
$RUT     443.16 -  3.88   447.47   442.77
$TRAN   3326.07 - 52.84  3395.51  3326.07
VIX       23.67 +  1.71    25.39    21.96
Put/Call Ratio      .65    

One hike, two hikes, three hikes, more?

Bonds down, rates up, market down, FOMC next week. End of story.
Good Luck, Sell too soon!

That could be the end of the commentary tonight. Last week the
market rallied on the heels of Greenspan's comments of "modest
hike now, no need for hikes later". This week the tone continues
to be worry that "modest" may mean a .50% hike instead of .25%.
Others hope for a .25% hike and a change in bias to "neutral" but
worry we will only get the hike and the bias to tighten will remain.
If the bias remains "tighten" then this whole story will play out
again before the Fed meeting in August. Greenspan's history is
one of small incremental steps not one big blow. This causes the
fear of "possible" future hikes. The bond market has already 
factored in a .50% rate hike at this point and anything less will
cause a covering rally.

If we did get a reduction in bias back to neutral then Fed watchers
would feel at least two FOMC meetings would be needed to raise rates
again. One to tighten and then one to raise. Two meetings would give
us a 60-90 day "free market" period without a rate increase hanging
over our head. Last week I mentioned it would be wise to just sit
out until after the FOMC meeting. The market then soared +365 points
last week on Greenspan's "modest" comments. This week the Dow has
dropped -320 points in four days to put us back to square one again.
Makes you think sitting out was not a bad idea now!

I pointed out Tuesday that the Dow was range bound and had tested 
the 10450 level to 10900 level twice in June and we were headed down 
again. While I did not expect the Dow to break minor support at the 
10600 level the real support was still at 10450. We came very close 
today and the Dow bounced off 10471 convincingly at 1:30. The Dow 
rebounded over +113 points off the low to 10584 but dropped -50 at 
the close to settle at 10534. Summer Fridays are known for their
volatility due to lack of volume. Add in a pinch of FOMC and anything
is possible. Cycle traders should be quick to note that after four
strong down days the "relief rally" syndrome is looming strongly.
While we could see yet another test of 10450 tomorrow I do expect
the bargain vultures to be circling all day looking for cripples.
Even with the Nasdaq off -44 it still held above 2550 support.



When the Dow bounced this afternoon off the 10470 I backed up the
truck as Chris Verhaegh is prone to saying. I saw entry point written
all over it. Whether I end up tomorrow as a freeway driver on the 
road to profit or simply road kill remains to be seen.

My justifications look like this. The bond market has been terrorized
by the bond bears for weeks and many analysts think the yields are at
or near the top. There is a very strong possibility of a covering
rally as the FOMC meeting nears. The DOW is at strong support after
dropping -320 points. The earnings express is roaring down the tracks
and even the FOMC cannot stop it, only slow it. Many stocks have put
in bottoms the last two days. Even with the Dow drop IBM only lost 
-.38 cents. Goodyear strongly warned this morning but rebounded to
close only down -.13. On the Nasdaq, -44.13, Dell only dropped -.19.
Another wild card is the end of quarter window dressing by the funds.
All the big guys will want to put as much cash to work as possible
so they can show the market leaders in their portfolios for shareholders.
The MSFT trial is in recess for several months and you can bet they
will make a run into earnings. (MSFT is a Nasdaq leader) Intel, another
leader, is sure to rebound since AMD basically surrendered today. With
INTC, DELL, MSFT starting earnings runs the Nasdaq is ready to rock.

Don't get me wrong. All the positive factors can line up on our side 
of the field and the market can still win. It can and does change the
rules quite often. The only rule today is the FOMC. (First Open Market
Commandment) Never make a major commitment before a Fed meeting. The
chances of a favorable outcome are directly impacted by the amount of
your investment. Ie: The more you invested, the better chance of a
knock out blow by the Fed heads. Yes, do as I say not as I do. I broke
the commandment and backed up the truck based on my view of the
mitigating circumstances. Time will tell! I do not expect any major
move upward until after the meeting but with a good meeting the Thr/Fri
before the long holiday could be outstanding. Otherwise remember to
stock up on your Rolaids if you own anything over the next four trading

Have a great weekend, sell too soon!

Jim Brown


Dear Jim

The Boston seminar was a great success. As you predicted it was a 
sold out event.

We started with the basics of option trading, progressed to spread 
trading, straddles and risk curves. Then we moved to concentrate on 
how to find trades, when to exit them and how to find explosive profits. 
On the second day we traded live and moved on to delta neutral 
calculations. The market was a little dull but we did find over 10 
excellent trades. Some students were using their cell phones and 
others running to the phone to trade.

At the end of every seminar we hand out evaluation forms. I thought 
that you would like to know some of the comments as the students can 
best describe what they saw:

Chris M

"I was blown away. Lots of great information. I was very impressed"

Nancy S

"What a great learning experience."

Richard P

"Excellent strategies to control risk and profit"

Charles K

"While there is a lot to learn in 2 days, .. you receive the seminar
materials in advance so you can do as much detailed studying as you 
chose. Also served as an ongoing education tool. Plus attend a like 
kind seminar in future for free"

Osvaldo "Ozzie"

I like the free re-attendance policy ... it allows me to re-attend 
and perfect each strategy"

Lucien B

"The very best information on options available by friendly and 
helpful staff with excellent support after the seminar. Provides 
clear and safe conservative option strategies"

Speaking to students at the seminar that were repeating for FREE!! 
I spoke to many making good money. Like Penelope who wrote:

"I did a Bull Call on CMGI for a net profit of $12,125 and Long Call 
on TLAB for a net profit of $30,310."

Or Chris C. who stated:

"My best trade was a call ratio backspread with CSCO $300 risk with 
a return of $3,700"

Jim, I really enjoyed meeting the OIN investors. They had interesting
questions and were very pleased that we have joined forces to provide 
the ultimate option package of OIN and OPTIONETICS.

I will give you another update after the Los Angeles seminar next week.
Until that time I am going back to trading before I am jump the plane 
to Burbank. We are expecting a big crowd in Burbank - the event is almost
sold out. Also, I understand that there are only a few spots left for 
Dallas and San Francisco next month.

Jim please warn everyone they should register asap for the remaining 
events to avoid disappointment The San Francisco and Dallas seminars 
are almost sold out. It is going to be great to see all the OIN 

Kind regards

George Fontanills

Remaining seminars:

June 27 & 28
LOS ANGELES / Burbank Airport Hilton

July 18 & 19
DALLAS / Airport Marriott

July 25 & 26
SAN FRANCISCO / Crown Planza

If you are tired fighting the market and are ready to step up to 
the next level then we strongly suggest you attend. There is a full 
money back guarantee and we will allow you to retake the seminar for 
free as many times as you feel necessary to grasp and implement all 
the techniques taught. People fly from around the world to hear George 
speak and you can have two full days of personal attention at the 
OIN/Optionetics seminars.

Go here for details: 

We guarantee you will not be disappointed!

TRADERS CORNER - What is a Delta


In our 2-Day seminar, we discuss all of the properties of an options 
price.  One of the most used and misunderstood properties an options 
price is it's DELTA. Most books define a delta as the amount by which 
an options price is expected to change for each corresponding change 
in the underlying assets price. O.K. you got it?

Well there are easier ways to define a delta and here a few.

1)	The probability of an option expiring in the money or with intrinsic 
2)	The correlation/sensitivity of the options price with market movement. 

For example if you owned a 30-delta call stock option, the option has 
a 30 % chance of being in the money or having value at expiration.  
The same option will have a 30% correlation to an up movement. Meaning 
a 1-dollar move in the stock will increase the value of the call option 
by .30 per share or $30.00 since one option represents 100 shares of 
stock .

Understanding how to calculate deltas are easy to understand.  Lets 
assume you are looking at the following information on a stock and 
its call options:

Stock - XYZ = 100
Call Options		Premium
100 calls			10
110 calls			4

Now if XYZ were to rise to 110 per share, the 100 call option may 
rise to 16 per contract, and the 110 calls may rise to 6 per contract.  
Knowing the change of the stock and its options is all you need to 
calculate a rough delta estimate.  Here's how it works

The change in the option		(100 call change was 6)
The change in the asset		(asset change was 10)
= the options delta		(6 over 10 is .6 or 60 deltas)

So the delta for the XYZ 100 call is calculated as 60.  Please 
remember that this is a very archaic way of calculating deltas 
and is used for educational purposes only.  We use software 
programs such as OptionStation to calculate deltas which opens 
up nearly endless possibilities for graphing, calculating, and 
monitoring delta positions.  

Deltas are not fixed measurements, they move with the market.  
We use them to give us a measurement of an option position and 
how the position will react to market movement. As time, price 
and volatility move, so will your deltas. 

Tom Gentile
Chief Options Strategist

Market Posture
As of Market Close - Thursday, June 24, 1999 

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

DOW Industrials   10,500  11,000  10,535    Neutral   6.15
SPX S&P 500        1,315   1,355   1,316    Neutral   6.17
OEX S&P 100          660     690     671    Neutral   6.15
RUT Russell 2000     435     450     443    Neutral   6.17

NDX NASD 100       2,100   2,250   2,185    Neutral   6.17
MSH High Tech      1,000   1,080   1,088    BULLISH   6.19

XCI Hardware         900     920     931    BULLISH   6.17
CWX Software         660     675     737    BULLSIH   6.17
SOX Semiconductor    400     425     455    BULLISH   6.10
NWX Networking       510     565     558    Neutral   6.24  *
INX Internet         500     600     488    BEARISH   5.20

BIX Banking          680     720     667    BEARISH   6.24  *
XBD Brokerage        425     475     402    BEARISH   5.21
IUX Insurance        645     660     643    BEARISH   6.24  *

RLX Retail           900     970     876    BEARISH   4.29
DRG Drug             390     425     353    BEARISH   4.29
HCX Healthcare       780     850     718    BEARISH   4.29
XAL Airline          180     210     161    BEARISH   5.21
OIX Oil & Gas        285     310     294    Neutral   5.13

Posture Alert
With fears of rising interest rates being the main concern again, 
the broad market has had a broad selloff, as such, we have turned 
BEARISH on Banking and Insurance, and Neutral on Networking.

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


Market Sentiment

Déjà Vu?

A couple of weeks ago, Pinnacle Capital talked about how bearish 
sentiment was prevalent on interest rates going into the CPI and 
Greenspan's speech. What we saw after those two events was a very nice 
rally, both in stocks and bonds. We are starting to see some of the 
same bearish sentiment going into next week. All these rumors of a Fed 
increase of 50 basis points combined with several additional near-term 
rate hikes are really spooking this market. Does anybody know who this 
"influential group of insiders" from Washington really is? Were these 
guys short the market, and needed some help? And, who's speech would 
you rather use to evaluate interest rates: Greenspan from 2 weeks ago, 
or some schlep running the Johnson-Smith-Downey International 
Convertible Bond Fund, who happens to get 25 seconds on CNBC. Sure, 
everybody expects interest rates to officially get raised next week, 
but how does some joker on CNBC predict that there will be an 
additional two more shortly after? Your guess is as good as ours is. 
Maybe we should be going long and leveraging 30-year paper again?

Anyway, what we've noticed the last couple of days has been the 
decrease in OTM OEX call buying and a huge increase in the OTM OEX put 
buying. What this once again tells us, based on a contrarian 
standpoint, is that support for this market is getting near and we 
should have a relief rally, most likely after the Fed meeting. Continue 
to keep an eye on the long-bond, since it had controlled the equity 
markets for the last month. 




Bullish Signs:

Pinnacle Index:
The Pinnacle Index decreased in the amount of overhead resistance (OEX 
680-750), and increased in the amount of support (OEX 645-660).

Mixed Signs:

Market Volatility (VIX):  
The VIX is still below its 50-day moving average (23.82), but is 
looking like a tweezer bottom which may indicate that the bears are on 
the prowl.

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


Interest Rates:
Trading ABOVE 200dma and 5.50% Benchmark, also broke above key 6% 
Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors is over 

Peak Open Interest:  
The contraian put-call ratio clocking in at 1.18 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 %

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 %

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 %

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 %

Friday, June 19           35,225        -
Tuesday, June 22          41,724        +18.4%
Thursday, June 24         58,502        +66.1%

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

Pinnacle Index (OEX):          

                    (680-750)     16.0     16.7       4.6  *
Overhead Resistance (680-700)      8.7      8.9       2.0  *
Underlying Support  (645-660)      2.6      2.4       1.8  *
                    (580-660)      9.0      8.3       4.5  *

Put/Call Ratios:

CBOE Total P/C Ratio                .6       .4        .5
CBOE Equity P/C Ratio               .4       .3        .5
OEX P/C Ratio                      1.7      1.18       .99

Peak Open Interest (OEX):

Puts                              670       600         600
Calls                             670       680         680
P/C Ratio                          1.14      1.18        1.18

Market Volatility Index (VIX):	

CBOE VIX                           22.3      21.9        23.8  *

Investors Intelligence:

Bullish                         58.80%       58.8%       57.5% *
Bearish                         26.60%       26.6%       26.5% *

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      16.7      4.6
Overhead Resistance (680-700)      8.7       8.9      2.0

OEX Close                        683.5      680.6    670.9
Underlying Support  (645-660)      2.6       2.4      1.8
                    (580-660)      9.0       8.3      4.5

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        .41       .51     
CBOE Equity P/C Ratio            .39        .32       .49
OEX P/C Ratio                   1.69       1.18       .99

Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (6/18)           (6/22)         (6/24)
Puts                 670 / 21,014   600 / 9,609      600 / 10,357
Calls                670 / 10,862   680 / 8,393      680 /  8,809
Put/Call Ratio       1.14             1.15             1.18



Market Vol. Index   Major
Date                Turning Point       VIX

October 97          Bottom              54.60
July 20, 1998       Top                 16.88
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15
May 14, 1999        Tops                25.01

June 24, 1999                           23.82  *



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  
June 24, 1999                         57.5        26.5  *

Please view this in COURIER 10 font for alignment

Index     Last    Mon    Tue    Wed    Thur    Week
Dow    10534.83 -39.58 -94.35 -54.77 -132.03 -320.73
Nasdaq  2553.99  66.84 -50.02  17.87  -44.13   -9.44
$OEX     670.85   3.90  -6.79  -1.98   -7.75  -12.62
$SPX    1315.78   6.16 -13.12  -2.82  -17.28  -27.06
$RUT     443.16   4.39  -2.11  -0.29   -3.88   -1.89
$TRAN   3326.07  31.88 -36.59 -12.72  -52.84  -70.27
$VIX      23.67  -1.05   0.67  -0.77    1.71    0.56

Stock          Mon    Tue    Wed   Thur    Week

ELNK   61.50   0.75   9.63   4.00   0.25  14.63  Wait for dip
PSIX   42.13   2.75  -0.63   3.63   1.38   7.13  New
VRSN   72.94   4.19  -2.31  -0.81   5.94   7.01  New
YHOO  151.00  14.44  -6.38   3.00  -4.50   6.56  Risky play
IBM   122.56   4.00  -1.38  -0.44  -0.38   1.80  Holding on
ASND  105.38   4.00  -5.06   5.81  -3.00   1.75  Dropped
SUNW   64.56   4.50  -3.38   1.50  -2.13   0.49  Entry point?
TXN   132.63   3.75  -1.38   3.69  -6.19  -0.13  Target $160
MSFT   84.63   3.94  -2.44  -0.50  -1.38  -0.38  To the jury.
GE    106.75  -2.00   0.31  -0.06   0.94  -0.81  Nearing $109
TLAB   67.25   1.88  -3.38   2.88  -2.38  -1.00  "Buy" rating
SLR    63.00   2.94  -3.13   0.13  -1.00  -1.06  Consolidating
NOK    84.31   4.25  -1.50  -2.69  -1.88  -1.82  New agreement
QCOM  127.75   0.75   0.12   3.25  -6.13  -2.01  LEH comments
GTE    69.06  -0.38  -0.44  -0.38  -1.19  -2.39  Rate worries
WCOM   92.56   1.50  -2.63   0.81  -2.38  -2.70  Above 30dma
MOT    89.00   3.44  -3.06  -2.00  -2.50  -4.12  Use caution!
EMC    53.00   1.75  -4.25  -0.06  -2.00  -4.56  Bounce soon?
NT     83.25  -1.69  -1.38  -1.31  -0.25  -4.63  BLS deal
AOL   106.75   3.38  -5.88   2.25  -5.00  -5.25  Volatile
HON   118.00   1.06  -3.81   0.81  -3.88  -5.82  Leverage 


WLP    86.50  -5.69  -2.56   3.12  -4.44  -9.57  New
CI     88.81  -0.81  -3.31  -0.31  -2.25  -6.68  New
MWD    91.35   4.00  -3.56  -2.94  -1.94  -4.44  New
WCII   48.81  -0.06  -1.62   0.25   0.56  -0.87  $50 key
TWX    66.19  -0.06   0.56   0.75  -1.81  -0.56  Rolling!
GM     63.13   0.94  -0.13  -1.75   1.25   0.31  Dropped
MYG    69.50  -0.38   0.00   1.69   1.44   2.75  Dropped
CLX    98.31   0.69   3.81   0.00  -0.88   3.62  $94 support

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.


ASND -$5.06 (-1.07) Well, it's official.  Lucent owns Ascend 
Communications and ASND is no more.  We spoke to a representative 
of the former ASND, who told us that ASND likely (but not 
guaranteed) stopped trading at the close today, was converted to 
LU shares and should be trading as LU tomorrow.  Fear not, 
options should be converted too, but consult your broker for more 
details.  CBOE currently has no info. either.  Hopefully, you'll 
be able to exit this play in an orderly manner.  If you are 
still playing, it's time to get out.  The 165% leverage 
condition of the buyout is over.  As a long-term play, LU should
be fine, but doesn't offer the leverage we had playing ASND.  
Thus we are dropping ASND tonight.


MYG $69.50 +1.44 (+2.75) MYG is still slow and steady but its
moving in the wrong direction.  That is why we are removing 
Maytag from our put list.  The divergence from the market and 
sector is the really disappointment for our play.  For example, 
WHR was down over two dollars today.  So despite the lack of 
positive news, MYG has found strength from somewhere.  It is 
better for us to put our money to use in a play with a more 
clear downward direction.

GM $63.13 +1.25 (+0.32)  We are dropping GM as a put play 
for the time being.  Even though it has had some trouble 
breaking above $65, it is currently resting at its 10 dma 
and could really head in either direction.  The durable goods 
reports came out as positive and could be good news for car 
makers.  GM was also kept at an "outperform" by Sanford 
Bernstein this past Wednesday.  We feel it isn't worth it 
to continue to hold on to GM.  It just hasn't been moving 
enough as of late for our liking.

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

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This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.
The Option Investor Newsletter         Thursday  6-24-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


EMC $53.00 -2.00 (-4.56) EMC dropped through support at $55.00 
due to the announcement on Tuesday from IBM that they would 
release a new line of products to compete against EMC.  The 
$54-55 range is where the stock had broken out from after a 
recent consolidation and we would have expected that to provide
some support.  But instead it traded down into the $52-53.  
Now EMC has shown considerable support at this level the past 
couple days and looks poised to bounce.  Remember, earnings 
are around the corner and we feel the recent news is nothing 
more than a few gray clouds drifting by.  But use caution ahead 
of the FOMC meeting next week and let your stops end the play 
if we break below $52.00.  There was also no company specific 
news to report on Thursday.

SUNW $64.56 -2.12 (+0.50) Sun drifted has drifted lower for 
the past few sessions mainly due to interest rates worries 
that have brought down the markets.  The Fed is set to meet 
on Monday and Tuesday so most traders have taken to the 
sidelines ahead of the announcement.  That is why volume was 
less than half of normal today in SUNW.  Another important 
factor in our play is the trial in Washington.  It is in the 
final stages and an announcement could come at any point.  It 
will most likely be awhile but watch closely for any ruling 
that will affect our play.  All in all, SUNW has held up well 
through the sell off.  It is finding support at the $65.00,
which it finally pushed through as the market experienced a 
late day drop.  But even that looks more like a late day spike 
than a break of support.     

YHOO $150.00 -4.50 (+5.56)  After almost $50 in gains since 
it hit $118 on June 14th, YHOO has leveled off this week 
into the 150's range.  The Internets have been mixed amid 
weak bond prices and a revival of the jitters in 
anticipation of the FOMC meeting. As we mentioned earlier,
it's natural for some consolidation since the impressive 
advances the past couple of weeks.  This lull may be an 
opportunity for a solid entry point.  Historically, YHOO 
has had exceptional runs prior to their earnings' 
announcement - they report very soon on July 7th.  If you 
decide to play this Internet stock make sure you are in and 
out of your positions prior to this announcement.  It's 
much too risky to hold over any earnings date.  
Remember this is a HIGH RISK INTERNET PLAY.  You must 
put as many odds in your favor as possible.  Yesterday, on 
average trading volume, YHOO tacked on $3 and closed in 
proximity of its daily high.  News of its marketing and 
content alliance with Healtheon certainly gave the stock a 
nice bump.  Healtheon will acquire an "integrated presence" 
on Yahoo! with target zones for advertising and promotions 
while Yahoo! subscribers will have access to Healtheon's 
medical data.  Again today the trading was of only fair 
volume, but the market was tough and YHOO shed 3% to close 
down.  Nonetheless, Alan Braverman, analyst for Banc of 
America Securities, is bullish on YHOO and reiterated his 
"buy" rating on the stock.  Technically, the 10 dma is way 
back on the chart at $142 and near resistance was defined 
on Wednesday when YHOO flirted around $166.  Stops may be 
hard to use as the intraday spreads have been swinging 
around +10 points.  Please give this stock your undivided 
attention if you want to play.

AOL $106.75 -5.00 (-5.25)  AOL elevated another $2.25 
yesterday as the Internet sector slowed down a bit after 
its sharp recovery.  Yet, the volume was only at about 60% 
of its norm.  Today's decline was most likely more a direct 
consequence of the menacing turmoil of the DOW versus 
normal consolidation after the recent gains.  There was a 
rumor in the mill today that AOL may takeover Juno Online 
Services and its 6.6 mln. accounts.  Neither company 
offered any comment.  We have AOL on our call list because 
it's a favorite bellwether of the Internets and leads the 
pack in rebounds.  Right now AOL has settled into its 
support zone at $105 and $110 and is just above its 10 dma 
of $105.  If we see it move above $120, at that point we'll 
consider it a split candidate.  The necessary ingredients 
we need to watch for before opening a new position are 
upward confirmation and stronger volume.  AOL can move 
quickly so be prepared to make your move - and I mean that 
whether you're going in or closing out.  

HON $118.00 -3.88 (-5.81)  Today's market sentiment was 
pretty rough on HON taking it below $120.  Still the stock 
has not returned to its recent support of $112-114 and is 
seated right on its 10 dma.  After over $10 of gains last 
week, HON may be experiencing some consolidation and, of 
course, recent market pressure.  This could prove to be a 
solid entry point, however a conservative player will wait 
for a bounce off this mark to confirm direction before 
initiating a new play.  For our new readers, this is a 
leverage play and it works like this.  Allied Signal is 
buying HON in a $15 bln. stock swap.  For every one share 
of HON the stockholder gets 1.875 shares of ALD.  In terms 
of leverage, for every $1 ALD moves HON will move $1.875.  
Keep in mind this can be in either direction!

NOK $84.31 -1.88 (-1.82) Nokia has lost ground since it set a 
new high on Tuesday. This is not due to any negative news on 
this stock in particular, but instead is due to general market 
conditions and to renewed interest rate fears. The charts of 
same-sector stocks like Motorola and Ericsson show almost 
identical movement in their stock price. Wait for the market 
and sector to turn around before starting new positions in NOK. 
In the news: NOK has made an agreement with Ubiquity Software 
Corp. that will allow Nokia's next generation wireless phones 
to offer more Internet services with greater ease of use.

IBM $122.56 -.38 (+1.81)  Weak earnings from Micron and a 
warning from Advanced Micro Devices conspired to send hardware 
stock prices lower. But IBM, while well off the $127.75 high 
it set just Tuesday, has remained fairly steady, losing less 
than a dollar over the last two days. IBM's new focus on 
software and on e-business has helped to diversify it and to 
insulate it somewhat from downturns in the computer manufacturer 
group. IBM is currently sitting just above its 10 dma, and 
could bounce higher if it intersects that average. Don't rush 
in, however, until you see the stock make a definite move up. 
Interest rate fears may continue to put pressure on all stocks.

GTE $69.06 -1.19 (-2.38) Through no fault of its own, GTE has 
been trending lower ever since setting a new high on Monday 
morning.  The overriding force affecting most stocks right now 
is not fundamentals or stock news or momentum, but Fed rate 
worries. Until that moderates, we may be in for uncertainty in 
trading stocks like GTE. Momentum is still positive and most 
technical indicators have not quite left the positive camp, but 
GTE is now below its 10 dma. This may just be a normal cyclical 
correction exaggerated by rate hike fears, but be sure to 
confirm upward movement before starting new plays. (Bell 
Atlantic's stock is moving in tandem with GTE.) In the news, 
GTE announced today that it is selling GTE Airphone, an in-flight 
telephone and data company, to Oak Hill Partners.

ELNK $61.50 +.25 (+14.62) Yesterday ELNK gained another $4.00 
on volume that approached quadruple the average, and today 
volume was still strong as the stock added just $.25. Gateway 
buyout rumors continue to drive the price higher for the #4 
Internet service provider(ISP). Meanwhile, Mindspring, the #7 
ISP, is also rising on talks of a partnership deal. Entering 
options on ELNK is rather risky now, because the price has 
risen so much already. If you want to play this one, look for 
a pullback, which could happen if there is no confirmation of 
a GTW deal right away. Then use stops. Remember, this is an 
Internet stock!

NT $83.25 -0.25 (-4.63)  Yes, NT began the week on the wrong 
foot.  Since reaching an all time high of $88 back on Monday, 
the stock suffered from strong profit taking.  In Tuesday's 
write-up we suggested waiting until we saw a move to the 
positive before opening any new plays.  With one hour to go 
in trading on Thursday, it looked like NT would finish off 
the day with a gain.  However, the market sell off proved to 
be too much for NT to handle and again it closed with a loss.  
You may be wondering why we are still keeping NT as a play.  
For starters, NT announced an agreement with BellSouth (BLS)
on Thursday.  NT will provide BLS with communications 
equipment, software, and services in a deal touted as a 
"multi-billion-dollar purchase" by BLS.  NT's Ian Craig, 
president of carrier solutions, feels that the company could 
make at least $5 billion over the next 10 years from the pact 
with BLS.  Second, we feel that NT could bounce off of its 
near term price support close to the $82 level.  And last 
but not least, we feel that NT could announce a split with 
its earnings (July 27th).  So, we are standing by our 
recommendation to wait for a confirmed entry point 
before opening any new positions in NT.

GE $106.75 +0.94 (-0.81)  The market tanked 132 points on 
Thursday.  GE added +$0.94.  We like the comeback and movement
against the grain. Although GE did temporarily dip below its 
30 dma, it came back with a vengeance.  After sinking to as 
low as $103.19, it flew as high as $107.25.  Now that GE 
seems to be back on track, keep in mind that it could have 
some price resistance close to $109.  No new news.

SLR  $63.00 -1.00 (-1.06)  The pullback in SLR was enhanced 
by the 132 point market sell off on Thursday.  SLR dipped an 
additional -$1.00 in trading.  SLR is still above its 
support of $60.39 but could possibly fall to that 10 dma due 
to stock cycling.  Keep in mind that Monday summed up a 
string of 9 consecutive days with a gain.  Stock cycling 
predicts that a stock that is up for 9 days in a row could 
possibly fall for 4 consecutive days.  This means the profit 
taking might continue.  However, SLR seems to have 
established some support at the $62.50 level.  If it can 
hold this level instead of dropping to is 10 dma (at 
$61.98), look for SLR to recover.  Make sure to confirm 
market and stock direction first.  

MOT $89.00 -2.50 (-4.13)  The communications sector was hot 
but now seems to be temporarily cooling off.  MOT has been 
hit with some profit taking for 3 days in a row.  However, 
stock cycling works for the upside too so we could soon see 
a bounce in MOT.   The company is just about in earnings run 
territory since it will report its numbers on July 13th.  MOT 
is also on our "split candidate" list.  It has plenty of 
authorized shares for a 2:1 which the company had previously 
done back in 1/93 and 4/94.  However, we have to emphasize 
the use of caution with this play.  MOT technically doesn't 
have support until its 30 dma at $85.75.  If the markets 
remain leery ahead of the Fed meeting, MOT could dip lower.  
In other news, MOT signed a deal with Telefonica of Spain.  
MOT will help Telefonica develop its mobile business.  The 
value of the deal was not specified yet but MOT will be 
one of Telefonica's preferred suppliers.

TXN $132.63 -6.19 (-0.13) With a combination of downgrades, 
earnings warnings, earnings shortfalls, etc., on INTC, MU, MUEI, 
and AMD, it's no wonder this baby (TXN) was thrown out with the 
bath water.  As we've said before, 85% of a stock's movement is 
sector related.  Hel-LOW?  Anyone listening?  TXN is in the 
communications chip business, not PC's, where semiconductor news 
in negative.  In fact, yesterday TXN was reiterated a buy by 
analyst William C. Conroy at Sanders Morris Mundy Inc.  The 12-
month target price is $160.00 per share.  That said, the chart is 
still looking positive, with only RSI giving the negative sign.  
Strong 10-day support is at $132, from where the price has 
bounced every time.  Unless the market completely explodes, this 
could be a buying opportunity, market willing.  Frankly, we 
expect a bounce tomorrow in the market and with TXN.  Earnings 
too are coming up on July 20.  However, as we noted Tuesday, 
"remember too to exercise discipline and exit a losing play early 
if the market doesn't cooperate."  Amen.

MSFT $86.50 -1.38 (-0.37) MSFT has been down 3 days in a row and 
found solid support on 2 occasions today (a pretty ugly day) at 
$84.  Not only that but the witness phase of the DOJ trial 
against MSFT came to a close today.  It's about time and should 
fade to the background soon, or at least until His Honor has a 
chance to sift through a truckload of paper before he renders a 
decision in perhaps a couple of months.  We noted on Tuesday that 
any decisive bounce at a number above $82 WITH VOLUME would be 
buyable.  Sorry, no volume with that $84 bounce.  Yes, it may be 
buyable at this level, but until we see a market, sector and 
stock-wide (maybe tomorrow if the trading gods cooperate), you 
may want to wait it out.  It all depends on your risk profile.  
Personally, we like MSFT's prospects as it runs to earnings on 
July 21, but until the general market changes its attitude toward 
inflation, we won't see much of an advance.  Again, volume will 
be the key.  Confirm direction before playing.

WCOM $92.56 -2.38 (-2.69) Up a little yesterday, down a little 
more today.  Apparently today's announcement that WCOM sold its 
satellite properties held in JV with NewsCorp to Echostar., and 
was awarded a number of licenses in Asia didn't help the stock, 
as the overall market dragged it down.  WCOM now sits just above 
$92 support on the 10 day chart, which coincidentally happens to 
be its 30 DMA (more support).  Volume has been anemic at only 70% 
of normal today, indicating no rabid selling.  Any volume 
increase will likely send WCOM north again.  We expect a market-
wide technical bounce tomorrow, which should help WCOM as well.  
Though it otherwise looks technically strong, we have to admit 
that closing at its low of the day didn't look good.  Just like 
MSFT, wait for volume to return before starting a new play.  Of 
course confirm market direction too.

TLAB $67.25 -2.38 (-1.00) Yesterday, TLAB popped up just under $3 
on 175% greater than average volume.  That was a great sign.  
Unfortunately, TLAB gave most of it back today in market-wide 
weakness on equally strong down volume.  Probably responsible for 
yesterday's strong performance, Dain Rauscher Wessels initiated 
coverage with a "buy" rating.  The technical chart still looks 
good and we expect a lifeless fuzzy house pet bounce tomorrow if 
the market cooperates, though we'd really like to see TLAB 
penetrate $70 (on heavy volume), where it has encountered strong 
resistance the last 3 days, before we start a new play.  From 
Tuesday, " TLAB may still have more to wring out."  Mild support 
is at $66, thereafter, $62.  Confirm market direction before playing.

QCOM $127.75 -6.13 (-2.00) Volume fell down and so did the price.  
Welcome to another episode of "What the heck happened?"  It's 
that baby and bath water thing.  QCOM got tossed out with the 
rest of tech stocks today.  It didn't help that today Hambrecht 
and Quist issued a "maintain" rating.  If there is any good news, 
it's that volume was only 68% of normal, telling us that nobody's 
panicking.  Yesterday, QCOM was up over $3 on favorable press 
that Lehman Bros. had maintained a buy rating, raised its FY99 
EPS estimate from $2.11 to $2.18 and FY00 EPS from $2.78 to $3.02 
a share due to strong trends across its core businesses and 
raised its target to $160.  No other news.  QCOM closed today 
just a shade under $128 support on the 10-day chart.  With the 
fire sale at the end of the day on the NASDAQ, we think it's 
overdone and with any luck tomorrow, QCOM may make a slight 
recovery, market willing.  A friendly reminder from Tuesday, 
"with so much volatility, this play involves a bit more risk, so 
wait for the bounce, backed by volume."  


WCII $48.81 +0.56 (-0.88) After a move back to resistance at 
$50, WCII turned back towards the lows of the day on Thursday.  
The $50 mark is the key to our play.  It has been the key 
point for support and then resistance all week.  Use this to 
your advantage in choosing an entry point.  There hasn't been 
any news to fuel the stock one way or another so we are closely 
watching the technical indicators in guiding WCII.  At first 
glimpse, it was impressive today compared to the overall market.  
But there were other stocks in this group that were up today 
also.  And we are encouraged by the wave of selling that hit 
in the final 30 minutes after WCII failed to stay above $50.  
It is always a challenge to set your stops carefully when
playing puts - not too close, not too far away.  It all 
depends on your own strategy and penchant for risk.

TWX $66.18 -1.81 (-0.56) Rolling, rolling, rolling.  That's 
the name of the game this week for TWX.  Take a look at a 
one week chart to see what we mean.  It has strong resistance 
at $68 and strong support at $66.  The unknown variable is 
which one will give first.  There were also rumors floating 
around on Thursday that TWX would make an offer for LCOS.  
Lycos responded by trading up sharply today.  It's more likely 
though that someone is taking advantage of all the recent 
deals that are seriously being considered by other companies.  
But even if it proves to be true, the acquirer's stock is 
usually the one to suffer.  Use the current trading range to 
help in choosing an entry point and use your stops if TWX can
break firmly above the $68.50 area.
CLX $98.31 -0.88 (+3.62)  On Tuesday, we labeled CLX's 
recovery a technical bounce.  We kept CLX due to the fact 
that reports revealed that many consumer product companies 
are showing lackluster sales.  Our faith in CLX as a "put" 
seemed to pan out.  On Thursday, CLX finally gave in and 
dropped -$0.88.  The run-up earlier in the week may simply 
have provided us with an entry point.  Since CLX's next 
support lies near the $94 level, you could possibly play 
this put for a four dollar move.  Look for CLX to head 
lower on Friday especially if the market conditions remain 
weak ahead of the Fed meetings scheduled for early next week.


PSIX - PSINet, Inc. $49.25 +1.38 (+7.13)

PSINet is big in the business of linking big business to the 
Internet.  The company offers a variety of access services, 
Web-site design and hosting, electronic commerce, and security 
programs.  PSINet has operations in 12 countries and serves 
26,500 corporate customers.  Many Internet service companies 
are being acquired by large telecommunications companies, but 
PSINet remains independent, focusing instead on its own expansion. 
The company is no longer an Internet service provider (ISP) for 
individual consumers, but it does allow other consumer-based ISPs 
to use its networks for a fee.  IXC Communications owns a 20% 
stake in the company in exchange for giving PSINet access to 
IXC's high-speed digital phone lines. (from Hoovers Online)

PSIX has stayed strong this week, even when the Internet
sector struggled.  PSIX is up 21.6% over the last five trading
days.  The sector as a whole (using the Amex Internet Index) is 
slightly up at 1.5% over the same time period.  We especially
like the fact that PSIX broke through its 50-dma today and 
was able to hold it.  The stock bounced off this level and 
held above it for the day.  If the sector struggles on Friday,
a bounce again off of the 50-dma($47.75) would be a good time
to buy in.  PSIX is still over $20 away from its all time high
of $73.75.

PSIX announced a few days ago that they are purchasing 
Caribbean Internet.  This company services about 14,000
businesses and consumers.  This will make PSINet the 2nd 
largest ISP in Puerto Rico.  Caribbean Internet serves
about 30% of Internet users in the area.  PSIX was upgraded
to "strong buy" at Kaufman Brothers yesterday.

BUY CALL JUL-45 SQP-GI OI=1500 at $6.75 SL=5.00 ITM $4.25
BUY CALL JUL-50*SQP-GJ OI= 850 at $4.00 SL=3.00
BUY CALL JUL-55 SQP-GK OI= 604 at $2.06 SL=1.00 
BUY CALL AUG-50 SQP-HJ OI=   5 at $6.63 SL=5.00
BUY CALL OCT-55 SQP-JK OI= 186 at $7.38 SL=5.50

Picked on June 24th at  $49.25    PE = n/a
Change since picked      +0.00    52 week low =$ 8.38 
Analysts Ratings     7-3-0-0-0    52 week high=$73.75
Last earnings  04/99 est -1.03    actual -1.11 
Next earnings  07-21 est -1.12    versus -0.67
Average daily volume = 1.68 mln.
Chart = http://quote.yahoo.com/q?s=PSIX&d=3m


VRSN - Verisign, Inc. $72.94 +5.94 (+7.00)

VeriSign provides digital IDs (also called digital certificates) 
with encrypted information to protect access to communications 
and transactions sent over the Internet, intranets, and 
extranets.  The company has worked with Microsoft and Visa, 
among other companies, to deploy its cybersafeguards for such 
online activities as e-mail, home banking, and credit card 
purchases.  Most of its revenues are from the sales of digital 
IDs.  VeriSign also markets its products to large firms and 
government agencies and provides digital certification services 
to such companies as Visa (14% of sales). (from Hoovers Online)

VRSN is another Internet stock that has performed very well
during the last five trading days.  The stock is up 28.8%,
compared with just a gain of 1.5% for the Amex Internet Index.
VRSN split 2-1 on May 28th and experienced some rough times
just after the split.  The stock has definitely made a come-
back and is now trading well above its 50-dma at $60.  VRSN
also broke through some resistance today that had rejected its
move up on other occasions.  We would like to see the stock 
hold above $71.50 to show this resistance is now support.  A
good buying opportunity will occur if the stock comes down
and bounces off this point.  Another positive technical 
happened today as VRSN's 10-dma crossed through its 50-dma.

VRSN popped up today, when the Senate Commerce Committee 
approved legislation yesterday that will give the same validity 
to electronic signatures as those that are handwritten.  This
really benefits a company like VRSN that makes software for
secure Internet transactions.  The Commerce Department projects
Internet retail sales could reach $30 billion next year.

BUY CALL JUL-70 YVR-GN OI=889 at $ 8.63 SL= 6.25 ITM $2.94
BUY CALL JUL-75*YVR-GO OI=174 at $ 6.38 SL= 4.75 
BUY CALL AUG-75 YVR-HO OI= 10 at $11.13 SL= 8.75
BUY CALL AUG-80 YVR-HP OI= 49 at $ 9.13 SL= 7.00

Picked on June 24th at  $72.94    PE = 7300
Change since picked      +0.00    52 week low =$  9.69 
Analysts Ratings     5-6-3-0-0    52 week high=$ 94.13
Last earnings  04/99 est -0.03    actual -0.04 
Next earnings  07-22 est -0.02    versus -0.12
Average daily volume = 1.11 mln.
Chart = http://quote.yahoo.com/q?s=VRSN&d=3m


WLP - Wellpoint Health $86.50 -4.44 (-9.56 this wk)(+8.25)

Wellpoint Health Networks serves about 32 million individuals 
in the U.S. through HMOs, PPOs, and special networks such as 
dental, vision and mental health plans.  The company operates 
as Blue Cross in California and UNICARE through the rest of 
the nation.  Wellpoint also sells life insurance and third 
party administration to self-employed businesses.  In 1997, 
they acquired the group health and related life business of
John Hancock Mutual. 

WLP's stock is now rolling over after a long run.  It had a 
big spike recently that provides for a good entry point into 
the weakening healthcare sector.  The recent spike was related 
to the company's addition to the S&P 500.  Many fund managers 
now have to purchase shares to make sure they have an even 
fund weighting.  This is a typical phenomenon when a stock 
joins the index.  But with that now behind WLP, it has some 
catching up to do.  Most other healthcare issues have been 
breaking below their 50-dma.  WLP needs to drop $7.00 just to
get to their 50-dma.  So we are adding this as a put play due
to the weak sector, which has produce a fair amount of earning
warnings.  But choose your entry point wisely.  The stock 
will trade in a fairly wide intraday range.  This should help 
in opening new positions.

BUY PUT JUL-90 WLP-SR OI= 27 at $5.88 SL=4.25
BUY PUT JUL-85*WLP-SQ OI=212 at $3.00 SL=1.50

Average Daily Volume = 317 K

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


CI - Cigna Corp. $88.81 -2.25 (-6.69 this wk)(+2.19)

Cigna provides insurance and financial services throughout 
the world.  Some of their main products include group life 
and healthcare, managed care products, individual life and 
health, annuities, and property & casualty insurance.  Its
primary segment is health care, which accounts for about half 
of their premiums.  In January 1999, Cigna sold some of its 
property and casualty business to ACE Limited.

We are adding CI to our put list since the stock has broken 
through key support at the 50-dma on strong volume.  The stock 
had been stuck in a trading range for the past couple months 
before making its break lower this week.  We were expecting 
to see some support from the 50-dma at $92.00 but it failed 
to hold that level.  There are a few concerns going forward 
to CI but the main catalyst right now is the weak sector.  
Healthcare companies are finding it increasingly difficult 
to maintain their profit margins.  CI is evidence for that as 
they are pulling out their businesses in at least 6 major 
cities this year.  Other signs that money is tight is CI's 
recent asset sales.  They have been selling parts of their 
insurance business.  This not only generates cash but analysts 
speculate that CI can't find the money to fund these divisions.  
The stock has been down on heavy volume during a time when 
overall market volume has been very light.  Wait for a bounce 
to give you an entry point and look for the next major support 
to be at $80.  

BUY PUT JUL-90*CI-SR OI=147 at $3.12 SL=1.50
BUY PUT JUL-85 CI-SQ OI= 78 at $0.94 SL=0.00

Average Daily Volume = 677 K

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

MWD - Morgan Stanley Dean Witter $91.31 -1.94 (-4.44 wk)

MWD is the #2 retail broker in the US only after Merrill 
Lynch.  The 1997 merger of Morgan Stanley and Dean Witter 
created an investment banking and retail brokerage 
powerhouse.  The company is now global financial service 
firm with three primary business segments: securities, 
asset management, and credit services.  Its Discover unit 
has been one of the leading credit card issuers.  MWD has 
more than 430 branches in the US and some 30 more abroad.  
Its clients include both individuals and institutions.

Just as reported in last night's commentary, MWD announced 
its earnings this morning and still went south.  MWD beat 
First Call's estimate of $1.56 by 25% to come in at $1.95 
p/s!  The huge gains were primarily powered from trading 
securities and fixed income.  Couple this blow out 
earnings' report with an upgrade from Schroder & Co to 
"significantly outperform" and a reiteration of a 
"recommend list" rating by Goldman Sachs and that should 
present a winning combination.  Wrong! The stock went 
deeper into negative territory.  The broad market decline 
and the negative sentiment of the brokerage sector were 
just too powerful.  Now with 2Q earnings in the past and 
rate fears again lurking in the shadows, there's nothing to 
hold MWD up.  The last three days of losses put the stock 
into its recent support level of $90 and $94.  MWD is 
presently situated between its 50 dma of $97 and its 200 
dma of $81.  Be aware, MWD does have bottom resistance 
around $85-86.  

BUY PUT JUL-85 MWD-SQ OI=2295 at $2.13 SL=1.00
BUY PUT JUL-90*MWD-SR OI=3577 at $4.00 SL=2.50
BUY PUT JUL-95 MWD-SS OI=1399 at $6.75 SL=5.00

Average daily volume = 2.39 mln.
Chart = http://quote.yahoo.com/q?s=MWD&d=3m

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The Option Investor Newsletter         Thursday  6-24-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

Time Is A Commodity...

Each week, I receive numerous requests for basic explanations of
the most common spread-trading strategies.

Wednesday, June 23

Blue-chip issues fell again on Wednesday as investors continued
to worry about rising interest rates and a weakening bond market.
The Dow fell 54 points to end at 10,666 after sell-offs in the
banking and financial sectors. On the bright side, technology
issues moved the Nasdaq higher; the index closed up 17 points at
2,598. In the broader markets, decliners outnumbered advancers
three to two on active volume of 723 million shares on the NYSE.

Tuesday's new plays (positions/prices):

ELNK JUL45C/JUL50C $4.12 debit  (opened $4 higher, very volatile)
JDAS AUG12C/JUL12C $0.50 debit  (almost unchanged for the day)
SLMD JUL17C/JUL15P $1.56 credit (slightly less than our target)

Earthlink (ELNK) started the day $4 higher and climbed to $65
before consolidating back to the opening price. Trading was fast
and furious but most of our quotes from 10 - 11:15 AM showed the
debit at $4.25. With the large bid/ask spreads, we suspect it
traded as low as $4.00. (If you opened a position today, please
send me the prices.) The cost basis for the ELNK "covered-combo"
was approximately $47.87. JDA Software Group (JDAS) moved very
little during the session; the spread debit was $0.56 at 'market'
until 11:00 AM. Spacelab Medical (SLMD) was also a subdued issue
and the opening credit was slightly less than our target price.

The spreads editor is away from the market until next week. There
will be no 'portfolio updates' or 'new plays' until he returns.

Questions & comments on spreads/combos to ray@OptionInvestor.com
Spread Strategies...
Each week, I receive numerous requests for basic explanations of
the most common spread-trading strategies. As you can tell from
the format of the 'combos' section, it is written primarily for
the novice trader; about 75% of our readership. With this in mind,
it is obvious why we focus on the simplest techniques available.
One of these methods is the concept of selling time...

A calendar spread (also known as a horizontal spread), involves
the purchase of an option with one expiration date and the sale
of another option with the same strike price but a different
expiration date. The philosophy for using calendar spreads is
that time will erode the value of the short term option at a
faster rate than it will the long term option. A 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 important to understand how a calendar spread profits from
the passage of time. When opening a horizontal spread, we buy a
long term option and sell a short term option. Both options have
the same exercise price, thus they have the same intrinsic value.
Regardless of the movement of the stock, time value will always
be less in the near term option. As long as the underlying stock
price remains relatively close to the exercise price, the value
of the spread will be determined by the time premium of each
option. When we close the position at expiration, the remaining
time value in the short term option will be very low relative to
that of the long term option.

A horizontal spread is completely dependent upon the relative
behavior of time value decay in each of the option positions.
Since the profitability of this strategy is determined solely
by the difference in time values of the options, it is important
for the underlying issue to remain near the strike price; where
time premium is theoretically the highest. If the stock price is
at the high or low extreme, the time values of both options will
be low and the position will likely incur a loss; the remaining
credit will be less than the opening debit.

To the average trader, it would appear that this technique can't
lose. One would simply buy the longer-term option and sell the
shorter-term option. As both time values decayed, the spread
would gain value. In reality, it's rarely that easy because the
the underlying stock does not remain constant. One way to reduce
the negative effects of a volatile stock is to establish the
spread at least two to three months before the near-term option
expires, capitalizing on the ability to sell a second position
against the longer-term option. Ideally, the stock price would
be just below the sold strike when the near-term option expires
but if the options are in-the-money, they must be re-purchased
to preserve the long-term position.

Another method that is commonly used to increase the probability
of profit in this strategy requires an understanding of implied
volatility in option pricing. When opening this type of spread,
it's important to take advantage of pricing disparities to create
the best possible position. (We generally try to open new plays
when there is excess premium in the sold option. This allows us
to enter the position with a theoretical edge.)

There is always the risk of early exercise in a calendar spread.
The degree of risk depends on which options are bought and sold
and the distance to the underlying stock price. There are many
factors that affect the final selection of a specific option for
exercise and past statistics suggest the risk of this occurrence
is very small. In addition, the greater the time value in the
sold option, the lower the probability of it being exercised.
If it does occur, a trader can always fulfill the obligation by
simply purchasing (or selling short - with puts) the underlying
stock. The most important issue is to be notified by the broker
in a timely manner so that the appropriate action can be taken
before the stock price changes significantly.

Good Luck!


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and click on "subscribe" to use our secure credit 
card server or you may simply send an email to


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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

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