Option Investor
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Daily Newsletter, Tuesday, 06/29/1999

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The Option Investor Newsletter         Tuesday  6-29-99
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

Also provided as a service to The Online Investor Advantage

Published three times weekly, Sunday, Tuesday, Thursday evenings.
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
        6-29-99          High     Low     Volume   Advances Decline
DOW    10815.35 +160.20 10815.35 10633.93  816,260k  1,829   1,111
Nasdaq  2642.11 + 39.67  2642.11  2594.32  949,646k  2,267   1,626 
S&P-100  691.51 + 11.75   691.52   678.49   Totals   4,096   2,737
S&P-500 1351.45 + 20.10  1351.51  1328.40            59.9%   40.1%
$RUT     454.08 +  5.47   454.43   448.47
$TRAN   3409.62 + 12.45  3410.72  3375.31
VIX       22.99 +   .43    24.06    22.71
Put/Call Ratio      .45    
*************************************************************
 
Did somebody hear the Fed decision in advance?

The bargain hunters hit Wall Street today like lumberjacks at 
an all you can eat buffet. In the face of all logic, buyers stepped
up and paid the piper today and totally ignored the possibility
of any adverse action from the Fed tomorrow. Investors saw the 
big drop in home sales reported this morning as the green light
in the earnings drag race. Immediately analysts began downplaying
the Fed decision to only a +.25% increase which was already priced
into the market. This was the starting gun that had traders
jostling each other to try and sneak into positions before the
actual announcement and land rush tomorrow afternoon. At this
point it is almost a foregone conclusion that ANY announcement
by the Fed will be ignored or rationalized to justify a continued
spending spree. Some worry that the pre-announcement rally could
impact the Fed's decision and cause them to possibly take a 
stronger step than they would had the market remained depressed.
While the economy is growing well and showing almost no inflation
the market is poised to breakout with a favorable rate announcement.
The Fed has repeatedly said they thought stocks were overvalued and
we were experiencing a speculative bubble which needed to be 
deflated. Tomorrow we will see if they put actions on their words.

The markets appear poised to break into record territory
with anything short of a Fed disaster. The Dow has tacked on a
whopping 262 points in two days and is currently only about 200
points from a new record high. The Nasdaq, not to be outdone,
is only 10 points from a new high. A far cry from their 10,470
and 2400 levels only two weeks ago. Volume came back today with
the NYSE posting 816 mln shares and the Nasdaq 949 mln shares.
The advance/decline line was also positive with a 3:2 margin.
Of the 335 stocks that I personally track everyday only 67 were 
negative and most of them only fractionally. That represents a 
4:1 advance/decline for actively traded stocks. Every sector 
appeared to take part in the rally.


 

 

The rally this week has been simply amazing. Fed meeting?
What Fed meeting? Since the Dow low last Thursday at 10,471 
and the brief intraday drop on Friday it has been all uphill. 
The Nasdaq held support at the 2550 level and never looked back.


 

 

The Fed will undoubtedly raise rates tomorrow but the current
market sentiment is "who cares". Before you rush out and bet
the farm tomorrow afternoon, my last caution is this. Thursday
and Friday should be extremely low volume and volatility is 
sure to be high in front of the long weekend. Traders who did
take an early position could decide to take profits before going
to the beach for the weekend. Also, historically the day after
a Fed meeting has been a down market, more often than not, even 
when the decision was favorable. Should investors shy away from
starting new positions for the next earnings cycle this week? 
That is for you to decide based on your risk profile. Personally 
I will try to target shoot on any pullback and if I am 
unsuccessful then Tuesday morning would be my entry point. 
(after amatuer hour of course)

The Internets are recovering nicely. The next stumbling point 
for them will be the Yahoo earnings on July-7th (next Wednesday).
A less than stellar earnings report could set a negative tone
for the entire sector again. The tech stocks are showing nice
moves, except for Dell. Intel has been up strongly after being 
beat up a couple weeks ago. It needs to break $60 before we would
call it a play. The semiconductor sector was upgraded today after
analysts upped their capital spending estimates for the rest of 
the year on stronger than expected orders. Microsoft is moving
nicely without the trial news hanging over their head. Their
earnings are not until July-16th and they could make a nice run.
CSCO overcame it's post split depression and broke out to a new
high today and earned a spot on our recommended play list. 
Lucent, which recently completed the Ascend acquisition, also
broke out of its recent basing period and is close to a new high
and also a new play tonight. Dell is the black sheep of the Nasdaq
fearsome foursome. Since Dell reports earnings a month later than
most other companies, they are now in their pre-earnings slump
period as traders concentrate on others with earnings soon. They
are also slumping in sympathy to Gateway. Gateway is rumored to 
be buying Earthlink for $75 and the stock is tanking on the news.
Dell has several analysts, in denial of the facts, saying they are
going to beat estimates by a wide margin. I have touched on this
before but with 3 billion shares it would take a major revenue 
windfall of almost $1 bln to beat estimates by more than a penny.
Are they going to beat revenue estimates by a billion dollars?
I don't think so! Still, we will play Dell for earnings when their
time is right.

With most major earnings in the next three weeks and options 
expiration on July 16th, we are approaching that magic time for
the July/Aug decision. Should I buy cheap July options and sell
before the announcements like I should, or should I buy August
options and incorrectly hold over earnings? The July/August
decision is entirely up to you. Buy all the time you want, you
don't have to use it. The holding over earnings should not even 
be a question. I wish I could convince readers to perform their 
own survey this season. Just keep track of any group of stocks, 
a statistically large enough sample of 25-50 please, and note 
how many go up after earnings and how many go down. Prove it to 
yourself and then you can sleep better next time after having 
sold for a profit the day before. This works best if you make 
your list before earnings. Otherwise you will tend to add stocks 
to the list that are featured on CNBC or in the news and those 
are usually the exceptions that actually went up.

Good Luck, Pick an entry point and sell too soon.
 

Jim Brown
Editor


***********************************************
Traders Corner
***********************************************
Online Trading: Out of the Frying Pan...
by George Fontanills

With more than 100 online brokerage firms, you would think that 
at least one of them would be able to handle the special needs 
of options traders. You would be wrong. Although online trading 
has and will continue to change the face of trading forever, 
massive trading bottlenecks on a number of high volume Internet 
stocks as well as periodic access problems in quieter markets 
have resulted in a variety of problems for online traders.

Buy and sell orders have been delayed or not processed at all. 
Online brokerage servers have gone down and traders have not been 
able to access their accounts for hours at a time. Distressed 
traders have found calling or e-mailing their brokerages extremely 
difficult if not impossible. But as online brokerages scramble to 
handle extraordinary trading volumes, record numbers of new traders 
are opening online accounts ready to further clog the already 
overburdened systems. In addition to the basic problem of 
inadequate infrastructure, there are only a handful of online 
brokerage firms with the customized features necessary to trade 
options online. The few firms that are making the attempt are 
still battling with the increased information requirements
serious options traders demand including volatilities, various 
"Greek" analytic measures, and even the fundamentals of accurate, 
easy-to-access quote services. In addition, online brokerages 
process transactions one security at a time. Traders like me who 
specialize in "managed risk" combination strategies not only 
require more than one security, but often require a specific 
pricing relationship between these securities. 

For example, a bull call spread is an inexpensive and popular 
strategy that enables traders to participate in a stock's moderate 
upward movement. The strategy involves buying one lower call and 
selling a higher strike call with the same expiration. The premium 
you receive from the short transaction offsets a significant part 
of the cost of your long position, thereby increasing your leverage. 
When executed as a combination, this strategy offers defined and 
limited risk—the short call is "covered" by the long call leg. 
Brokerages that understand these types of transactions will only 
require the net price of the two options as margin since the net 
cost represents the combined trade's maximum risk. Unfortunately, 
online brokerages would execute each side of this spread as a 
separate transaction thereby creating several significant problems:

1. Margin requirements – If a long option and a short option are 
executed separately, the short call would be considered "naked" 
which requires a much higher margin. Even if you also owned the 
long call, most online brokerages would still require a much 
higher margin than the net cost of the two options.

2. Both sides not executed – If only one leg of a transaction is 
executed, you could end up holding an option for more than you 
wanted to pay, or worse yet, you could end up with a truly "naked" 
option. This leaves you exposed to potentially unlimited losses 
if the stock goes against you.

3. Risk/Reward ratio not controlled – When evaluating spreads, a 
key determinant is the total risk/reward ratio, which compares the 
net cost of the spread to the trade's maximum potential profit. If 
you cannot place the spread as one execution, you cannot control 
the trade's risk on the spread trade by placing it as a limit order. 
If you placed a spread as two separate market orders, you might not 
get filled at an attractive net debit.

The good news is that many of the online brokerages are scrambling 
to earn the business of active options traders. Several firms that 
I know are working on their combination trade capabilities at this 
very moment. When these changes along with other infrastructure 
issues are addressed, I predict a substantial shift of active 
options investors to online brokerages. One place you can now look 
at for a customer ranking of online brokerage firms is as easy as 
a mouse click away. Log on to the CBOE and buried within this 
vast website is a list of qualified option brokers, both on and 
off-line.  (http://www.cboe.com/resources/broker.htm)


George Fontanills is the President of Pinnacle Investments of America, 
Inc., a registered investment advisor and a hedge fund manager in Boston.
He also teaches seminars on options trading throughout the country.





***************
Market Posture
***************
As of Market Close – Tuesday, June 29, 1999 

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

DOW Industrials   10,500  11,000  10,815    Neutral   6.15
SPX S&P 500        1,315   1,355   1,351    Neutral   6.17
OEX S&P 100          660     690     691    BULLISH   6.29  *
RUT Russell 2000     435     450     454    BULLISH   6.29  *

NDX NASD 100       2,110   2,220   2,280    BULLISH   6.29  *
MSH High Tech      1,010   1,080   1,137    BULLISH   6.19

XCI Hardware         890     920     969    BULLISH   6.17
CWX Software         675     700     777    BULLSIH   6.17
SOX Semiconductor    410     425     474    BULLISH   6.10
NWX Networking       525     545     574    BULLISH   6.25
INX Internet         500     510     502    Neutral   6.29  *

BIX Banking          680     720     698    Neutral   6.29  *
XBD Brokerage        410     425     421    Neutral   6.29  *
IUX Insurance        645     660     649    Neutral   6.29  *

RLX Retail           900     910     920    BULLISH   6.29  *
DRG Drug             385     400     361    BEARISH   4.29
HCX Healthcare       770     800     738    BEARISH   4.29
XAL Airline          180     190     165    BEARISH   5.21
OIX Oil & Gas        285     310     292    Neutral   5.13



Posture Alert
 
With an early relief rally thanks to a run in the bond market, 
we have turned BULLISH on the OEX, Russell 2000, Nasdaq 100, 
and Retail. We have also turned Neutral on Internet, Banking, 
Brokerage, and Insurance. 

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


/members/marketposture



*****************
Market Sentiment 
*****************
Tuesday, June 29, 1999 

Watch Out Above!

Is the relief rally already over? From a technical standpoint, the 
market is in critical territory, but further upside should be seen 
shortly. There are several indexes breaking into new highs these last 
two days (Semiconductors, Networking, Software); and several others 
indexes that are about to break new highs (NDX, Hardware, OEX). Several 
other indexes are nearing key moving averages (Internet, brokerage, 
SPX, banking). And several other indexes seem to have bottomed out. The 
charts have not looked so positive in over 3 months. What this market 
may be brewing is a very quick, yet strong rally. When you wake-up the 
next several days, forget CNBC, find out what our friend Mr. Bond is 
doing, and hope that Greenspan and Co. makes no surprises.        

One thing that we should all know to do by now is continue trading 
stock and options based on the strength and/or weakness of the bond 
market. For those of you who don't already know, the bond market opens 
1 hour before the equity market (8:30am ET), and closes 1 hour before 
equity market (3:00pm ET). So when the bond starts rallying, buy 
stocks; and when the bond sells off, sell stocks. The last two days, we 
had a nice bond market rally. On both days, the bond rallied hard into 
the close. What that equated to, was rising stocks prices, especially 
with a strong showing during the last one hour of trading. Imagine 
that? The tail has been wagging the dog now for over 6 weeks, so until 
this trend changes, everybody should be getting his or her early 
morning interest rate quote instead of the Futures quote, because it 
has been quite the indicator. Pretty soon, it will all be over. We've 
let the bond traders have their fun, now it is time to get back in 
control.


 

 

 


Bullish Signs:
**************

Market Posture:
Several indexes breaking into new highs, including networking, 
software, and semiconductors.

Russell 2000: 
Trending above both moving average, and also above key 450 benchmark.

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 (22.61), but is 
indicating 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. 

 

BEARISH Signs:
**************

Interest Rates:
Trading ABOVE 200dma and above key 6% benchmark. 
 
Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors is over 
57.50%. 

Peak Open Interest:  
The contraian put-call ratio clocking in at .92 suggesting bullish
sentiment picking up steam.






OTM Call Analysis
*****************

As we move through July'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        -
Tuesday, June 22          41,724        +18.4%
Thursday, June 24         58,502        +66.1%
Friday, June 25           63,342        +79.8%
Tuesday, June 29          69,044        +96.0%

Market Sentiment at a Glance     Friday     Tues      Thurs  
Indicator                        (6/27)    (6/29)    (7/01) Alert

Pinnacle Index (OEX):          

                    (680-750)      5.3       5.6
Overhead Resistance (680-700)      2.3       2.6
Underlying Support  (645-660)      2.0       2.0
                    (580-660)      5.1       6.1

Put/Call Ratios:

CBOE Total P/C Ratio                .7        .4
CBOE Equity P/C Ratio               .5        .4
OEX P/C Ratio                      1.4       1.0


Peak Open Interest (OEX):

Puts                              670        670
Calls                             680        680
P/C Ratio                          1.08       .92

Market Volatility Index (VIX):	

CBOE VIX                          22.61      22.99



Investors Intelligence:

Bullish                         57.50%
Bearish                         26.50%


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.

 
OEX Pinnacle Index              Friday      Tues
Benchmark                        (6/25)    (6/29)
***************************************************

                    (680-750)    5.27       5.64
Overhead Resistance (680-700)    2.34       2.56

OEX Close                        671.29     691.51
 
Underlying Support  (645-660)    2.02       1.98
                    (580-660)    5.10       6.12

 
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                (6/25)    (6/29)     (7/01)

CBOE Total P/C Ratio             .65	 .42		
CBOE Equity P/C Ratio            .45       .36
OEX P/C Ratio                   1.42      1.02


OEX
Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (6/25)           (6/29)         (7/01)

Puts                 670 / 10,820    670 / 10,979
Calls                680 / 10,017    680 / 11,993
Put/Call Ratio       1.08              .92


 

 



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 29, 1999                           22.99  *


 




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
June 24, 1999                         57.5        26.5  *




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

Index       Last    Mon    Tue   Week
Dow      10815.35 102.59 160.20 262.79
Nasdaq    2642.11  49.79  39.67  89.46
$OEX       691.51   8.47  11.75  20.22
$SPX      1351.45  16.04  20.10  36.14
$RUT       454.08   5.50   5.47  10.97
$TRAN     3409.62  81.06  12.45  93.51
$VIX        22.95  -0.05   0.39   0.34

Stock               Mon    Tue   Week

YHOO       160.00   9.62   3.50  13.13  Earnings July 7th
UNPH       162.00   2.38   8.25  10.63  In blue sky territory
QCOM       137.00   7.75   2.50  10.25  CDMA Patent royalties
VRSN        77.88   5.50   3.88   9.38  Powered by new deal
MOT         94.38   1.88   2.50   4.38  Earnings run beginning
TXN        139.81   3.38   0.94   4.32  New closing high
SNE        108.19   0.88   3.12   4.00  New, still climbing
SLR         66.69   1.63   2.25   3.88  Nearing all-time high
VRIO        65.75   1.88   1.50   3.38  New pact announced
NOK         88.38   0.06   3.06   3.12  Solidly above 10-dma
MSFT        88.00   1.81   1.25   3.06  Resistance at $89?
LU          66.69   2.00   1.00   3.00  New, purchased Nexabit
EFII        54.75   2.19   0.56   2.75  Positive technicals
NT          85.69   0.81   1.44   2.25  Back above $85.00
NXTL        48.50   1.25   0.81   2.06  Rated strong buy
SUNW        66.50   0.94   0.69   1.63  Moving with the NASDAQ
IBM        124.63  -0.56   2.06   1.50  Rumor: buying Sequent?
WCOM        93.63   2.88  -1.44   1.44  Dropped, looking weak
CSCO        62.50   0.63   0.56   1.19  New, buy on the dip
GTE         71.00   0.38   0.75   1.13  Deal with CenturyTel
MMCN        40.63  -0.50   1.13   0.63  All-time high Tuesday
PSIX        47.38  -0.25   0.88   0.63  Buy rating reiterated
EMC         53.88   0.06  -0.06   0.00  Dropped, lack of rally
ELNK        59.88  -1.25   0.38  -0.88  Dropped, still waiting
HON        116.63  -1.94  -1.13  -3.07  Dropped, bearish
VOD        197.00   0.13  -7.88  -7.75  Merger done, split time?

Puts

GBLX        42.50  -1.25  -2.06  -3.31  New, might bid higher
WLP         83.88  -3.88   2.38  -1.51  Secondary IPO offering
WCII        47.81  -0.13  -0.94  -1.07  Annual meeting Thursday
AET         89.44  -0.56   1.06   0.50  Resistance at $90.50
MCK         40.63  -0.13   0.63   0.50  52-week low today
CI          88.31   1.69  -0.69   1.00  Down in an up market
CLX        101.25   1.06   1.00   2.06  Dropped, too strong
SWY         50.06   0.00   2.69   2.69  Dropped, above 50-dma
TWX         68.56   2.19   0.63   2.82  Dropped, reversed trend
MWD         94.75   2.75   0.25   3.00  Underperformed Tuesday
TMX         77.63   1.63   1.50   3.13  Interest rate play
NDB         45.25   0.50   9.25   9.75  New, too far, too fast
INKT       119.13   9.75   2.63  12.38  Dropped, Internet rally






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




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







The Option Investor Newsletter         Tuesday  6-29-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

*****************************************************
PICKS WE DROPPED
*****************************************************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
******

ELNK $59.88 +.38 (-0.88) ELNK tacked on $.38 today and is still 
higher than it was at the close of the day the GTW buyout rumors 
became public. With a little help from the rumor, this has been a 
very successful play (picked it at $46.88). Since the stock has 
been treading water at this level for a few days while investors 
wait for a buyout confirmation, we are going to drop it and move 
on to other plays.  We don't feel comfortable waiting for a 
"rumor" to come true.  However, in an interview on CNBC today, 
Internet analyst Frederick Moran said that ELNK has an outstanding
management team and a proven track record for service and growth. 
It is a premier ISP and he believes the rumored buyout makes 
sense. Internet service is offered free in Europe and is often 
bundled with other services when a PC is purchased. U.S. companies 
see this trend coming and are moving to position themselves for 
the change. For those who want to hang on and wait for another 
spike should the rumored $75 buyout offer become fact, we 
recommend stops.

EMC $53.88 -0.06 (UNCH) EMC just hasn't been the same stock 
since the IBM announcement off a new competing product line.  
It has shown great support at $52 but it's been unable to 
rally with the markets.  This is uncharacteristic for EMC 
which has traditionally been a strong stock heading into earnings 
season.  So we are dropping EMC as a current play.  There are 
too many other stocks that are starting to move that provide 
a better opportunity to make money.  But if you are going to 
continue with EMC, watch the support at $52 to be the key 
level.

HON $116.63 -1.13 (-3.07)  After the ups and downs of last 
week, HON has descended even further.  The stock has 
slipped below its 10 dma and didn't hold its position in 
its recent support of around $120-121.  There's no apparent 
news to account for this decline.  Nevertheless the writing 
was on the wall today as the stock lost ground on stronger 
than average volume.   Since this is definitely a "bearish" 
indication we must drop HON from our call list.  Remember
this is a leverage play on ALD.

WCOM $92.19 -1.44 (+1.44)  WCOM looked strong yesterday, as it 
moved up almost $3 on uncharacteristically light volume.  To bad 
it couldn't have stopped there yesterday, as today it gave back 
$1.44 on 11.7 mln. shares.  The average is 11 mln.  Wait, there's 
more, and it takes the luster off today's finish.  At the close, 
about 45 K shares crossed at the bid price of $92.56, which 
means, "sold" most of the time.  In comparison to the rest of the 
market, it looks weak, especially with investors' expectation of 
a market-wide move up on expected Fed news Wednesday.  No 
surprise here that we're dropping it tonight.



PUTS:
******

CLX $101.25 +1.00 (+2.06)  We are now dropping CLX as a put 
play.  On Tuesday, Banc of America initiated coverage of CLX 
with a "buy."  CLX promptly added +$1.00.  We had been holding 
on to the company hoping to see it bounce back below its near 
term resistance of $100.  But on Tuesday, it clearly broke 
above the level to close at $101.25- not good in our eyes.  
Even though it could very well bounce off its next resistance 
at its 30 dma ($102.42), we are letting CLX go.

TWX $68.56 +0.63 (+2.81) It was only seconds after the morning
bell on Monday that we knew our current play of TWX had ended.  
We had been playing TWX based on its technical weakness and 
its inability to hold at support.  On Friday it had broken 
through another key support at $66.  This was encouraging and 
we would like to see that trigger a new down leg.  Instead 
TWX opened back above that key $66 support level and traded 
higher all day.  Mostly on news that Time and Viacom were 
considering an alliance.  But we were able to see the stock 
fall during the past week despite Merrill Lynch making it a 
Focus One pick and despite LCOS buyout rumors.  But we don't 
like the strength TWX is now showing especially in front of 
what could be a positive Fed announcement and market rally.  
So Monday's rally should have triggered your stop losses and 
exited the play. 

SWY $50.06 +2.69 (+2.69) We are dropping Safeway as a put 
play due to its strength on Tuesday.  It was up strong all
day and even pushed above the 50-dma.  We had been playing 
SWY as a put based on rumors that SWY might be buying Kmart.  
That caused a big pop in SWY's stock but it was unable to 
move above resistance.  Today the stock moved above that 
resistance and ended our play.  It is unlikely that SWY will 
purchase Kmart but there could be some other sort of alliance 
pending.  Also the market has been strong this week ahead 
of the FOMC meeting.  For both reasons, we are no longer 
recommending new plays on SWY. 

INKT $119.13 +2.63 (+12.38) Welcome back to Risk-O-Rama!  Let's 
pick up where we left off.  We needed to answer just 7 questions 
accurately to be a winner.  Sorry!  If you guessed just 1 wrong, 
you lose!  No consolation prize either.  Fortunately, 1 of the 10 
trading rules says that we don't start plays in the first hour of 
trading and we confirm market direction first.  Disciplined 
investors would have never found an entry. . .a darn good thing 
since INKT went undeniably in the wrong direction.  That's why we 
call it high risk.  But, thank you for tuning in.  This broadcast 
will air no longer.

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

NT $85.69 +1.44 (+2.25)  NT is off to a decent start this
week.  It is already up +$2.25 and also finally broke above 
$85 which had previously provided resistance for the company.
Since it is now past that troublesome number, we feel that NT
could continue to climb towards its next resistance at its all
time high of $88.00.  NT will announce its earnings on July 
27th.  Also, keep in mind that NT is on our split candidate 
list.  The company could possibly announce a 2:1 with its 
earnings.  As far as new goes, on Tuesday the Technology 
Business Research, Inc. 1Q99 NBQ Ranking came out.  Nortel 
got the 8th spot behind only Cisco, 3Com, Intel, Ascend, HWP, 
Cabletron, and IBM.  NT "continues to implement its business 
realignment plan and is nearing completion of its integration 
of Bay Networks, which is all part of its transformation from 
an old line telecom company to a competitive player in the 
converging data and voice markets.  Nortel also plans to 
out-source its manufacturing operations."(-Business Wire)  
In other news, NETGEAR (a wholly owned subsidiary of NT) 
introduced a new line of information appliance solutions to 
meet networking needs of small offices and home offices.  
"NETGEAR's Network Disk Drives are the first information 
appliances from a leading networking supplier to specifically 
address small businesses and simplify the use and installation 
of storage space on the network." (-Business Wire)

SLR  $66.69 +2.25 (+3.88)  SLR is looking good as a momentum
play.  It is up +$3.88 in trading so far this week and is 
now near its all time high of $67.25.  No news in particular 
has been driving SLR higher.  It is certainly being helped by
the overall market.  The DOW has rocketed over 262 points in 
only two days of trading.  A pullback would be normal!  We 
highly suggest setting those stop losses tight at this point 
to protect any profits.  SLR's run could possibly be cut 
short if the Fed's decision tomorrow (Wed.) on interest 
rates shakes up the markets.  Also, keep in mind that the 
market usually pulls back the day after an important Fed 
meeting.  We are not trying to scare you here.  It is just 
important to protect your profits.  

MOT $94.38 +2.50 (+4.38)  After consolidating -$3.13 last week, 
MOT is already back on track.  In just two days of trading, it 
has surged +$4.38.  On Monday, the power behind the move may 
have been in part to a deal won by the ERG Motorola Alliance.  
Rome chose the partners to provide and maintain a smart card 
system to collect the fares on the its transport network.  
Motorola and ERG will get approximately $280 million under 
the contract.  In other news, Pinnacle Holdings Inc. announced 
after the market closed on Tuesday that it would buy Motorola's 
North American antenna site business for $225 mln.  The deal 
is expected to be completed within the 3rd quarter.  Although 
MOT's trade volume is still on the light side, we feel it could 
pick up after the Fed's decision is released.  MOT will report 
its earnings on July 13th and could soon begin its earnings 
run.  We also feel that MOT could announce a split with its 
earnings.  It has more than enough authorized shares for a 
2:1.  Look for MOT to head higher but beware, it could have 
some resistance at its all time high of $96.69.

MMCN $40.63 +1.13 (+0.63) After consolidating only fifty 
cents on Monday, MMCN took off again on Tuesday.  It added 
+$1.13 and even set another all time high in intraday trading 
of $40.75.  Its trade volume was higher than normal which 
could be a bullish sign.  On Tuesday, 713 K shares traded 
hands.  Normally the average is closer to 543 K.  We feel 
that MMCN could head higher especially since this popular 
stock has a small float- only 7.60 mln.  (Good 'ole supply 
and demand!)  MMCN will also announce its earnings on July 
15th.  Last quarter, MMCN reported record revenues and 
earnings.  Look for MMCN to head higher but try to catch it 
on a dip.

PSIX $47.38 +0.88 (+0.63) PSIX was down slightly on Monday,
even though Jeffries & Co. reiterated their "buy" rating and
12-month price target of $75.  Tuesday saw the stock rise just
under a dollar.  PSIX is at a key point, as the stock sits just
below its 50-dma.  We would suggest the best time to buy would
be a break through this level on better than normal volume. 
With the Fed expected to announce its stance on interest rates
tomorrow afternoon, early trading could be very light.  Some 
analysts feel that PSIX is a nice takeover candidate.  If this
rumor ever gains steam, PSIX could really roll.

VRSN $77.94 +3.94 (+9.44) VRSN continues to work its way up
as the stock has gained over $9 this week in just two trading
days.  VRSN announced a deal with Verio today to give Verio
customers a way to deploy secure web sites.  The two companies
will work together on co-marketing programs targeting Verio's
business customers.  If you jumped in on Monday morning...
you should consider moving up those stop losses to protect your
profits.  Otherwise wait for the Fed meeting.  VRSN is likely
to move big one way or the other based on Greenspan's speech
tomorrow.

VOD $197.00 -7.88 (-7.75) VOD has really been volatile this
week as the merger with AirTouch becomes complete.  VOD was down
about $3 on Monday before it fought back to virtually even on
the day.  Tuesday saw the stock drop close to $8 and this time
the bell sounded before any comebacks.  Apparently there was
a mad dash to get out of ATI before the door closed.  Volume
for ATI was over 47 mln versus its normal 2 or 3 mln shares a 
day.  VOD got caught in the cross fire.  The new combined 
company is much stronger and this only presents itself as a
better buying opportunity for us.  Now that the merger is
complete, VOD is free to announce a split at any time.
Remember the rumor is a 4:1.  The 50-dma is just above $194 and 
this could be a good entry point if the stock bounces off this 
area of support.  Don't jump in until we see the bounce back
upward.

SUNW $66.50 +0.69 (1.63) SUNW decided to join the rally late 
on Tuesday but at least it arrived.  After milling around 
the unchanged level all day, it popped up in the last few 
minutes to end the day up 0.69.  This is pushing the stock 
towards the upper end of the recent range.  There is no 
real catalyst for the rise other than a strong market.  The 
NASDAQ is sitting about 10 points from a new high and you 
have to think that traders are looking to break that record.  
The company specific news this week is filled with the 
typical product and alliance headlines.  But none of them 
carried enough weight to drive the stock.  So we are now 
left to sit and wait on the Fed to make their decision.  
Expect an announcement around 2:15 ET and keep your stops
set just in case the news is bad.  But any positive news 
should spark the NASDAQ to a new high which should give 
traders the okay to spend more money on tech stocks like SUNW.
Actually, traders should probably wait and see what happens
on Thursday.  The day after a Fed meeting is usually down.
This may be our time to look for an entry point on SUNW 
instead.

NOK $88.38 +3.06 (+3.12) After a 3 day dip last week, Nokia has 
turned around and closed higher in each of the last 3 trading 
sessions. Today's move up was a big $3.06 on average volume. Now 
solidly above its 10 dma once again, the stock is looking stronger 
technically as well. In the news, Nokia and Ericsson have begun 
testing the inter-compatibility of their WAP-based products. 
(WAP is the Wireless Application Protocol which both companies 
hope becomes the world standard for wireless data communication.) 
Today NOK announced the Nokia 640, a new analog mobile phone 
with many advanced features. Yesterday it announced a $170 
million agreement with Yunnan Post for more expansion of the 
Yunnan GSM network in China.

IBM $124.63 +2.06 (+1.50) On Monday, Big Blue gave back its gains 
from Friday, and closed exactly where it had closed on Thursday. 
Today, however, it climbed above Friday's close after bouncing 
off its 10 dma on volume that was only slightly below average. 
This week an article in the Wall Street Journal gave credence 
to the rumored IBM buyout talks with Sequent (SQNT was recently 
recommended in OI based on the rumors). Neither company will 
verify the negotiations, but a buyout would be good for both 
companies. In particular, it would give IBM needed help in 
rebuilding its Unix server product line. Meanwhile, Congressional
negotiators and the White House today reached a compromise on 
the Y2K lawsuit legislation we mentioned in Sunday's edition. 
Yesterday, IBM announced an alliance with Rational Software 
Corp. to develop software that will help customers in e-business
applications.

GTE $71.00 +.75 (+1.13) After losing ground along with most of the 
market last week on interest rate worries, GTE has closed higher 
each of the last 3 trading sessions. Today it closed at $71.00, 
just $.78 from its recently set all-time high. GTE said yesterday 
that it has agreed to sell a chunk of its domestic access lines 
in Arkansas to CenturyTel for $843 mln. This sale, combined with 
others announced in the last few weeks accounts for about 25% 
of GTE's planned sale of properties. It will use the proceeds 
for other investments and to pay for the previous purchase of 
some of Ameritech's wireless properties. You can see GTE's 
redesigned Yellow Pages site at http//superpages.com. Two 
Republican Senators are working on legislation that would 
remove the FCC from the telecommunication merger approval 
process. The GTE/BEL merger has been in review by the FCC since 
July of last year. Plus, yesterday, GTE began a new campaign to 
promote its rapidly growing wireless service.

NXTL $48.50 +0.81 (+2.06)  NXTL started the week off with a 
roar as it's continued to tack on additional gains.  The 
vigorous volume advanced the stock over 2 points since we 
added it as a call play on Sunday.  Both days NXTL 
closed only fractions away from its daily highs.  Just 
after setting a new 52-week high on Thursday, the stock has 
again reached new heights when it peaked at $48.56 during 
the last minutes of trading today.  Prudential analyst, 
Christopher Larsen, reiterated a "strong buy" rating on 
NXTL and put a $59 target price on the stock.  In other 
news, Nextel announced that they have acquired a multi-year 
contract with Metro One Telecommunications to provide them 
with directory assistance services.  

VRIO $65.75 +1.50 (+3.37)  On Monday, we saw VRIO close a 
fraction above old resistance at $64.25 as it advanced 
$1.87.  This is the "bullish" confirmation a conservative 
player was watching for in consideration of opening a new 
play.  Today further corroboration presented itself as VRIO 
never dipped below $64.13 and traded as high as $67.25 late 
afternoon.  But again, the volume is still at only about 
half its normal levels.  Overhead resistance is over 10 
points away at the 52-week high of $78.00 providing room 
for lots of profit.  But remember to use stops to protect 
your position.  The market can be a beast and do an about-
face in the blink of an eye.  In the news on Monday, 
Verio's Web-hosting packages and VeriSign's digital 
certificates, which are basically Internet security 
packages for communications and transactions between sites 
and individuals, announced a pact to provide integrated 
services.   

YHOO $160.00 +3.50 (+13.12)  It's true the Internet sector 
isn't packing as much power as it did back in April.  But 
hey, over $13 in gains in just two days is nothing to 
sneeze at.  After a slight retreat Monday morning, YHOO led 
the afternoon rebound and advanced $9.62 to close smack on 
its daily high!  Obviously, the Internet bargain hunters 
just couldn't resist the great deals and so the trading 
battle ensued.  The trading was flatter today as YHOO 
stayed pretty much in the range of $158-160.  Still the 
stock showed some spunk and spiked up to $164.31 in a last 
minute rally.  This is purely an earnings run and Yahoo! 
will report on July 7th.  The outlook is positive for their 
2Q report; however, please consider having your positions 
closed prior to the announcement.  The odds are always 
stacked against you since most stocks tend to fall after
earnings and it's not worth the risk.  In Yahoo! news this 
week, they announced that "phase 1" of their integration 
with GeoCities, an Internet publishing tool company, has 
been completed.  Also, they unveiled their customizable 
browser toolbar, Yahoo! Companion, which can be used from 
anywhere on the Internet.

TXN $139.81 +0.94 (+4.31) Just a reminder that TXN reports 
earnings on July 20 and is also a split candidate.  It last split 
2:1 in November, 1997, and will require shareholder approval to 
do it again, since TXN doesn't currently have enough shares to 
pull it off.  TXN moved up $3.44 yesterday after a negative 
opening and tacked on a bit more today, thanks in part to fund 
managers looking for some window dressing at the end of the 
quarter.  Technically, TXN is looking positive.  Oh yes, it set a 
new closing high today as well as a new intra-day high of $141, 
which will serve as new resistance.  Even volume returned to 
normal today.  If there are no surprises from the FOMC meeting 
and barring a day of profit taking, TXN should continue to move 
up.  Volume will be the key.  Keep stops set just in case the 
trade goes against you and confirm direction before starting a 
new play.

MSFT $88.00 +1.25 (+3.06) Investors are finally showing 
conviction (no, not that kind!  The outcome of the trial 
won't be known for 3 months!) for this stock, as reflected by 
slight increases in trading volume, though it still hasn't 
returned to normal.  There really is nothing in the news to move 
the price, except the leaks last week that MSFT may be in 
settlement talks with the DOJ, a notion that both sides deny and 
blame the other for.  Another possible price mover: window 
dressing.  MSFT despite a flat April and May, has looked 
technically good for much of June.  For the near future, it 
should remain a favorite of fund managers.  For the rest of the 
week, buyers will feel much more comfortable getting back in if 
there are no surprises from the Fed, NAPM or Employment numbers.  
They showed lots of strength in the final 20 minutes of today's 
action, as volume swelled to raise the price $1 during that 
period - pretty good for a company with 5.1 bln. shares 
outstanding.  Resistance is $89, but MSFT could blow right 
through it if volume picks up.  Earnings are July 21.  Confirm 
direction before playing.

QCOM $137.00 +2.50 (+10.25) Sure enough, QCOM bounced firmly off 
its 30 DMA of $126 and moved up $7.75 on only half its normal 
volume, which made the move a bit suspect.  Even so, QCOM kept up 
the pace today by adding another $2.50.  Volume was a bit better, 
but still low.  What the heck, a gain is a gain; we'll take it!  
Though May was flat, April and June were great months for QCOM, 
which makes it trophy for mutual funds.  Can you say "window 
dressing?"  Sure, we knew you could.  What makes QCOM such a 
catch?  Read this from an S&P credit report issued today.  "CDMA 
patent royalties are substantial, based on equipment 
manufacturers' revenues.  Royalties will also apply to equipment 
built for the next generation of the European wireless network, 
starting in about three years.  Qualcomm is the dominant supplier 
of profitable CDMA semiconductors to the industry".  Now a few 
words of caution. . . there is $10 of profit in only 2 days, 
taking QCOM to a new closing high.  And if the Fed throws a 
monkey wrench into the works, profit taking will set in at 
lightening speed.  Keep your stops set just in case, and confirm 
direction before any new plays.

EFII $54.75 +0.56 (+2.75) A new high yesterday and today!  Even 
volume was there to confirm the move.  EFII closed at its high 
yesterday, and easily in reach of its high today.  $55.56 is the 
new intra-day high and also new resistance.  All of this should 
be viewed as good news and favorable for the stock.  In the news, 
Lord Abbott Value Fund made it known that EFII is their largest 
holding, though it probably didn't affect the price much.  
Technically, EFII's chart reflects strong positive MACD, 
momentum, and stochastic.  The downside is that it's moved up 4 
days in a row.  Under the trend trading theory, nothing goes up 
in a straight line forever, so keep a trailing stop in place to 
protect your profits.  The nearest support is back at $52.  
Market willing, a continued pickup in volume should move the 
price up more.  Earnings are July 15.  Confirm market direction 
before playing.

UNPH $162.00 +8.25 (+10.62) Well we said it "almost" looked to 
good to be true, however yesterday, shareholders of the optical 
network supplier, JDS Fitel Inc. overwhelmingly voted to approve 
the firm's merger with Uniphase Corp.  The merger is scheduled to 
close July 5th.  The company will change its name JDS Uniphase 
Corp. and will increase the number of authorized shares of common 
stock from 100 mln. to 200 mln. (currently UNPH's outstanding 
number of shares is only 40 mln).  Today the market rewarded UNPH 
with its vote of approval as well.  UNPH jumped $8.25 to close 
at its 52 week high of $162.00, on volume of 948 K. There was no 
news of a stock split but as we mentioned earlier, Uniphase is 
way past due.  Earnings are about five weeks away and we could 
see an earnings run as well as a split announcement.  But wait,
there is MORE...having gained almost 11 points in two days 
UNPH is very close to the top of its ascending channel.  If you
look at its chart you'll notice that it almost always sells off
immediately upon hitting this top.  We expect UNPH to run up
to $163 or $164 tomorrow morning and then sell-off into the
afternoon.  Nothing is guaranteed, we are just telling you what
we expect.  But because of this, we are NOT recommending any
new plays.  We would rather wait for UNPH to roll over again 
and then catch the next run.  So why not drop it?  The Fed
decision tomorrow could be a catalyst to propel UNPH higher and
delay in profit taking.  Again, no new call plays.  We are going
to wait for the next entry point and hope for a 3:1 split 
announcement within the next 6 weeks.

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

PLAYS CONTINUED IN SECTION THREE

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                      DISCLAIMER
*************************************************************
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
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The Option Investor Newsletter         Tuesday  6-29-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

MCK $31.50 +0.63 (+0.50) MCK has consolidated a bit the last
few trading days.  This isn't a surprise considering the drop
the stock has taken.  We still feel going forward that the 
stock will run into more and more bad press.  With accounting
irregularities and the law suits that have followed, MCK looks
to be in for a very rough ride.  The stock has built some
support at the $30.75 level, but a break through this level
could send the stock even lower.  We are already at prices not
seen since early 1997.  The drug sector is defensive sector, so
we could see some weakness in the sector if the market views the
Fed announcement as very positive.  When a sector stumbles, the
weak within the industry will fall hardest.  The safest play 
will be to wait for a break below $30.75.  This is shaping up
to be a long slow bleeding death.

WLP $83.88 +2.38 (-1.50) Wellpoint had incredible volume today 
as they priced the secondary offering of 10 million shares at 
$81.  This offering if not from the company but from the single 
largest shareholder, California HealthCare Foundation.  This 
is obviously one reason the stock has come down the past week.  
The market won't be able to hold a price significantly above a 
secondary offering price because investors will unload those 
10 million shares for a quick profit.  But we are now in the 
driver's seat with our play.  We already have a tidy profit 
so now we can tighten down the stops to lock in the profits.  
We will soon run into support at $80 thanks to the 50-dma and 
this stock offering.  That could spur a short-term bounce which 
looked like it was happening Tuesday afternoon.  But WLP might 
move below that level too.  Consider all the other Healthcare 
stocks that are now well below their 50-dma.  It still looks 
like WLP has more catching up to do.  The fundamentals don't 
support the stock either with lots of profit warnings from 
the sector plus that fact that the largest shareholder just 
dumped 2/3 of their position.  Hmmm?  But continue to look for 
new entry and exit points and protect those profits. 

TMX $77.63 +1.50 (3.13) Telmex rallied this week on the 
strength of a strong U.S. market.  TMX has been trading on 
interest rates concerns for the past few weeks.  TMX has 
gone higher with the 30yr T-bond gaining ground this week.  
It was strong out of the gates on Monday and hasn't given 
us the entry point we want.  But this week's rise in the 
market may open the door for some profit-taking on the Fed's 
announcement.  That is why we are keeping TMX as a put play.  
But be careful here as investors may be looking to take the 
market to new highs.  It is important that you wait until the 
FOMC makes a decision and then confirm the market's direction.  
This will lessen your risk to any unexpected decision.  

CI $88.31 -0.69 (+1.00) Cigna has been relatively flat on the 
week.  It traded higher Monday only to give back most of those 
gains Tuesday despite the broad market rally.  CI has been 
short on news this week and so you would expect CI to move 
with the sector.  Unfortunately though CI traded lower Tuesday
despite the healthcare group trading up with the market.  This 
divergence is a positive sign for our play.  The stock is now 
right at the short-term low established last week.  We want 
to see CI move past this mark and push towards the 200-dma 
at $81.  Like always, confirm the direction before opening 
new plays.

AET $89.44 +1.06 (+0.50) AET hasn't had much trading action
this week as the stock is trying to consolidate after the 
plunge through support on Friday.  This is common for AET 
which typically has a strong following among institutions.  
They are trying to determine if the slide is over and if 
this is the time to invest.  We see more downside ahead after 
this period of consolidation.  This is because the sector is 
still weak and volume was light on the rebound.  But the 
real catalyst in our play over the next few days will be 
the Fed.  Watch for volume to be very thin ahead of the 
announcement and expect resistance at the $90.50.

WCII $47.81 -0.94 (-1.06) Winstar is behaving as we have come 
to expect as it trades between the $46 and $50 range.  We are 
encouraged by the weakness in the stock despite gains in the
broad market.  This can also be attributed to a weakening 
sector.  But remember on Sunday when we mentioned the annual 
shareholder meeting on Thursday.  This is usually a chance 
for the CEO to get up in front of shareholders and analysts 
to promote the stock.  So it may be better to wait on opening 
any plays this week.  If you do, do so with caution.  Volume 
has been light so far this week but expect that to pick up 
with the meeting.  There is no new company news to report 
this week either.   

MWD $94.75 +0.25 (+3.00)  Yesterday, MWD recaptured almost 
all of its losses from the previous week and today it 
managed to keep a fractional gain.  The financial sector 
seems to be relishing in the market sentiment this week. 
Clearly it's unruffled by the FOMC meeting and actually 
shunning the expected rise in interest rates.  Take into 
account that this attitude may very well be short-lived!!  
Of course, you'll need to wait and see how MWD reacts over 
the next few days before starting a new play.


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

LU - Lucent Technologies, Inc. $66.69 +1.00 (+3.00 this week)

LU is spun (off) gold.  The company, which was spun off from
telecommunications giant AT&T, is North America's leading maker 
of telecom equipment and software, including business 
communications systems, switching and transmission equipment, 
and wireless networks.  LU also makes integrated circuits and
telecommunications power systems and is a major supplier to the 
personal communications services market.  Technology developed 
by Bell Labs provides the basis for many of LU's products, but 
the company has become a force in the broadband (voice, data, 
and video) networking market through acquisitions.  Most of 
LU's customers are telecom network operators such as AT&T.
(profile from Hoovers)

We are adding LU as a new call play as the stock broke out of
an ascending triangle.  This is when a stocks daily lows are
getting higher and higher, as the highs of each day stay at
about the same level.  LU's daily highs kept stopping at 
about $65.50, but today this resistance broke and LU is now
trading just below its 52 week high of $67 achieved in early
April.  Another positive today was the increased volume.  LU
has been averaging just about 10 million shares a day, but
traded over 13 million on Tuesday.  With the Fed announcing
its interest rate decision tomorrow afternoon, the market
could be fairly quiet until then.  Hopefully, if Alan treats
us kindly then the combined might of LU (with a newly acquired
Ascend) and the excitement of traders coming back to the tech
stocks could prove popular and set LU for a nice earnings run
(about 4 weeks away).  We are a little bit early.

LU announced the purchase of Nexabit Networks today.  Nexabit
develops Internet protocol wide area network switching/routing
equipment.  The deal will cost LU about $900 million.  LU expects
the deal to be completed by the end of July.  LU hopes the 
acquisition will help the company lead the industry in terabit-
speed switch/routers that connect to optical networking systems.
LU also landed about $245 million in contracts between Spain's
Telefonica de Espana SA ($200 million) and a South Carolina 
wireless phone company ($45 million).  

BUY CALL JUL-65*LU-GM OI=28675 at $3.38 SL=1.75 ITM $1.69
BUY CALL JUL-70 LU-GN OI=11461 at $1.13 SL=0.63
BUY CALL AUG-65 LU-HM OI= 2532 at $5.50 SL=4.25 ITM $1.69
BUY CALL AUG-70 LU-HN OI= 3187 at $3.25 SL=1.50

Picked on June 29th at $66.69    PE = 91
Change since picked     +0.00    52 week low =$26.72
Analysts Ratings 10-12-10-0-0    52 week high=$67.00
Last earnings  04/99 est 0.15    actual 0.17 
Next earnings  07-22 est 0.23    versus 0.16
Average daily volume = 10 mln
Chart = http://quote.yahoo.com/q?s=LU&d=3m

****

CSCO - Cisco Systems $62.50 +0.56 (+1.19 this wk.)(+2.81 SA)

Cisco's the big kid on the network block.  The leading supplier 
of products that link LANs and WANs, Cisco Systems controls about 
85% of the global market for routers and switches, which direct 
information on a network.  The company's other products include 
dial-up access servers and network management software.  Cisco is 
using acquisitions (more than 30 since 1993) to broaden its 
product line and is licensing products to widen the influence of 
its Cisco Internetwork Operating System (Cisco IOS) software, 
hoping to make it an industry standard.  Strategic relationships 
with the industry's biggest players (including Alcatel, 
Microsoft, Qwest, and U S WEST) are boosting Cisco's influence on 
the networking industry. (Description from Hoover's)

Unlike most split depressions, that was pretty painless!  Recall 
that CSCO split 2:1 just 6 days ago.  Fortunately, the depression 
is over.  Let's go straight to the chart.  CSCO has been up 4 
days in a row.  Over the course of its intra-day movement during 
that time, its lows became higher, which culminated in a new all-
time high today on moderately strong volume.  It helps too that 
the Internet equipment sector, or backbone, is getting a moment 
in the spotlight (Redback, Ariba, Juniper, and Nexabit), with 
CSCO as the biggest star.  Technically, MACD, momentum, and 
stochastic are positive.  Volume looks good too, even though it 
is skewed from the recent split.  Earnings are not until August 
10th (company confirmed).  CSCO has about 3.2 bln. shares issued, 
so it won't move very quickly and options are cheap, thanks to 
the stable price.  With 4 days up, there could be some profit 
taking, but with higher lows and a new high with volume, view any 
pullback as a buying opportunity as long as the overall market is 
giving us "thumbs up".  In other words, confirm market direction 
before playing.

In the news, CSCO announced today that they would buy StratumOne, 
a privately held company for $435 mln. in stock.  Not to be 
outdone by Lucent's purchase of Nexabit, who makes more powerful 
routers than CSCO, CSCO needs StratumOne's high-speed network 
chip technology if it is become a dominant player in the telco 
business.  It marks another step toward Lucent's and Nortel's 
front porch.  CSCO is already an able competitor in the field.  
In a related issue, LU and CSCO agreed last week to settle a 
patent infringement lawsuit by cross-licensing each other's 
technology.

BUY CALL JUL-60*CYQ-GL OI=36262 at $3.75 SL=2.25
BUY CALL JUL-65 CYQ-GM OI=22575 at $1.00 SL=0.00
BUY CALL AUG-60 CYQ-HL OI= 2624 at $5.88 SL=4.00
BUY CALL AUG-65 CYQ-HM OI= 3053 at $3.13 SL=1.50
BUY CALL SEP-65 CYQ-JM OI= 6076 at $5.25 SL=3.50

Picked on June 29th at  $62.50    PE = 107
Change since picked      +0.00    52 week low =$20.56
Analysts Ratings   19-12-0-0-1    52 week high=$62.94
Last earnings   05/99 est 0.37    actual 0.38 surprise = 2.7%
Next earnings   08-10 est 0.40    versus 0.32
Average daily volume =14.01 mln. 
Chart = http://quote.yahoo.com/q?s=CSCO&d=3m

***

SNE - Sony Corp  $108.19 +3.13 (+4.00)

Established in 1946 in Japan, Sony is engaged in the development,
design, manufacture, and sale of various kinds of electronic 
equipment, instruments and devices for the consumer and 
professional markets.  Sony's principal manufacturing facilities
are located in Japan, North America, Europe and Asia.  In addition 
Sony is engaged in leasing, credit card business, satellite 
distribution services.  The company is also actively engaged in
the worldwide music and image-based software markets.

Tuesday the Nikkei Average shrugged off the worse a than expected 
report on Japanese industrial output and mixed unemployment news.
Tokyo stocks closed at their highest close this year, climbing 1%
to 17,782.79. Last Tuesday SNE made a new 52 week high at $110.25.
It fell back to its 10 dma in the $105 area, and today bounced up
$3.13 on volume of 156K.  The disappointing economic news didn't 
seem to bother investors who recently have jumped on board the 
technology bandwagon.  Monday, Goldman Sachs Japan Ltd. raised its
forecast for the Nikkei to 19,000 from 18,000 over the next six
months. After the Fed announces its decision on interest rates 
tomorrow we could likely see a broad based rally as long as they 
don't tighten more than what is already built into the market.

In the news, more than 100 Japanese companies have recently 
announced plans to reduce their workforce, close production
lines and slash capital investment.  Japan is struggling to pull
out of a recession that has led to lower consumer demand, falling
prices and record unemployment.

**be careful, option volume can be low!

BUY CALL JULY-105 SNE-GA OI=453 at $5.13 SL= $3.25
BUY CALL JULY-110 SNE-GB OI=719 at $2.63 SL= $1.25
BUY CALL AUG -110 SNE-HB OI= 25 at $4.88 SL= $3.00 vol=60 today

Picked on June 29 at   $108.19    PE = 26
Change since picked      $0.00    52 week high=$110.25 
Analysts' ratings    1-0-0-0-0    52 week low =$ 60.25
Last earnings   3/99  est 0.60    actual 0.65  
Next earnings   6/99  est 0.74    versus n/a 
Average daily volume  196K 
Chart = 



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

NDB - National Discount Brokers $45.25 +9.25 (+9.75 this wk)

NDB is a holding company engaged in NYSE and AMEX specialist 
activities and also offers online retail brokerage trading.  
They are a national trading firm with offices all over the 
country that acts as market makers for some 3400 different 
NASDAQ and OTC stocks.  Through their division Triak, they 
offer deep-discount trading for individual investors.  This 
part of the business has been put in the forefront as the 
online trading war heats up.

A strong buy rating and hot sector has pushed NDB up over 
27% on the week.  DT Alex Brown started coverage of NDB with 
a strong buy and a price target of $100.  This helped fuel 
NDB on Tuesday with help from a hot sector.  The sector was 
hot thanks to AMTD who is jumping higher ahead of a 3-for-1 
split next week.  These are all fine reasons for the stock 
to climb but there are just as good reasons that the stock 
may pullback.  First, the FOMC hasn't yet cleared the market 
for take off.  We typically get a round of profit-taking 
after the Fed announcement.  Second, NDB had been drifting 
lower for months.  It will be hard for some investors to 
keep their shares with such a spike.  When a stock jumps 
that quickly out of the recent range, it prompts sellers 
to capitalize on the quick move.  Third, did I mention 27% 
in two days?  Well, you get the idea.  This is to be a quick 
play on an overdone rally.  But it is also high risk.  Even 
though the stock is destined to pullback, it may not be done 
rising yet.  So entry points are the key.  


**** ONE DAY PLAY **********

BUY PUT JUL-50 NDB-SJ OI=251 at $7.50 SL=5.75
BUY PUT JUL-45*NDB-SI OI=116 at $4.13 SL=2.75

Average Daily Volume = 1.32 mln

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

****

GBLX - Global Crossing Ltd $42.50 -2.06 (-3.31 for the wk)

Global Crossing is a global Internet and long distance 
telecommunications company.  They are building a network of 
fiber-optic cable systems under the oceans connecting the 
globe.  Presently their Atlantic Crossing (AC-1) connects 
the US and the UK, Netherlands, and Germany.  GBLX future 
plans include a Pacific, Mid-Atlantic and Pan American 
crossings.  Co-chairman and founder Gary Winnick owns 25% 
of the company, which has recently negotiated to buy the 
telecommunications company, Frontier, and then merge with 
US West.

Upstart telecommunications company, Qwest (QWST), is 
rivaling GBLX in their "quest" to build a high-speed 
Internet network across the globe.  And right now, each 
company's prime objective is to acquire Frontier and merge 
with US West.  At first it appeared GBLX had it hands down, 
but that is no longer the case.   Qwest sweetened the deal 
last week and believes its offer far exceeds Global 
Crossing's previous arrangement. The numbers say it all.  
Qwest has offered 11.4 bln. in cash and stock to Frontier 
and 34.7 bln. in stock to US West.  While Global Crossing's 
bid was 10.9 bln. cash and stock to Frontier and 31 bln. in 
stock to US West.  If the companies do not respond in a 
positive manner soon, Qwest is prepared to initiate a 
hostile takeover by taking their offer directly to the 
shareholders and request a tendering (selling) of shares.  
Frontier may be the easiest target as they just pre-warned 
of a shortfall in 2Q earnings and is projecting financial 
difficulties.  Furthermore, Colorado legislators are 
putting some "pressure" on US West - in the best interest 
of the state - since both Qwest and US West are Denver-
based.  Bottom line is this - the acquisitions are pivotal 
regarding the future success of these two global rivals.  
If GBLX loses (which so far it appears they will), they 
will be put in quite an unfavorable position in the race 
for the dominant market share of high-speed Internet 
traffic.  But if the other side of the coin is investors
are afraid that GBLX will raise their bid price for the 
deal causing an even greater drain on GBLX's stock price.
This is almost a win/win as put players.  However, odds are 
if they lose GBLX's stock will likely rally short term over  
not having to swallow such a large fish as USW and 
Frontier.

Mid-June, GBLX found relative support at $48 and $50 just 
below its 50 dma.  Then it slunk down to a level of $45-46 
soon after.  Since the gravity of this situation and its 
long-term effects have really started to sink in among the 
investors, GBLX has again began to decline.   The only 
saving grace is the volume has been rather placid at less 
than half the normal levels.  Still there's no denying the 
stock's downward direction.  There isn't any bottom 
resistance to speak of since GBLX hasn't been below $45 
since last April.

BUY PUT JUL-35 QGV-SG OI=7011 at $0.56 SL=0.00  
BUY PUT JUL-40*QGV-SH OI=3902 at $1.88 SL=1.00
BUY PUT JUL-45 QGV-SI OI=3404 at $4.25 SL=2.50

Average daily volume = 1.88 mln.
Chart = http://quote.yahoo.com/q?s=GBLX&D=3m



*****************
COMBINATION PLAYS   
*****************

RAY IS STILL ON VACATION BUT SHOULD BE BACK IN PLAY 
FORM BY THURSDAY

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


Debit Straddles - The Key Is Probability...

This neutral, low risk strategy works well when the underlying
issue is expected to make a large movement in either direction.

*********************************
Spread/Combination Strategies...
*********************************

Each week, I receive numerous requests for basic explanations of
the most common spread and combination trading strategies. As you
know from reading the 'combos' section, it is written primarily
for the novice trader; about 75% of our subscribers. With this in
mind, it is obvious why we focus on the simplest techniques. One
of the most conservative, neutral combination strategies profits
from large, abrupt movements in the underlying issue.

Before we can begin a discussion on the proper techniques for
purchasing straddles, there are a few definitions that must be
fully understood.

Option Pricing: The primary influence on an option's price is the 
movement of the underlying security. The next important factor is
time value. An option's price decays each day it is in existence.
The closer the option gets to expiration, the faster it decays.
There are other, less important factors that affect the price of
an option including interest and dividend rates.
 
Volatility: The volatility component of option pricing is a
measure of the range the underlying security is expected to
change over a given period of time. The actual measurement is
the standard deviation of the daily price changes in the issue.

Historical (statistical) Volatility: A measure of how quickly the
underlying security has moved in the past. It is a mathematical
definition based on historical prices. In most cases, the higher
the statistical volatility, the more an option is worth.

Implied Volatility: The market's estimate of future volatility of
the underlying security. Implied volatility calculators start with
the current option price and extrapolate the theoretical value of
volatility. Even though it is a computed value, it is still just
an estimate and is subject to errors (or irregularities) when the
market performs unexpectedly. In general terms, implied volatility
is the volatility value that makes an option's fair value equal to
its actual market price.

Debit straddle: A neutral option trading strategy, which consists
of the purchase a put and a call, generally with the same strike
and the same expiration month. The position will benefit from a
large move in one direction or the other and based on the size
and timeliness of the move, it can generate large profits. The
risk, (if little or no movement occurs) is limited to the initial
amount paid for the straddle. By carefully identifying undervalued
options and making reasonable assumptions about future movements
in the underlying security, this can be a profitable strategy with
very limited risk.

There are three rules to identifying favorable conditions for a
straddle purchase. First, the trader should select options that
are undervalued (cheap). Next, the underlying security must have
the potential to move (high or low) enough to make the straddle
profitable. Finally, the underlying stock should have a history
of multiple movements through a sufficient range in the required
amount of time to justify the overall risk/reward of the position.

The first step is to determine how fairly the options are priced.
This may be done with sophisticated pricing software or by simply
comparing the current levels of implied volatility to past levels
of implied volatility. When the relative implied volatility is
low, options are effectively under priced.

After identifying a series of inexpensive options, the trader must
determine if the underlying stock has the ability to move to a
profitable position in the required amount of time. (Three months
is generally the shortest recommended period for debit straddles;
shorter-term positions suffer from time decay too quickly.) With
a simple probability calculator, it is easy to estimate the chance
of the underlying stock finishing outside the break-even points at
expiration. One thing you must understand when using these tools
is that historical volatility measures are generally based on 10,
20, 50 and 100 day statistics and thus it is important to make a
conservative estimate so as to not to artificially inflate the
probability of profit.

The next step is to look at a price chart of the stock to see if
it has a history of moving the required distance in the allotted
time frame. The important thing to examine is how often the issue
moves through the necessary profit range in each of the past four
or five 'three-month' periods. Once again, simple option analysis
software will do this automatically and more importantly, it will
forecast the probability of actually profiting from the position.

One thing to be aware of when buying any option is that time decay
becomes greatest during the last month before expiration. A three
month debit straddle will have lost approximately 50% of its value
before the beginning of the worst erosion period even if the stock
remains exactly at the original price when the position was opened.
This makes it very important to use a mental loss limit near one-
half the cost of the initial straddle purchase to preserve capital
in the event the underlying issue does not perform as expected.

After the position is open and the underlying stock begins to make
a move, it is necessary to decide whether to ride the trend to the
break-even point or trade against the straddle. One technique is
to hold the straddle until the value of either option pays for the
entire position, then the remaining option is risk free with
unlimited profit potential. A similar method bases the target exit
on the sum total of both positions. When one position is worth the
total initial debit, both positions are closed and the premium
from the lower priced option is profit. The latter strategy works
well when there is still ample time until the options expire.

'Riding the trend' is considered the more profitable technique for
directional traders but it involves additional risk and requires
knowledge of basic technical analysis. The most common approach to
this strategy is to monitor the underlying issue for a breakout or
key reversal through a technical support or resistance level. When
the new trend has been positively identified, the lower priced
options (losing side) are sold along with one-half of the higher
priced options (profitable side). The remaining position is held
until a reasonable profit target is met and downside protection
is maintained with a trailing stop. Advanced traders favor this
follow-up technique because it is based on known technical trends
and the action generally occurs near the position's break-even
points. When one of these points is reached, two simple trades
lower the overall cost basis while retaining a high probability
of eventual profit.

Determining how and when to exit a play is a matter of personal
preference but in most cases, if the underlying issue performs
poorly, the play should be liquidated before time value decay
erodes the entire position significantly. As the last month of
option life approaches, you should begin to plan an exit. Study
the daily movement of the underlying issue and use it to your
advantage to exit the position; selling each option for whatever
you can get when instincts (not emotion!), tell you it's right.
It's very difficult to learn to close out losing plays early but
the simple fact is; there is no reason to hang on to a losing
position when there are so many other profitable plays that
deserve your time and money. Accept your losses, learn from
your mistakes, evaluate each one critically, then move on!

Favorable debit straddles are relatively simple to uncover. The
basic requirements are inexpensive options on issues that have
proven historical volatility. The strategy is very simple and
perfect for the novice trader providing he or she understands
option pricing basics and follows a few simple guidelines. This
type of strategy can generate excellent returns because losses
are limited to the initial investment and profits are limited
only by time and volatility in the underlying issue.

More information on this and other spread/combination strategies
can be found in Larry McMillan's book, "Options As A Strategic
Investment", available in the OIN bookstore.

Good Luck! 



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This newsletter is a publication dedicated to the education 
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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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