Option Investor

Daily Newsletter, Tuesday, 07/27/1999

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The Option Investor Newsletter         Tuesday  7-27-99
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

Published three times weekly, Sunday, Tuesday, Thursday evenings.
MARKET WRAP  (view in courier font for table alignment)
        7-27-99          High     Low     Volume   Advances Decline
DOW    10979.04 +115.88 11031.28 10862.84  719,214k  1,618   1,368
Nasdaq  2679.33 + 60.14  2685.04  2650.18  994,959k  2,168   1,827 
S&P-100  701.51 +  8.60   704.72   692.91   Totals   3,786   3,195
S&P-500 1362.84 + 15.08  1368.77  1347.75            54.2%   45.8A%
$RUT     446.48 +  3.61   446.49   442.88
$TRAN   3417.26 + 33.94  3424.00  3384.02
VIX       23.93 -  1.98    25.35    23.11
Put/Call Ratio      .58    

New life or just a bump in the road?

After dropping from last Monday's high of 11252 to yesterday's
intraday lows under 11850 the -400 point decline was stopped dead
in its tracks with the drop in consumer confidence reported this
morning. The index dropped to 135.6 from a revised 139.0 in June.
This was the first drop since last October and suggests that
maybe the economy is not growing as fast as the Fed thinks.



The bounce today could have been just that. Nothing moves in
a straight line, up or down. With the Dow dropping -400 points
and the Nasdaq dropping a whopping -275 (over -1000 in Dow points)
the possibility of a technical bounce was approaching 100%. The
true test will be in holding at this level or higher. The Dow
bounced twice yesterday off 10,850 which appeared to be good
support. Today however, it failed to hold over 11000 which
could become resistance at this level. The Dow suffered from
fear of darkness again and lost -50 points from its high in 
the last hour of trading.

The fear of darkness was probably brought on by the horror show
scheduled to play at the Senate Banking Committee meeting room
tomorrow morning. It is the sequel to the Nightmare on Wall Street
part 1 that played to packed crowds in the House last week. The
star is chainsaw Al Greenspan. Al uses his chainsaw wit to trim
markets at will and attendance at Wednesday's event is sure to
be a sell out. All seriousness aside, we all know the market will
take its cue from the cross examination after the prepared speech.
The Senate is probably more concerned with Mr. Greenspan's opinion
about the tax cut proposal but there will be several senators
waiting to spend their minute in the spotlight trying to elicit
some market moving comment. He is sure to be asked his "feeling"
on the economy and we all know that Al thinks the market is
over valued, etc, etc. The real question is whether he caught
enough flack from his hawkish appearance last week to decide to
tone down his remarks tomorrow. 

The bounce today in the markets were also helped by upgrades by
several market moving stocks. American Express jumped +6.38
after being rated a strong buy at Morgan Stanley. Profits were
up +12% and the forecast was strong. Hewlett-Packard was up +$4.00 
after Salomon Smith Barney raised their price target to $130 from 
$105. Over +50 points of the Dow gains came from these two stocks.

Intel was upgraded to a buy from Neutral by SG Cowen Securities.
They feel the free PC movement can only help Intel and fuel a new
cycle of PC sales. Dell, another Nasdaq leader, powered forward 
for a +2.13 after announcing their new sub $1000 PC that comes
with one year of Internet service and a personal web page. The
free PC movement is taking hold and it makes you wonder what the
PC vendors are going to do next year to bolster slipping sales.
What is cheaper than free? The other Nasdaq horsemen rallied 
slightly. MSFT +1.19, CSCO +1.88, QCOM +1.75 and WCOM +1.50.
The performances did not impress me. 

The supposedly oversold market did not have any breadth. The 
advancers only narrowly beat decliners and the closing sell off
shows a lack of confidence or commitment. I am sure we could
move up from here but the market is still top heavy. Sellers
were only barely beaten by bargain hunters buying the dip.
One analyst said he saw evidence of short covering as short
sellers locked in profit from the recent gains. The impact of
Greenspan on TV tomorrow is a wildcard and it is better to take
some profit off the table than risk it all on a possible kinder 
gentler Greenspan appearance.

AOL may be under pressure tomorrow as rumors surface that AT&T
will start discounting its Internet access. A strong discount
program would easily cut into AOL profits. Using a smaller
independent ISP is a risk many surfers would rather not take
and they stay in the comfort of AOL's security blanket. AT&T is 
a recognized name and would not have the stigma of the unknown.
Any AOL weakness could pressure the Internet sector again.

The bounce, in my opinion, was simply technical and was powered
by bottom fishing bargain hunters. With the Nasdaq down almost
-9% from its highs there were many perceived bargains. If the
market continues downward into August the red apples picked today
could be thrown out with the rest just as quickly. One positive
sign was the spike in put buying yesterday. The put/call ratio
bounced to .70 at the close yesterday. This is a level not seen
since last Feb and Oct before that. This represents a possible 
short term bottom and could give us a resting place if Greenspan
does not torpedo the plan.

If you want to trade this bounce I would suggest waiting to
confirm market direction AFTER Greenspan speaks tomorrow. 
Please, pick your entry points carefully.

Good Luck, Sell too soon.

Jim Brown

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Market Posture

As of Market Close - Tuesday, July 27, 1999

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

DOW Industrials   10,500  11,320  10,979    Neutral   7.20
SPX S&P 500        1,330   1,420   1,363    Neutral   7.20
OEX S&P 100          675     735     702    Neutral   7.20
RUT Russell 2000     430     465     446    Neutral   7.20
NDX NASD 100       2,200   2,468   2,309    Neutral   7.20
MSH High Tech      1,080   1,250   1,142    Neutral   7.20

XCI Hardware         920   1,090   1,003    Neutral   7.20
CWX Software         700     844     750    Neutral   7.20
SOX Semiconductor    450     535     483    Neutral   7.20
NWX Networking       550     625     568    Neutral   7.20
INX Internet         500     580     457    BEARISH   7.20

BIX Banking          690     710     687    BEARISH   7.23
XBD Brokerage        410     440     405    BEARISH   7.23
IUX Insurance        645     660     640    BEARISH   7.23

RLX Retail           915     960     900    BEARISH   7.23
DRG Drug             370     400     359    BEARISH   7.20
HCX Healthcare       750     800     741    BEARISH   7.22
XAL Airline          180     190     168    BEARISH   5.21
OIX Oil & Gas        285     310     296    Neutral   5.13

Posture Alert
Tuesday's market action was positive in all sectors, especially
high tech. The leaders include: NDX (+3.37%), Software (+3.08%),
and Networking (+2.6%). There are currently no changes in market

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


Market Sentiment 

Re: Great Expectations!

During the last 2 weeks, we have received many positive emails from 
subscribers who have made a lot of money using our sentiment
analysis. Congrats to all of you who took advantage of the analysis,
and thanks for your support. We received so many, that we will try
to answer a few of your questions for the benefit of everyone. 

From Gary D: I made some decent money on Tuesday from the Pinnacle 
sentiment numbers on individual stocks going into earnings that 
appeared last week and on Sunday in "Market Sentiment". 

(Such as: Microsoft MSFT 9.8 +.36 +.38 7/19)
I think this chart is a VERY valuable resource. I hope this is 
something you will include on a REGULAR basis.

Re:Gary: We will try to highlight individual stocks or groups as
often as we can. In the past, we have highlighted sectors that have
appeared too bullish or bearish in sentiment and have given a
Pinnacle Index on those respective indexes. We will continue to
point our stocks/sectors as often as we can. However, the most
consistent strategy of using sentiment analysis on individual
stocks is when there is a news event pending (ie earnings
announcement, court ruling, special conference calls, new product
introduction etc). Obviously, the most widely followed event
(and most easily tracked) is the earnings reports.
The vast majority of companies report in January, April, July, and
October. We will consistently do our "Great Expectations" letter
during these respective months for the benefit of our subscribers.
Thanks for your support Gary.  

I want to congratulate you for the three last Market Sentiment
notes, where Pinnacle listed the equities that should report
earnings during the week. They where very clear, short and very
very very helpful making me lots of $$.

A happy trader.

From MAK: >To OptionInvestor.com,

First I would like to say Great Job!! I really enjoy reading the
columns. Now to my questions, I am a new subscriber to your site
and had 3 questions mainly on the 'The Pinnacle Index' columns:

1.	Is the 'The Pinnacle Index' of any stock can be found on your web
2. Do you have these articles only during earnings or is this a
test run?
3. If you recommend to follow The Pinnacle Index with your
columns why was their not more stocks from this list in the call
Keep up the good work!

Re: MAK Thanks for your questions. First of all, we try to highlight
companies that are coming out with earnings in a short period of
time. This article will always come out during earnings season.
However, we do highlight our Pinnacle Index for the S&P 100 (OEX)
during every newsletter. The OEX is the most liquid Index Option
and is widely used for broad market sentiment by the investment
community. It is one of the more consistent sentiment indicators
that we use. To answer your third question, we try to highlight
companies that are expected to report their earnings within the next
several days. We also try to show stocks that have excessive optimism
(yes's) or pessimism (no's), and to avoid stocks in the middle
(maybe's). We do this so our subsribers can take advantage of the
volatility, either up or down. We filter out MANY companies due to the
fact that their indicators are giving absolutely no indication of
prevailing bullish or bearish sentiment. Other factors of companies
being omitted would be because there is no whisper number, no options
traded on the underlying equity, companies that have already 
prereleased their earnings, or companies that have not given a set
earnings date. As always, we will try to expand our list for your
benefit. Thanks for your question and your support.  




Bullish Signs:

Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors
decreased 1.1% and Bearish investors increased 1.2%.

Mixed Signs:

Russell 2000: 
Trending above both moving averages, and also above key 450



Interest Rates:
The 30-yr Treasury is beginning to bump back over the key 6% level,
which could prove disastrous for high tech and small caps.
Peak Open Interest:
The contraian put-call ratio clocking in at 1.02 suggesting bullish
sentiment picking up steam.

Market Posture:
Several indexes have just rolled over, including
the Dow, OEX, networking, software, and semiconductors.

Advance/Decline Line:
The A/D line has been rolling over, and could prove Bearish if
decliners continue to out-pace advancers in the weeks ahead.

OTM Call Analysis

As we move through the August expiration cycle, Pinnacle is
tracking the level of call buying (OTM) between 710-780 among
option speculators. As we have been documenting, excessive
money (OTM) call may serve as overhead resistance.

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

Friday, June 19           35,225        -
Friday, June 25           63,342        +79.8%
Friday, July 02           87,833       +149.3%
Friday, July 09           99,855       +183.5%

August Expiration Cycle
OEX OTM Call Analysis (Open Interest August 710-780)
Date                 Open Interest     Change %    Alert

Friday, July 16           32,285        
Friday, July 23           62,455        +93.4%

Market Sentiment at a Glance     Friday     Tues
Indicator                        (7/23)    (7/27)

Pinnacle Index (OEX):          

Overhead Resistance (720-750)      3.2      3.9
Underlying Support  (685-710)      1.2      1.2

Put/Call Ratios:

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

Peak Open Interest (OEX):

Puts                              700       700
Calls                             740       740
P/C Ratio                         1.02      1.55

Market Volatility Index (VIX):

CBOE VIX                         23.77

Investors Intelligence:

Bullish                         54.10%  *
Bearish                         27.90%  *

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
Benchmark                        (7/23)    (7/27)

Overhead Resistance (720-750)    3.2         3.86       

OEX Close                      698.88      701.51
Underlying Support  (685-710)    1.2         1.18

Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is building at the OEX 725/750 level
while the underlying support is holding at the OEX 685/710 level.

Put/Call Ratio 

                                Friday     Tues
Strike/Contracts                (7/23)    (7/27)

CBOE Total P/C Ratio             .68       .70
CBOE Equity P/C Ratio            .49       .50
OEX P/C Ratio                   1.04      1.55

Peak Open Interest (OEX)
                     Friday           Tues
Strike/Contracts     (7/23)           (7/27) 

Puts                 700 / 8,032      700 / 8,427
Calls                740 / 7,933      740 / 8,230
Put/Call Ratio         1.01            1.02



Volatility Index    Major
Date                Turning Point       VIX

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

July 16, 1999       Top?                18.13 *
July 27, 1999                           23.77



Investors Intelligence   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
June 30, 1999                         55.8        25.7
July 07, 1999                         52.6        27.2
July 14, 1999                         55.2        26.7
July 21, 1999                         54.1        27.9  *

Please view this in COURIER 10 font for alignment

Index       Last    Mon    Tue  Week
Dow      10979.04 -47.80 115.88 68.08
Nasdaq    2679.33 -73.21  60.14-13.07
$OEX       701.51  -5.97   8.60  2.63
$SPX      1362.84  -9.18  15.08  5.90
$RUT       446.48  -5.51   3.61 -1.90
$TRAN     3417.26   1.83  33.94 35.77
$VIX        23.93   2.15  -1.98  0.17

Calls               Mon    Tue  Week

JDSU        82.63   1.06   3.56  4.62  Surprise Stock split today
CMVT        75.44  -0.50   3.56  3.06  Dropped, too much risk
VOD        210.56  -1.56   4.19  2.63  Five for One stock split
CMB         83.75   1.31   0.88  2.19  Greenspan speaks! watch it
GDT         61.88   1.19   0.44  1.63  New, momentum play
DELL        42.13  -1.00   2.13  1.13  Nice rally today
GE         116.25  -1.19   2.25  1.06  Moving with market
CSCO        62.94  -1.88   1.88  0.00  Even-steven this week
QCOM       154.38  -2.06   1.75 -0.31  Hope for continued recovery
BGEN        69.69  -2.19   1.75 -0.44  Earnings estimate raised
WHR         74.50  -0.56  -0.44 -1.00  Looking for an entry
VISX       100.25  -3.19   1.69 -1.50  Nice rebound today
VRIO        80.13  -1.25  -0.25 -1.50  Earnings & split coming
EDS         62.88  -2.13   0.50 -1.63  Earnings are Thursday
HD          62.44  -0.81  -1.38 -2.19  Dropped, no love here
LGTO        77.00  -3.56  -0.19 -3.75  Bounced off support
VRTS        54.63  -3.75  -2.63 -6.38  Dropped, stock dilution
EXDS       128.00 -10.94   0.44-10.50  Dropped, weak sector


AOL         98.19  -7.81  -1.94 -9.75  No support at $100
EBAY        99.56  -3.44  -4.81 -8.25  Losing its luster
CMGI        90.25  -8.44   1.50 -6.94  Internets are sinking
GNET        65.00  -8.06   2.38 -5.68  New, turned away at 50 dma
NITE        44.38  -4.53   0.19 -4.34  New, no support til $40
DCLK        80.75  -5.13   2.19 -2.94  Failed rally today
LVLT        55.44  -4.06   1.44 -2.62  Watch out below!
SCH         45.56  -1.13  -0.06 -1.19  Sector woes continue
XRX         48.44   0.56  -1.38 -0.82  Plagued by bad earnings
TERN        41.31  -2.00   1.56 -0.44  New, great trend down
U           38.00  -1.00   0.81 -0.19  Slow but steady
AHP         52.06  -0.44   0.94  0.50  Dropped, FDA approval
CA          48.75  -0.94   2.13  1.19  Keep your eye on CA
GTW         74.88  -2.31   4.19  1.88  Dropped, another upgrade
MER         73.56   0.25   1.63  1.88  Use caution tomorrow
SBH         59.69   0.88   1.81  2.69  Dropped, found a bottom
MWD         96.38  -0.88   3.75  2.87  Interest rate play

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.


EXDS $128.00 +.44 (-10.50)  We have decided to drop EXDS
after the stock crashed for almost a $11 loss on Monday,
and then showed little strength today as the Internet sector
had a technical bounce.  Shares of EXDS reached as high as
$132.75 today, but could not hold.  In general, we feel the
Internet sector is in for a hard time for the next few months.
EXDS had been performing contrary to the industry, but seems
to have now succumbed to the pressure.  For those day traders
out there... EXDS is bound to provide more opportunities with
a split on the horizon.

CMVT $75.44 +3.56 (+3.06)  Following the Nasdaq's rally 
today, CMVT bounced off its 50 dma advancing 5% on good 
volume.  It's now back at the 30 dma mark.  More good news 
came from Dain Rauscher Wessels as they started coverage 
with a "buy aggressive" rating and set a 12-month target 
price at $80.  This is all great and good, but with 
Greenspan meeting tomorrow with the Senate, we believe the 
markets could get hit hard (unless we are blessed with a 
miracle and he actually says something positive).  Since 
the big tech stocks will, of course, be the first to go 
headfirst into the trenches; we'd rather not be caught 
without a paddle so we're dropping CMVT.  Now just because 
we're dropping the stock doesn't mean it may not continue 
to run-up, but beware, the environment has changed.  Why 
drop CMVT and not one of our other tech plays?  Because
CMVT has already shown a lot of weakness lately and we 
want to see what the market conditions are closer to its
earnings date before playing it again.  Today, Investor 
Relations at Comverse confirmed 2Q earnings will be 
released on August 31st, after the bell.  

VRTS $54.63 -2.63 (-6.37)  This stock did a sharp about-
face the last two days.  Yesterday it's losses were linked 
to the big Nasdaq sell-off, but today company news was the 
likely culprit.  Veritas announced they had filed a 
secondary offering of 12 mln. shares for two of their 
largest shareholders, Seagate and Warburg.  Seagate's 
offering is 10.6 mln. shares and represents about 15% of 
its 35% stake it originally received through the May 1999 
acquisition of its Network and Storage Management Group.  
Plus Veritas also filed with the SEC in regard to $575 mln. 
in convertible subordinate notes.  The notes' proceeds will 
be used for general corporate purposes.  No other details 
were available.  At this point, we can no longer keep VRTS 
on our call list and are dropping it.

HD $62.44 -1.38 (-2.19) Ouch.  Sometimes a play just doesn't work 
out.  On a day when the rest of the market is moving up, HD went 
the opposite direction in a big way on good volume.  That doesn't 
inspire confidence.  The chart is headed south and looks similar 
to a put play chart (though we are NOT adding it to that 
section).  It reports earnings on August 17 (company 
confirmed)and should ultimately have an earnings run, just not 
now that it broke $64 support.  Thus we are dropping it tonight.


AHP $52.06 +0.94 (+.50)  Although AHP was still trending down 
yesterday, it moved up $.94 on strong volume today based on 2 
positive events. First of all, the FDA approved AHP's transplant 
drug, Rapamune, for use in preventing organ rejection in kidney 
transplants. About 12,000 kidney transplants are performed each 
year. Second, Immunex(IMNX), a biotechnology company, announced 
a 2:1 stock split, and its stock shot up today. Since AHP owns 
a majority interest in IMNX, it benefits from a rise in IMNX 
share price. This good news for the company is bad news for 
our put play. We believe that it is time to drop AHP.

GTW $74.88 +4.19 (+1.88) Just after 11am EST Monday morning the
profit taking we told you about Sunday began.  After hitting
a high of $73.94 GTW began to slip.  GTW dropped $3.38 to a low
of $70.56, closing near its lows of the day at $70.69 down $2.31
for the session.  We believed there might be more profit taking 
in store today.  Investors had a different idea, driving the price
higher for most of the session.  GTW closed up $4.19 for the day
after receiving and upgrade to a strong buy from analyst Arthur 
Russell at Edward Jones yesterday.  A report from Bloomberg also
indicated Worldwide PC shipments rose 27% in the 2nd Quarter,
adding further strength to the PC sector.  We will say so long for
now to GTW.

SBH $59.69 +1.81 (+2.69) We said Sunday that SBH may be due for a
bounce.  Well, it is bouncing.  SBH fell over $7.81 last week and
need to do a little stock cycling upward or consolidating sideways
to prepare it for the next leg down.  We just didn't expect such
a sharp bounce (at least for SBH) back upward.  The strength in 
SBH's volume during the bounce was a little unnerving as well.
We would rather wait to see if overhead resistance near $60 to 
$61 holds before playing it again.  The low near $56 on Friday is
its only support.  We're going to put SBH back on the shelf and 
let it ripen for a few more days before playing it again.

***** 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
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The newsletter staff makes every effort to provide timely 
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delivery times due to factors beyond our control.

The Option Investor Newsletter         Tuesday  7-27-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


VOD $210.56 +4.19 (+3.38) After a small drop on Monday, VOD
jumped back up today with a gain over $4.  We got word back
from VOD's investor relations about their proposed stock split.
The information confirms our belief that a split will occur, 
but the record date isn't even until September 30th. Here is 
the exact information sent:  "the Company(VOD) will effect a 
bonus share issue on the basis of four new ordinary shares for 
every one held, for every holder of ordinary shares appearing on 
the register of members of the Company at 9.30 p.m. on 30 
September 1999."  Do you know what that means?!  That means VOD 
is in effect offering a 5:1 stock split.  A capitalization 
bonus of 4 shares means they are giving you 4 shares in addition
to the 1 share you have, not swapping you 4 new ones for your 1
old one.  That is a 5:1 stock split.  Too bad we don't know the
ex-date yet.

GE $116.25 +2.25 (+1.06)  An upturn at the end of the day Friday 
on strong volume signaled that things would brighten for GE 
this week. It tried to mount a gain yesterday, but the weight 
of the sinking Dow was too much. Today, under better market 
conditions, GE managed a nice gain of $2.25. Sitting on its 10 
dma, it is ready for continued gains if only Greenspan smiles 
on the market tomorrow. In the news, NBC, still showing its 
growing interest in the Internet, will spend $25 million to 
increase its stake in Telescan, which provides support to its 
CNBC Website. In another area of business, ONEOK, inc. plans 
to purchase 4 natural gas turbine generators from GE for about 
$70 million. Also, GE Capital has entered an alliance with 
Hitachi Credit Corp in issuing credit cards for employees' 
business expenses.

CMB $83.75 +0.88 (+2.19)  CMB rose $1.32 yesterday and tacked 
on $.88 more today. Please remember that financial stocks are 
interest rate sensitive and Mr. Greenspan speaks again tomorrow. 
Anything he says that is strongly negative could affect this 
stock. However, unlike some of the high growth tech stocks, 
CMB trades at a reasonable PE. Therefore, the downside risk 
is possibly not as great as it is for many stocks with recent 
dramatic run-ups. CMB did drop from around $75/share a year ago 
to below $40/share last September during the financial debacle, 
but this year, CMB has surprised with strong earnings growth. 
CMB will encounter resistance at $86 and $91.13 and has some 
support around $80. In the news, Chase has introduced the 
LensCard, a credit card with a built-in magnifying glass, 
designed to appeal to the aging baby boomers, whose vision isn't 
quite what it used to be when trying to read the bill's total. 
Also, Chase's Small Business Financial Services, a growing part 
of the bank, just introduced its first TV ad campaign. 

BGEN $69.69 +1.75 (-0.44)  We were glad to see BGEN move up with 
the market today. Last Friday, we became cautious as the stock 
slipped and ABN AMRO downgraded it from "buy" to "outperform", 
based on valuation and its 33% price rise since early June. At 
the same time, however, ABN AMRO raised its price target to $87. 
Yesterday, Prudential started coverage with an "accumulate" 
rating. Then today, Raymond James and Assoc. raised its estimates 
for 1999 by $.03 to $1.34 and for 2000 by $.10 to $1.59. James 
and Assoc. also raised its price target by $7 based on the belief 
that sales of Avonex will continue to show strong growth. Fellow 
biotech stock Immunex just announced a split today, and that may 
help fuel the rally in this sector. We feel that BGEN still has 
potential for further gains after its $1.75 gain on strong 
volume today.  We know what we said on Sunday, but with this
sudden rash of good news, we want to watch it for another day or
two.  This does not mean jump in.  This means watch it for a 
day or two.

VRIO $80.13 -0.25 (-1.50)  Last Thursday after announcing a 
2:1 stock split (a first time event for Verio), the stock 
shot up $2.63 and traded as high as $82.  However since 
then, it has returned to comfortable support at $79 and $80 
and continues to consolidate at its 10 dma.  Wait for 
momentum to pick up once again before initiating a new 
position.  According to Verio's Investor Relations, the 
earnings date is tentatively scheduled for the week of 
August 2nd and the stock split should be paid out on or 
about August 20th.  Remember, OIN never recommends holding 
over an earnings' or split announcement.

EDS $62.88 +$0.50 (-1.62) Electronic Data Systems made an attempt
to go higher first thing Monday morning and turned lower.  It 
traded as though there was just not much interest in buying, as
opposed to sellers jumping in and really trying to punish the
stock.  EDS traded down to $61.63 late Monday.  It bounced off 
the $62.00 area for most of the morning Tuesday and found a bit 
off strength in the early afternoon, as investors returned from
lunch ready to do some buying.  The strength in the broader 
markets didn't seem to help EDS today.  Volume was light at 
887,800 mln. shares which is slightly better than half the norm. 
Earnings are scheduled to be released Thursday.  Estimates are
for $0.43 per share.  Regardless of market direction, you will
want to be out prior to their announcement.  We'll be dropping
them on Thursday's letter.

VISX $100.25 +1.69 (-1.50) The first two days of the week  
VISX has tried to go lower.  We've seen the profit takers come 
in and take VISX lower to $96.88, only to rebound in the afternoon.
This is a similar pattern we saw last week.  After being down $1.68
early in the day, volume picked up and the price advanced to close 
up $1.69 for the session.  Volume was a little light at 1.09 mln.
shares today. Technically the chart still looks strong.  If you
are considering a new position in VISX, we will remind you again
that this play is not for everyone.  VISX has climbed over 28% 
since the 1st of July.  Look at further dips as a buying 
opportunity once they have been confirmed as dips. Keep your stops
close as investors could decided to take their money off the table 
at any time.

JDSU $82.63 +3.56 (+4.10) In case you didn't notice JDSU split this 
morning.  The split was scheduled to take place on August 3rd.
This move caught us off guard as we were recommending JDSU for a 
split run.  Fortunately the stock is up $4.10 for the week.  If you 
entered a play on JDSU late yesterday morning you are probably in
good shape.  OIN called JDSU investor relations and was told their 
attorneys suggested moving up the split date up.  In a JDSU 
conference call last evening company official indicated that they 
had been advised by the NASDAQ that their shares would begin 
trading today at post split levels Tuesday morning.  Regardless, 
the stock has split which eliminated our pre-split run.  Hold on 
there's more.  In the same conference call JDSU announced Q4 
earnings.  Not only did JDSU beat the street by 16%, they also beat 
their own previous estimates by $.03 per share.  JDSU had earnings 
of $41.7 mln or $0.48 per share, double that of the same period 
last year at $20.8 mln or $0.26 per share.  So where do we go from 
here?  As you know we almost never suggest holding over earnings or
splits. We are now faced with both.  We are going to watch JDSU for 
the next two days.  Why are we not going to drop it?  We feel that 
the surprise split prevented much of a split run and the 6% 
correction in the Nasdaq last week prevented any kind of earnings 
run for the stock either.  Now that the good news with the stock is 
out and investors can buy it at half the price, JDSU might just 
rally for a few days because it didn't get a chance to before these
key events.  However, if have a current play in JDSU keep you stops 
extremely tight.  Just remember that your number of contracts 
probably doubled and your strike price has been cut in half.
Be sure to double check with your broker to confirm.  Fortunately,
investors didn't slap JDSU for achieving their grand earnings,
nor did post split depression start today with the stock gaining
$3.56 on 1.4 mln shares, which is positive as well.  If you do not
have a current play on JDSU we would suggest keeping your eye on 
JDSU and only entering on further advances supported by strong 

CSCO $62.94 +1.88 (+0.00) The yo-yo effect continues.  As we wait 
for earnings to be announced after the bell on August 10, CSCO is 
on our pick list for an earnings run.  We simply have to wait for 
an entry.  It isn't here yet, thanks in part to market weakness 
over the last week and a half, from which CSCO hasn't been 
immune.  Until we see volume come back into the stock, it will 
continue to consolidate in this range, that is if Greenspan or 
international events don't create any market surprises.  Keep in 
mind too that earnings season is in its final stretch.  With no 
other news to spark a rally (one can only hope with Greenspan, 
but don't count on it), we've noted in the Market Wraps that the 
overall future is foreseeably weak rather than strong, despite 
today's nice pop to the upside.  A better buying opportunity may 
be just around the corner on intra-day dips or even more 
pervasive market corrections before CSCO starts its earnings run.  
Resistance is still up at $69.  Play this commensurate with your 
risk profile, be patient, and wait for your entry.  Though CSCO 
continues to announce new products in its press releases, 
ultimately it's the market that moves CSCO with it.

DELL $42.13 +2.13 (+1.13) Bet on management.  Though down intra-
day to $39.75 in yesterday's trading, Dell staged a nice recovery 
today as they finally turned both barrels loose on the sub-$1000 
PC market.  They are now offering an Intel Celeron-based PC with 
monitor and 1 year of free Internet service on dellnet.com
for a $959 to capitalize on the recent success of upstarts' 
similar PC merchandising plans.  In addition, Dell will quickly 
link eager shoppers to the DellZone in search of goods and 
services provided by Dell's strategic partners, like Snap.com or 
Amazon.com.  In any case, all the fanfare worked some magic on 
the stock, as the price sprang up $2.13 from its close yesterday.  
Dell doesn't announce earnings until after the bell on August 17 
(company confirmed), so it's a bit early for the earnings run.  
In fact, if today's action was just a head fake, there is still 
support in the $37-$38 range, should the market resume downward 
movement.  If not, near-term support, based on yesterday's bounce 
can be found at $40.  Pick your entry and wait, we still have 
plenty of time.

WHR $74.50 -0.44 (-1.00) Yes, the market was up today, but losing 
$0.44 on only 2/3 normal volume is acceptable, especially since 
it fell only $0.56 on a fairly negative day yesterday.  After 
falling a bit this morning to $73.50, WHR steadily clawed its way 
back to $74.50 by the close.  Technically, the chart is still 
positive, as WHR rests right at its 10-dma and remains 
comfortably above its 30-dma.  Even though this is a more 
conservative play, we still need to be careful given that the 
whole market won't have earnings to prop it up in the coming 
weeks and appears headed lower, despite today's action.  We still 
need to wait for volume to kick WHR back up to its all-time high 
of $76.50, set last Friday.  If you think the market is headed 
south, defensive plays like WHR should turn popular again.
Although it probably won't withstand a complete market meltdown.

QCOM $154.38 +1.75 (-0.31) Despite trading as low as $148.75 
yesterday morning in an otherwise bad day for the NASDAQ, QCOM 
steadily ascended yesterday and today to get back close to even.  
We just don't see QCOM staying at this level for long, since they 
reported blowout earnings last week.  QCOM was also added to the 
S&P 500 index then.  More importantly, 6.9 mln. shares currently 
owned by Goldman Sachs and Lehman Bros. are ear-marked to be sold 
to S&P index funds for something in excess of $156.50 per share 
(see Sunday's write-up for details).  That's a tremendous level 
of support.  Even so, if the whole market gets a bad case of 
hiccups, QCOM will suffer too.  This is still a volatile play.  
Perhaps, if investors feel better after Greenspan leaves the 
microphone tomorrow, we could see a bit more tech. recovery, 
which would be good for QCOM.  We still think they could announce 
a split, market willing, but will need shareholder approval to do 
so.  Keep a close eye on the overall market and pick your entry 
carefully.  You don't want to be an owner of these expensive 
calls just before the market craters.

LGTO $77.00 -0.19 (-3.75) It was a rough start to the week 
for LGTO.  The weakness in the NASDAQ pushed the stock back 
down to its 10-dma just under $76.  Fortunately the stock had 
a nice double bottom there and started moving higher.  This 
has the look of a short-term bottom and you may want to 
consider using it for an entry point.  Tomorrow's action will 
be a result of Alan Greenspan's testimony before Congress so 
use caution.  We still expect LGTO to begin making a split 
run anytime but any move below the 10-dma should be taken as 
a signal to start looking for an exit point.  This is because  
the stock has held that support for basically the past two 


EBAY $99.56 -4.81 (-8.25)  EBAY may have come in ahead of 
estimates at .04 p/s versus .03 and dominate 70% of the 
online auction arena, but the decline in earnings of $816K 
from $2.73 mln. (resulting from outages and infrastructure 
investments) put quite a damper on the excitement.  It 
demonstrates EBAY is starting to feel the heat from two 
fierce competitors, Yahoo! and Amazon.  The investor 
reaction - EBAY shut down $3.43 yesterday in heavy 
trading.  This is good news for the put players!  Even 
today, the losses extended amid the markets' technical 
bounce upward and analysts' remarks.  Thomas Weisal 
reiterated a "watch list" recommendation and BBRS 
reiterated a "buy" rating.  

MER $73.56 +1.63 (+1.87)  With interest rate concerns still 
paramount, the small gains MER made this week may simply be 
a cyclical reaction to its slippage below the 200 dma ($74) 
on Friday.  The good news is the trading activity was low 
to moderate in volume and MER is still below its recent 
support of $77-79.  If the decline renews itself in the 
next couple of days, the long-term bottom resistance from 
the previous months is around $66.  This leaves lots of 
room for profit.  Pick your entry point carefully and 
remember to confirm stock direction first.

MWD $96.38 +3.75 (+2.88)  MWD traded higher today as the 
DOW rallied +115 points; however, the stock's trading 
volume was very low at only 55-60% of its average levels.  
MWD is now back on its 50 dma.  Recall that Greenspan speaks 
tomorrow and generally, investors get real jittery usually 
resulting in a market downturn.  If you had the guts, you 
may have used the highs today as an entry point.  However, 
a conservative player will always wait for directional 
confirmation before beginning a new play.

CA $48.75 +2.13 (+1.19) Computer Associates is one that we 
suggest you keep your eye on if you are already in.  Monday 
morning opened down $0.68, and then turned higher.  We suggested 
on Sunday that we may see a bounce in CA. It was down over $8.00 
last week and a bounce back to the $50 area wouldn't be a big 
surprise.  The 50 dma is right at $50.00 as well.  The short term 
trend is still down.  If volume and buying don't pick up CA will 
probably go south after running into resistance.  Keep your stops 
tight and only initiate a new play in on further weakness. 

XRX $48.44 -1.38 (+0.81) Xerox continued its downward trend
today as investors continued to sell the stock.  Under heavier
than normal volume, the stock continues to sink ever since 
their earnings announcement.  XRX is now well out of its
normal range and is showing signs of being oversold.  This
should encourage investors with open plays to tighten up 
their stops.  There has been no new news to move the stock
but we are well under support and XRX should continue to 
drop on its own.  With the volatile market continue to use
caution with this trade but today's action in light of a 115
point Dow rally bodes well for the future of our play.

DCLK $80.75 +2.19 (-2.94) Yesterday's cliff drop looked pretty 
impressive for this play.  Today, there was a bit of recovery, 
but the future looks bleak.  DCLK traded as high as $85.69 today, 
but couldn't hold the gain.  A sell-off ensued mid-afternoon, 
knocking it down almost $5 from its high.  Earnings season is 
over soon and there won't be anything to hold Internets or this 
stock up in the coming weeks.  Still today's Internet action was 
scary.  You either have to accept the volatility of this sector 
with nerves of steel to hold a position through these spikes 
(something we don't recommend) or be prepared to get stopped out.  
That's why we continue to remind readers that DCLK is not for the 
timid.  In the long run the trend is down.  If you are going to 
play in a volatile environment, just do your homework and plan 
your entry accordingly.  Support is at $70.

CMGI $90.25 +1.50 (-6.94) Yesterday, CMGI showed us a steady 
descent toward $88 support.  Today, though it bounced off, the 
recovery didn't stick and CMGI sold off again.  It's trying to 
dig out, but the Internets are just showing old-fashioned 
weakness.  Though it sits near support, when earnings season 
ends, investors will get tired of "hoping" for recovery and throw 
in the towel.  If investors won't prop it up at $88, the next 
stop is around $77.  At least that's how the textbook reads.  So 
if Greenspan or another event doesn't trash the market and we get 
a small recovery, you might consider it a buying opportunity for 
a shorter term play.  Otherwise, confirm market direction before 
getting in.  After today's surprise rally, nobody really has a 
clear idea of tomorrow's direction.  Sit this one out if the word 
"risk" is not in your vocabulary. .  Bring the Pepto-Bismol.  It 
can move up as fast as it goes down.  Perhaps the EBAY skunk will 
rub off on the rest of the meadow.

LVLT $55.44 +1.44 (-2.63) Investors are beginning to panic 
and sell their shares of LVLT.  The fact that the stock price 
is dropping shouldn't be that much of a surprise.  Remember 
this is a company that went from $35 to $100 earlier this year but 
doesn't actually have prospects for real earnings for 3 years.  
We saw the stock bounce off of $54, which has some significance.  
LVLT sold some 25 million shares to institutions in March at 
$54 so we could see some short-term support there.  Overall 
the trend will continue lower.  LVLT is now under the 200-dma 
and looking very bad from a technical standpoint.

U $38.00 +0.81 (-0.19) There isn't much to report on our play 
of USAir.  The stock is down on the week thanks to a weak 
market and higher oil prices.  There wasn't any company 
specific news to carry the stock one way or the other.  Like 
we have said before, USAir should continue to drift lower 
until they iron out some other ongoing problems with labor 
disputes and slowing revenues.  Pick your entry points on 
the jumps and take your profits on the dips.   

AOL $98.19 -1.94 (-9.75) And the losses continue.  AOL has 
given back almost another 10% so far this week.  This drop 
has been prompted by more than just a weak market.  In fact, 
AOL didn't even get to participate in today's NASDAQ rally 
as it closed down on the day (yes, we know AOL is on the NYSE).
The big news on Monday was that upper level management at AOL 
has been selling stock big time.  The company has confirmed 
that Steve Case and Robert Pittman have sold substantial portions 
of their shares recently.  This is just another weight on the 
ailing stock price.  The Internet sector had some issues doing 
very well Tuesday morning but by the end of the day most had 
given back their gains.  We would have expected to see more 
support from the $100 price which it has held in the past.  At 
this point the next stop could be at the 200-dma at $92.  
Remember to secure your profits with stops.
SCH $45.56 -0.06 (-1.19) Schwab has been moving with the sector 
for the most part this week.  It dropped with the weak online 
brokers group during a rough session for the NASDAQ on Monday.  
It tried to recover on Tuesday and did spend most of the day 
in positive territory before closing down fractionally.  That 
is not a very positive sign for how strong the markets were 
on Tuesday.  This is a further sign that the sector will stay 
in the dog house over the short-term.  Use the rallies for 
entry points and continue to monitor market sentiment for any 
signs of a meaningful recovery.  


GDT - Guidant Corp $61.88 +0.44 (+1.63)

Guidant Corp. designs, develops, manufactures and markets a 
wide range of medical products used in cardiology & vascular 
intervention and surgery. Guidant makes automatic implantable 
cardioverter defibrillator systems used in the detection & 
treatment of abnormally fast heart rhythms. It also makes 
a full line of implantable pacemaker systems used for slow 
or irregular arrhythmias. The company also makes minimally 
invasive products used in surgery to open blocked coronary 
arteries, including stent systems, coronary dilatation 
catheters, guide wires, atherectomy catheters, guiding 
catheters and related accessories.

Guidant was up fractionally today along with the general 
market.  We are adding Guidant as one of our call plays 
because of good news this past week and the general momentum 
of the stock.  The stock is currently trading above both the 
50dma and 200dma of $53.  We expect this upward trend to 
continue with recent upgrades by Adams Harkness from 
accumulate to trading buy.  Also, Leaman Brother initiated 
coverage of the stock at outperform, and Prudential initiated 
it at accumulate.  Even with this good, news be careful with 
the recent volatility in the market and Greenspans speech 

There was no other news about Guidant besides what was 
stated in the above paragraph.

BUY CALL AUG-60 GDT-HL OI=500 at $4.75 SL=3.00
BUY CALL AUG-65*GDT-HM OI=471 at $2.13 SL=1.13
BUY CALL SEP-60 GDT-IL OI= 64 at $6.38 SL=4.25

Picked on Jul. 27th at $61.88  PE = 49
Change since picked      0.00  52 week low  =$29.75
Analysts Ratings 14-13-10-0-0  52 week high =$69.88
Last earnings   6/99 est= .33  actual= .34 
Next earnings   9/99 est= .33  versus= .27
Average Daily Volume = 1.744 mln
Chart = http://quote.yahoo.com/q?s=GDT&d=3m

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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 
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The newsletter staff makes every effort to provide timely 
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delivery times due to factors beyond our control.

The Option Investor Newsletter         Tuesday  7-27-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


NITE - Knight/Trimark Group Inc $44.38 +0.19 (-4.34 for wk)

Knight/Trimark is a market maker in 4,200 Nasdaq securities 
and other over-the-counter (OTC) equity securities.  They 
also sell NYSE and American Stock Exchange listed 
securities in the Third Market.  The Third Market is a 
group of non-exchange-member broker-dealers who trade 
exchange-listed securities OTC.  They make their money on 
the difference (the spread) from what they pay for a stock 
to what they sell if for.  The company has some well-known 
clients such as Paine-Webber, Merrill Lynch, E*Trade, and 

Company earnings came out last week (July 21st) and they 
were great at .43 p/s versus the consensus estimate of .35; 
and certainly a blowout compared to 1998's 2Q of .14 p/s. 
However, in an interview the following day, CEO Ken 
Pasternak's stated that he expects a much slower future 
growth rate (a reasonable 5-10% a quarter).  Well, 
investors didn't like that too much; especially since this 
stock has had such unbelievable returns in the last 9 
months.  Now, the stock has been trading below its 50 dma 
since July 9th (it's at about $56 now), but on Monday NITE 
plunged 9% (-$4.53) driving it even farther south amidst 
the Nasdaq sell-off.  Today the Nasdaq rallied strong and 
NITE didn't respond.  This is definitely a bearish sign.  
With Greenspan again on center stage tomorrow, its likely 
to have a negative impact on the markets.  If you decide to 
open a play, confirm the stock direction and overall 
sentiment first, then look for an entry point intraday.  

BUY PUT AUG-45*QTN-TI OI=1824 at $3.88 SL=2.50
BUY PUT AUG-40 QTN-TH OI= 401 at $1.69 SL=1.00

Average daily volume = 4.46 mln.
Chart = http://quote.yahoo.com/q?s=NITE&d=3m


GNET - Go2Net,Inc. $65.00 +2.38 (-5.69)

Because we are online investors, chances are most of us have had 
the opportunity to use the services of Go2Net. This company 
provides us with Web sites, search engines, and software for 
finance and the investment community. Their focus is to be able 
to allow their customers access to vast amounts of resources by 
linking together the virtual community. Products such as 
Siliconinvestor.com, Metacrawler, stocksite.com, and 
playsite.com are but a few of the sites this company offers. 

GNET has been the unfortunate recipient of the markets attack on 
the Internet sector. The stock weakened with a break below the 
10 dma on 7/16. Since then it has continued to drop below it's 
50dma and 100 dma, a significant resistance level at $67.00. 
Like a balloon losing helium against the ceiling, we think the 
stock will continue fall to lower levels due to market 
conditions and overvaluation. The technical indicators are 
showing us that this may be a good entry point to enjoy this 
balloons ride to the floor. 

Despite GNET's positive report of .07/share earnings on 7/21, 
and increased traffic to it's sites, the stock was unable to 
maintain any upward momentum. The company's CEO expressed some 
dismay at Wall Street's outlook; however, it appears to be a 
sector issue, and not so much a personal one. AT&T also 
announced they are lowering their ISP rates, which is causing 
the whole Internet sector to be affected adversely. With all 
indicators pointing toward a continued correction, we feel this 
is a good point to play the downside on GNET. Keeping the 
resistant levels in mind, pick your entry, and confirm market 
direction before jumping in.

BUY PUT AUG-65 GQI-TM OI=154 at $5.50 SL=3.75    
BUY PUT AUG-70 GQI-TN OI=169 at $8.75 SL=6.50 
Average daily volume = 904K         
Chart = http://quote.yahoo.com/q?s=GNET&d=3m


TERN - Terayon Comm. $41.31 +$1.56 (-0.44 this wk.)

A George Gilder favorite, TERN makes CDMA cable modems.  Their 
products enable much faster and cleaner transmission of voice and 
data/Internet over cable TV mediums.  Its biggest customers are 
in Israel, Japan, and Brazil.  In the U.S., they are used by 
Cablevision, and in Canada, by Shaw communications.  They could 
become particularly instrumental in helping AT&T to provide 
services over their newly acquired cable assets, while spending a 
smaller fortune in the process of upgrading the system.  Are you 
listening, Michael Armstrong?

Gilder readers will frown at us for putting this on the PUT list, 
but the chart is just too compelling.  Take a look.  TERN has 
been in descent from $56 to $41 over the last 16 trading days.  
Not only that, but they announced great earnings 2 weeks ago and 
suffered a downgrade that day too.  To be fair, there were a 
couple of "buy" recommendations reiterated too.  However, there 
is no support until it reaches $33.  If the market remains in an 
overall sour mood (and with earnings season on the wane, we 
expect that), TERN has nowhere to go but down.  Having said that, 
news releases from this company are sparse.  We haven't seen one 
since July 14.  However, since they are on the cutting edge of 
delivering bandwidth through cable, an announcement of adoption 
of TERN technology from one of the big cable companies would 
rocket this play to the sky (wrong direction).  We know that will 
eventually happen, we don't know when.  The play is based on 
short-term technicals and will be most influenced by the market, 
not the stock itself.  Confirm market direction before playing.

BUY PUT AUG-45 TUN-TI OI=276 at $5.63 SL=3.75
BUY PUT AUG-40*TUN-TH OI=352 at $2.63 SL=1.25

Average daily volume = 675 K 
Chart = http://quote.yahoo.com/q?s=TERN&d=3m


Play of the Day.

Due to the Fed chairman's address to the Senate tomorrow,
there is no play of the day.  Market direction will hinge 
on his speech.


Relief Rally Comes Just In Time..

U.S stocks rebounded Tuesday as investors scoured the market for
bargains after the recent slump on interest rate worries.

U.S. stocks fell Monday on prevailing worries about increasing
interest rates as the Federal Reserve chief prepares to address
the Senate Banking Committee Wednesday. The Dow ended 47 points
lower at 10,863 while the technology-heavy Nasdaq index plunged
73 points to 2,619. In the broader market, declining issues led
advances by a 2-to-1 margin on moderate volume of 611 million
shares on the New York Stock Exchange. The 30-year Treasury
bond was down 3/32 with the yield at 6.04%.

Sunday's new plays (positions/prices):

RPC   Roberts Pharm.   OCT30C/AUG30C  $0.00  debit
RPC   Roberts Pharm.   OCT25C/AUG25C  $0.00  debit
TNB   Thomas & Betts   AUG50P/AUG45P  $3.00  debit
MACR  Macromedia       SEP35P/AUG30P  $4.12  debit
EQ    Equitable Co.    AUG75C/AUG70C  $0.87  credit
HMC   Honda Motor Co.  AUG95C/AUG90C  $1.00  credit

There was great difficulty in the spreads portfolio on Monday
as Interquote was painfully slow in producing updated quotes.
All of the new positions were based on CBOE (delayed) prices.

Our volatility play was quickly subdued on an early morning
announcement that Britain's Shire Pharmaceuticals Group Plc and
Roberts Pharmaceutical planned to merge. Roberts will exchange
each of its shares for 1.1374 American Depository Receipts of
Shire in a transaction valuing each Roberts share at $30.71.
The British company expects to complete the transaction in the
4th quarter. It will be interesting to watch the price of RPC
and how the merger would have affected each of our positions.

Thomas & Betts (TNB) traded in a small range for most of the
day and a $3.00 debit on the August bear-put spread was easily
achieved. The Macromedia (MACR) calendar position was quoted at
$4.25 debit near 9:46 AM and the target price ($4.12) should
have been available. The Equitable Co. (EQ) gapped lower at the
open and took most of the day to recover; the suggested entry
price was available in the afternoon. Honda (HMC) was virtually
unaffected by the broad market sell-off but we were unable to
achieve the target credit.

Portfolio plays:

The big loser today was America Online (AOL). The stock fell
over $8 to just below $100 as the Nasdaq market took a drubbing
because valuations, particularly in the Internet sector, are
now seen as unreasonably high. Most of our large-cap technology
stocks were affected by the sell-off. Cisco (CSCO), Intel (INTC)
and Sun Micro (SUNW) were all down. Many secondary issues also
moved lower in sympathy; Network Associates (NETA) and Novell
(NOVL) were down significantly.

One positive mover was Emulex (EMLX), up almost $3 to $107 after
announcing that Data General's (DGN) CLARiiON division selected
its high-performance Fibre Channel host adapter, the LightPulse
LP8000, for use in future storage solutions. Another bullish
issue was Apria Healthcare (AHG), as traders speculated on the
upcoming earnings report. Watch for the post announcement drop.
Tuesday, July 27

U.S stocks rebounded Tuesday as investors scoured the market for
bargains after the recent slump on worries of higher interest
rates. The Dow ended up 115 points at 10,979 regaining some of
last week's 300 point loss. The technology-laced Nasdaq index
jumped 60 points to 2,679. In the broader market, advancing
issues led declines 1,618 to 1,368 on moderate volume of 717
million shares on the NYSE. The benchmark 30-year Treasury bond
rose 7/32 and the yield fell to 6.01%.

Portfolio plays:

A nice broad market recovery and many of our positions moved
back into recent trading ranges. RF Micro (RFMD) rallied today,
up over $7 on huge 'pre-split' speculation. Intel (INTC) also
climbed back into respectability after a sector upgrade boosted
hardware stocks. New expectations for strong personal computer
and chip sales later this year helped the group rebound. Most
of the other big guns (including CSCO, DELL, MSFT, SLR, & SUNW)
in the technology group were higher.

Western Wireless (WWCA) gapped-up after ING Barings upgraded the
company and set a new year-2000 share target price of $38. WWCA
reported better-than-expected second quarter earnings on Monday.
Two of our small-cap issues rebounded significantly today; Novell
(NOVL) and Polaroid (PRD) were both up over $2.

Looking back at the Roberts pharmaceutical (RPC) calendar spread
(from Monday), it appears that the long-term time frame of the
announced merger is going to keep some speculators active in the
options. Today's prices were relatively unchanged through 500,000
shares traded, leading us to believe that either of the positions
could be profitable.

Those of you holding August positions on Standard Products (SPD)
were happily surprised by the announcement that Cooper Tire &
Rubber plans to acquire the company for $584 million. Cooper said
the purchase price values Standard Products at $36.50 a share.
Depending on which spread you participated in, that represents a
$6-$11 gain. (Our position was previously closed.)
Questions & comments on spreads/combos to ray@OptionInvestor.com

I had some new requests for conservative, low priced calendar
spreads this week. These positions offer favorable risk/reward
ratios and the (long-term) time frames will allow for a greater
range in stock price movement. We are establishing these spreads
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this type of horizontal spread play;
selling time value in the options when they are overpriced (high
implied volatility) and buying it back (if necessary) when they
return to intrinsic value. Ideally, the investor would like to
have the stock price finish just below the sold strike when the
near-term option expires. If the short options are in-the-money
at expiration, he will have to buy them back to preserve the
long-term position.
IGL - IMC Global  $18.55     *** Awesome Earnings ***

IMC Global Inc. is one of the world's leading producers of crop
nutrients for the international agricultural community and is
one of the foremost distributors in the United States of crop
nutrients and related products through its retail and wholesale
distribution networks. IGL mines, processes and distributes
potash in the United States and Canada and is a joint venture
partner in IMC-Agrico Company, a leading producer and marketer
of phosphate crop nutrients and animal feed ingredients.

Today IMC Global reported earnings that exceeded Wall Street
estimates even though revenues were hurt by price pressures and
lower sales of phosphate fertilizer. IMC's profit was down 21%
from last year and the results reflect the full impact of one of
the worst domestic spring application seasons for phosphate and
potash in several years. The company says the current condition
is temporary and this years seasonal harvest will improve based
on extensive fertilizer applications. On the positive side, two
subsidiary groups, IMC Salt and IMC-Agrico Feed Ingredients,
posted double-digit increases for sales, margins and operating

Another reason for today's rally may be the announcement that
the company is in discussions with several potential buyers for
its IMC Chemicals unit. But they also commented "Despite a high
degree of interest and generally improving market conditions,
the timing of any sale remained uncertain".
We like the long-term technical outlook for the stock and the
possibility of a divestiture of the company's losing division.
This type of issue may also participate in rallies with the
large-cap safety stocks when the market outlook becomes bearish.

PLAY (conservative - bullish/calendar spread):

BUY  CALL JAN-20 IGL-AD OI=69  A=$2.25
SELL CALL AUG-20 IGL-HD OI=101 B=$0.43

Chart = http://quote.yahoo.com/q?s=IGL&d=3m
RNBO - Rainbow Technologies  $13.38     *** Cheap Speculation ***

Rainbow Technologies provides security related technology for
the Information Age. RNBO is a leading developer, manufacturer
and supplier of software protection solutions, and a leading
provider of network license management and information security.
The company applies its core technology to a variety of Internet
applications; from securing software, to the acceleration of
communication for e-commerce and Virtual Private Networks. Their
products include secure Web server and VPN acceleration boards,
anti-piracy & Internet software distribution solutions, software
metering & management tools, voice, data and satellite security
systems, USB-based authentication tokens and smart card readers.

Last week, Rainbow Technologies reported quarterly revenues that
increased 10% primarily because of substantial growth in their
Internet Products & Services segment. The company's strategy to
invest in that market segment appears to be paying off. For the
past six months, net income increased 30% percent to $3 million
after they added a new major OEM customer, and they are pleased
with an increased end-user acceptance of their new products;
NetSwift and CryptoSwift.

The company is a market leader in accelerator products for the
Internet, specifically in the fast-growing on-line trading and
financial services area. Internet business transactions will
continue to grow and any company that excels in that area should
profit significantly in the future.

The recent run to earnings has left a small void to fill in the
technical outlook but once the consolidation is complete, this
stock should continue higher.

PLAY (aggressive - bullish/calendar spread):

BUY  CALL OCT-15 BQO-JC OI=43 A=$1.62

Chart = http://quote.yahoo.com/q?s=RNBO&d=3m
UCL - Unocal Corp.  $40.06     *** Oil Industry Hedge? ***

Unocal is a fully integrated oil and gas resources company whose
worldwide operations comprise many aspects of energy production.
The company has reorganized its business into these segments in
order to remain focused on its most critical business activities:
exploration and production, refining, marketing, transportation
and diversified businesses.

Unocal just reported that second quarter earnings fell 70%, due
mostly to the cost of drilling unsuccessful wells. Their earnings
fell to $19 million, or $0.08 a share, but analysts had expected
the company to post earnings of only $0.05 a share. Unocal also
said it took an $11 million after-tax charge for restructuring
costs. One positive note, the company commented that earnings
reflected continued strong performance by Spirit Energy 76's
mature assets.

Despite the relatively poor earnings, UCL has a positive outlook
for the future based on optimism that there will be no change in
production quotas at the September meeting of OPEC. Shares of
independent oil and gas producers should do well if the broad
market consolidates while oil prices remain near current levels.

We are going to offer this play as a portfolio hedge against
the high priced technology and blue-chip issues that many of us
trade regularly. The current bearish outlook for UCL is expected
to diminish after a few weeks and a small disparity in the front
month options will allow us to open this conservative position at
a discount.
PLAY (conservative - neutral/calendar spread):

BUY  CALL JAN-40 UCL-AH OI=330 A=$4.37
SELL CALL AUG-40 UCL-HH OI=67  B=$1.68

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

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