Option Investor
Newsletter

Daily Newsletter, Tuesday, 08/03/1999

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The Option Investor Newsletter         Tuesday  8-3-99
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)
************************************************************
        8-3-99          High     Low     Volume   Advances Decline
DOW    10677.31 + 31.35 10727.97 10613.99  735,004k  1,091   1,882
Nasdaq  2587.99 - 35.64  2649.21  2564.25 1012,000k  1,296   2,689
S&P-100  681.54 -  0.79   687.44   677.20   Totals   2,387   4,571
S&P-500 1322.18 -  5.87  1336.06  1314.94            34.3%   65.7%
$RUT     436.28 -  6.35   443.75   434.27
$TRAN   3325.80 - 44.47  3387.52  3316.82
VIX       26.68 +  0.56    27.62    25.72
Put/Call Ratio      .71    
*************************************************************

Are we there yet?

Parents dread long car trips with young children because of the
repeated impatient questions. Trying to be creative with answers
to this question contributes to vacation stress. Vacation stress
is what some analysts are calling the slippage in the markets.
Citing low volume as evidence of lack of traders and lack of 
interest in the market in general, they are not worried about the
recent drops. I am not worried. I am in cash. Amazing how that
impacts your view of the carnage. If you are long stocks or options
this week then you probably need another Rolaids. If you are long
Internet stocks you need a Prilosec.

The Dow struggled back from a midday loss to finish up +31. The
Dow appears to have found a temporary bottom at 10615 after 
testing it four times in the last two days. This could be only
temporary but any relief is welcome. Hopefully this brief stop
ends up better than the Nasdaq stop last week. After bouncing
off 2630 several times last week, the Internet sell off today
knocked the bottom out of the Nasdaq. Closing down -35 today, 
the Nasdaq was only 15 points off the bottom and not looking
healthy. 





Internet stocks were being pounded into dust and previous
high flyers were the down draft leaders today. Qualcom took
a nose dive on no news to the tune of -12.50. Yahoo dropped
-6.94 after denying any takeover rumors of Excite At Home.
Other Internet losers were VRSN -6.75, INKT -7.81. Nextlink
dropped -16.56, GNET -5.56, RNWK -7.09.

On the NYSE AOL dropped -4.06. AOL has lost $94 billion in 
market cap since July 12th. Next support for AOL is in the 
$78-80 range. AOL broke thru its 200 day moving average which 
it has not touched since October 12th last year.

Many of the Internets have now lost -50% from their recent 
highs. The bloodbath may not yet be over. The flood of Internet
IPOs is increasing and it appears if you can spell .com you
can do an IPO. The end may be in sight after the 1800flowers.com
IPO today. FLWS was offered at $21 but dropped to $18.19 at the
close. The supply vs demand acquisition formula has simply
shifted heavily to more supply than demand. This and no real
earnings has investors thinking twice before paying high premiums
for new issues and old.

The Dow's tenuous bottom at 10615 could be in trouble with the
July jobs report on two days away. The chances of more inflation
signs showing up in the critical report are keeping investors
from making any bets on future market direction. The bond yields 
closed at 6.16%, a 21 month high. The higher yields are luring 
away cash from the weak stock market.

The real news today was the deteriorating advance/decline line.
This indicator has taken a strong turn for the worse and decliners
beat advancers by over 2:1 today even though the Dow struggled
back to positive ground. There is still no reason to buy and
most now think the market will go lower. Still there is no real
fear in the markets. Just slow orderly selling with no panic.
There is a camp that says "don't worry be happy, all will return"
and the other camp that says "sell now and avoid the Y2K rush".
Even the most bullish analysts are saying things like Dow 12500
but expect a -15%-20% correction at any time. A contradiction
of terms? Yes. How else could you stay a noted bull and still
be right? Predict both ways and claim victory when each
eventually happen.

Another factor dragging on the market is the curse of margin
calls. The margin balances of brokers are dropping because of
the sell off in Internet stocks. As each stock drops more and 
more each day, investors who bought on margin are being forced to
sell at a loss to relieve the pressure on their accounts. This
forced selling is actually good for the market, unless of course
you are selling. This takes stocks out of weaker hands and puts
them into stronger portfolios more able to withstand the market
cycles. This creates a stronger base at each level. 

Speaking of online brokers, CS First Boston issued a warning
this morning that trading volume is expected to go down in
the third quarter (now) and not pick up again until next year
after Y2K. What? A major bank warning about Y2K and the impact
on the markets? Yes..and the stock of the online brokers
tumbled as a result. EGRP -4.31 to $24.69 WOW! AMTD -2.75 to
$21.25, NDB -4.96 to $32.12, SCH -4.56 to $37.88, NITE -4.21
to $37.03. Most of these stocks are down -50% from their recent
highs. 

So lets see...Internets -50% from highs, brokers -50% from highs,
how many more sectors have to take a serious hit to qualify as
a bear market instead of a "bullish correction"? Basically as
long as the Dow and S&P stay above the -10% range, this correction
never happened. They are both at the -7% stage right now. Internally
there is a serious sector rotation taking place and until the
Dow 30 stocks are impacted the real damage is invisible. (tell
that to your accountant when he looks at your trades for last 
month)

Seriously, I don't think we are there yet boys and girls but 
I can't tell you how much farther we have to go. I would like 
to think Dow 10,500 would be a floor and Nasdaq 2550 but the
mood has not turned ugly yet. Until we get a serious drop and
capitulation by the last weak holders then we have to keep
suffering. I would like to think the big drops today on no news 
by companies like Qualcom -12.50 and Nextlink -16.56 would
be the start of the healing but there are still some high
flyers left and until everybody gets a turn in the woodshed
the pain is not over.

Look for more of the same through Friday. Choppy markets with
morning rallies meeting heavy selling. Until we see the next
chapter in the Fed inflation play book on Friday (non-farm
payrolls), nothing good is going to happen.  

We have a new section starting tonight that highlights 
straddles. That is buying a call and a put on the same
stock. It only requires the stock to make a big move in
either direction to make a profit. This will be a new
Sunday section with updates on Tue/Thr. It will be written
by our new staff writer and trader Tom Gentile. Tom will 
be on CNBC Wednesday between 12:00 and 2:PM during the 
Power Lunch in Atlanta segment. Tom is also an instructor
at the OIN/Optionetics seminar series. Check it out!

Please, if you must play, pick your entry points carefully.

Good Luck, Sell too soon.

Jim Brown
Editor


***************
Market Posture
***************

As of Market Close - Tuesday, August 3, 1999 

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

DOW Industrials   10,500  11,320  10,677    Neutral   7.20
SPX S&P 500        1,330   1,420   1,322    BEARISH   7.30
OEX S&P 100          675     735     682    Neutral   7.20
RUT Russell 2000     430     465     436    Neutral   7.20
NDX NASD 100       2,200   2,468   2,239    Neutral   7.20
MSH High Tech      1,080   1,250   1,116    Neutral   7.20

XCI Hardware         920   1,090     992    Neutral   7.20
CWX Software         700     844     725    Neutral   7.20
SOX Semiconductor    450     535     492    Neutral   7.20
NWX Networking       550     625     562    Neutral   7.20
INX Internet         500     580     394    BEARISH   7.20


BIX Banking          690     710     651    BEARISH   7.23
XBD Brokerage        410     440     370    BEARISH   7.23
IUX Insurance        645     660     613    BEARISH   7.23


RLX Retail           915     960     856    BEARISH   7.23
DRG Drug             370     400     350    BEARISH   7.20
HCX Healthcare       750     800     720    BEARISH   7.22
XAL Airline          180     190     162    BEARISH   5.21
OIX Oil & Gas        285     310     301    Neutral   5.13

Posture Alert
Still bleeding? Technology stocks continue to take it on the chin
with the internet sector being the leader to the downside. Many
sectors that we have been bearish on continue to add to their
losses. Losers on the day include Internet (-5.34%), Brokerage
(-4.17%), and Airlines (-2.51%). The few marginal gainers today
include Oil & Gas (+1.11),  Semiconductors (+.35%), and the
Dow (+.29%).  


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

members.OptionInvestor.com/marketposture
 
****************
Market Sentiment 
****************

Flight to Quality?

Another day, another dollar lost (unless you've been short). The
bleeding on the Nasdaq continues with wide sweeping losses from
Internet to Brokerage. The drops that have occurred in some of
these sectors have been staggering, especially when you consider
the short period of time that they occurred in. 

Here at Pinnacle Capital, we've been bearish on many key sectors
during this time span. Two sectors that we highlighted during
this last Sunday's letter was networking and software. Both
sectors are breaking down as we speak. They both closed down
-1.4% and -1.5% just today. If they don't bounce here, there
could be plenty of more bloodshed. 

In the software index, Microsoft comprises a large percent of
the weighting by itself. Gates & Company is currently breaking
below key moving averages, as shown below. However, the stock
does have significant support in the 77 range. If this stock
continues to break down and below key support levels, the
software index will get crushed. We'd continue to keep a close
eye on the king of software. Playing the index (CWX) can make
you some serious money, especially when a general such as
Microsoft starts to break down. However, Microsoft is 
Microsoft, so extreme caution should be made. Should a broad
rally occur in technology, you can bet that Microsoft will be
one of the leaders.
 


 


 


 


BULLISH Signs: 

None

Pinnacle Index:
The Pinnacle Index for the OEX (645-680) is now reaching levels of
extreme pessimism.  From a contrarian standpoint, support is
building in this area, and may indicate a short term base.

Mixed Signs: 

None

BEARISH Signs:

Technicals:
Many indexes are below key supports, including Healthcare, Drug,
Retail, Brokerage, Banking, Internet, and Insurance sectors.

Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors
decreased 0.5% but Bearish sentiment decreased 3.3%.

Russell 2000: 
Trending below both moving averages, and also below key 450
benchmark.

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 .91 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 will continue to 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
out-of-the-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%
Friday, July 30           74,895        +131.9%




Market Sentiment at a Glance     Friday     Tues
Indicator                        (7/30)    (8/03)  Alert


Pinnacle Index (OEX):

                    
Overhead Resistance (720-750)      4.9      6.0
Overhead Resistance (685-715)      0.9      1.1
Underlying Support  (645-680)      4.7      5.7
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7        .7
CBOE Equity P/C Ratio               .5        .5
OEX P/C Ratio                      1.5       1.1


Peak Open Interest (OEX):

Puts                              620        620
Calls                             740        700
P/C Ratio                         1.11        .91

Market Volatility Index (VIX):	

CBOE VIX                         25.83      27.07



Investors Intelligence:

Bullish                         53.60%  *
Bearish                         24.60%  *


The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

 

OEX
Pinnacle Index                   Friday      Tues
Benchmark                        (7/30)    (8/03)


Overhead Resistance (720-750)    4.87       6.02
Overhead Resistance (685-715)    0.94       1.13

OEX Close                      683.29     681.54
 
Underlying Support  (645-680)    4.74       5.66
                     

 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is building at the OEX 720/750 level
while the underlying support is holding at the OEX 645/680 level.




Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (7/30)    (8/03)     (8/05)



CBOE Total P/C Ratio             .74      .68
CBOE Equity P/C Ratio            .50      .53
OEX P/C Ratio                   1.49     1.14


(OEX)
Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (7/30)           (8/03)         (8/05)

Puts                 620 / 9,874     620 / 10,475
Calls                740 / 8,862     700 / 11,468
Put/Call Ratio         1.11             .91





(VIX)
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 *
August 3, 1999                          27.07

 


 


 


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
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
July 28, 1999                         53.6        24.6  *




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

Index       Last    Mon    Tue  Week
Dow      10677.31  -9.19  31.35 22.16
Nasdaq    2587.99 -14.86 -35.64-50.50
$OEX       681.54  -0.96  -0.79 -1.75
$SPX      1322.18  -0.67  -5.87 -6.54
$RUT       436.28  -2.14  -6.35 -8.49
$TRAN     3325.80  37.03 -44.47 -7.44
$VIX        26.68   2.90   0.56  3.46

Calls               Mon    Tue  Week

INTC        72.94   2.31   1.63  3.94  New 52-week high
CHKP        72.00   1.44   2.13  3.56  New, strong vs. markets
JDSU        90.44   3.63  -3.56  0.06  Confirm direction first!
AMGN        76.63   1.88  -2.13 -0.25  Hindered by market woes
CSCO        61.13  -0.31  -0.69 -1.00  Treading water still
DELL        39.44  -0.94  -0.50 -1.44  Buying opportunity??
VRIO        69.88  -0.69  -0.75 -1.44  Dropped, not recovering
VOD        208.94  -0.63  -0.94 -1.56  Just like clock-work
SNE        123.38  -0.19  -1.63 -1.81  Holding above the 10-dma
VISX        92.63  -0.50  -8.13 -8.63  Dropped, fell apart
QCOM       140.00  -3.50 -12.50-16.00  Dropped, look out below

Puts

EBAY        84.38  -6.44  -6.88-13.31  Leading the charge lower
CMGI        81.88  -3.88  -6.44-10.31  Continuing to sink
GNET        49.13  -4.06  -5.56 -9.63  Riding the Internet wave
AOL         88.81  -4.25  -4.06 -8.31  Broke key support level
ELNK        41.44  -3.44  -3.44 -6.88  Lawsuits announced Mon.
QLGC        76.63  -1.06  -5.75 -6.81  Right on schedule
DCLK        74.50  -2.88  -3.63 -6.50  Nearing support at $70
SCH         37.75  -1.63  -4.69 -6.31  Negative sector comments
AXP        126.69  -1.69  -3.38 -5.06  New, weak sector
NITE        37.03  -0.75  -4.22 -4.97  Down on big volume
VRSN        65.25   2.13  -6.75 -4.63  New, stuck in a downtrend
MSPG        29.56  -2.56  -1.44 -4.00  Another Internet victim
TERN        35.19  -2.75  -1.19 -3.94  Approaching support
SEPR        69.63  -0.75  -3.13 -3.88  No signs of a rally
MWD         87.44  -1.69  -1.13 -2.81  More economic data ahead
LVLT        51.69   0.19  -1.50 -1.31  Now underneath support
MER         67.25   0.63  -1.38 -0.75  Interest rate play
TBH         75.88  -1.75   1.25 -0.50  Indicators are negative
XRX         48.50   0.25  -0.63 -0.38  Dropped, going nowhere
CA          46.44   1.69  -1.13  0.56  Dropped, underperforming
U           36.81   2.88  -1.69  1.19  Not convinced of recovery
GM          63.06   0.75   1.19  1.94  Dropped, no direction


****************
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:
******

QCOM $140.00 -12.50 (-16.00) YYEEEOOOOWWWWW!!  Look out below!! 
"We are seeing the wind being let out of the sails of the 
overpriced technology stocks," said Chris Dickerson, an analyst 
at Global Market Strategists Inc. in Gainesville, Fla. "There is 
just absolute fear of higher interest rates."  This comes from a 
Reuters report.  Despite Lehman Bros. and Goldman Sachs purchase 
of 6.9 mln. shares of QCOM at $156.50 for intended resale to 
index funds, QCOM frankly has come a long way in a hurry.  
Apparently, the market, having chewed up and spit out QCOM on 2.5 
times its normal volume today, doesn't care what L.B and G.S. 
paid.  There is no company specific news today that would 
precipitate that kind of sell-off.  Today's action has the 
appearance of professional money managers taking a profit, thus 
the price may bounce a bit tomorrow.  If you didn't have a stop 
order in (tisk, tisk!  It happens to the best of us), you may be 
able to get out on a technical bounce, but the play is over.  
We're dropping QCOM tonight.

VRIO $69.88 -0.75 (-1.43)  We just can't hold onto VRIO any 
longer.  The bearish market is slowly, but surely taking 
its toll on a stock that pinnacled at $85 just a couple of 
weeks ago (July 19th).  VRIO started showing some weakness 
last week and we recommended caution.  Over the past two 
days, it's made a definitive move below its 30 dma (at 
about $72) and this is not a good sign.  Plus time is 
becoming a factor.  Earnings are this Friday, August 6th 
before the bell (the conference call will be held at 9 AM 
ET) and we never recommend holding over an earnings 
announcement.  However, if the broad market reverses, VRIO 
could have a split run.  The stock is expected to split 2:1 
on or about August 20th.

VISX $92.63 -8.12 (-8.63) Well it finally happened and we hope
you had your stops in place.  The bears jumped all over VISX
today dropping it $8.12 on volume of 2.65 mln. shares.  As we 
suggested Sunday the steam finally ran out on VISX.  VISX traded
sideways for most of the session Monday, closing down $0.50 for 
the day.  Today VISX opened $0.19 higher and then someone turned 
out the lights.  VISX was not a big mover, but it did give us 
plenty of opportunity to make a profit. The healthcare industry 
has fallen upon hard times recently, so we will dismiss VISX
and look for other opportunities.


PUTS:
******

GM $63.06 +1.19 (+1.93) The July sales numbers were posted for 
the auto-makers today, and they had a strong month, as expected. 
GM's numbers, which just met analysts' estimates, look 
particularly strong, with nearly 63% growth over last year's 
strike-crippled sales. However, GM missed its 30% target market 
share, even though it spent an average of $1,907 per vehicle 
in incentives, 27% higher than the rest of the industry offered. 
GM July sales, may be the 1999 high point, as sales are expected 
to decline next quarter. Still, the stock has moved up the last 
2 days in anticipation of these numbers, which GM released at 
the end of the day. If investors react positively tomorrow as 
they did today to Ford's and Chrysler's sales numbers, which 
were released earlier in the day, the stock could keep rising. 
We have to drop GM.

XRX $48.50 -0.63 (-0.38) With the volatile markets lately, some 
stocks have held up better than others.  Xerox has been one of 
those stocks that made a short run for us but lately has found 
some support.  We felt that the downgrade of XRX by Deutsche 
Banc, and weakness in its oversees operations in Japan and Brazil 
would have effected the stock more than it did.  XRX for the last 
week has traded between a price range of $48.50 and $50.00, not 
really going anywhere. Considering that we have other put plays 
with so much more potential, we decided to end this put play on 
XRX.

CA $46.44 -1.12 (+0.56) We believe CA could still have a little 
potential as a PUT play, however "little" is the key word here.
The trend technically is still south.  The problem is that it's
having to work way to hard at it.  Support as we said Sunday 
is at $43.78 and even if you got in at an ideal point, option
premiums are starting to decay and the chances at this point of 
having CA go down enough to make it a profitable play is not
worth the risk.  CA could be forming a base in this area for
a move back up, at this point we will look for other plays.


 
***** 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  8-3-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

SNE $123.38 -1.63 (-1.81) Sony has held up well relative to 
the broad markets this week despite a bit of profit-taking to 
end the day on Tuesday.  The stock rallied right to the new 
high established 2 weeks ago before rolling over in a weak 
market.  This may be the entry point we are looking for since 
it is most likely nothing more than market jitters.  We have 
seen lots of stocks that have upside momentum pausing while 
traders stop to figure out this market.  Any sort of good news 
should put SNE back in rally mode.  The stock remains above 
support from the 10-dma at $120 and this will be the mark we 
are watching.  If we can stay above $120, the momentum should 
stay with the stock.  Any move below should be a signal for 
your stops to exit you from the play.  

CSCO $61.13 -0.69 (-1.00)  The NASDAQ has really taken it on the 
chin for about 300 points since it reached new highs just over 2 
weeks ago.  While not completely immune from the sell-off, CSCO 
has managed to tread water and base from $61-$64 during the same 
period.  While we expect a technical bounce given that the index 
has been down 4 days in a row, the play here is based on a run to 
earnings due out August 10 after the close (1 week from today).  
Add these 2 things together (basing and earnings run) and we have 
the potential of a nice little rise.  Volume has been up just 
fractionally this week, signaling that investor interest is 
perhaps surfacing again.  Don't hang your hat on this though, as 
continued overall market weakness may preclude a noticeable run.  
As always, volume accompanying any increase will be the key.  In 
the end, downward pressure will likely remain until employment 
figures are released on Friday, giving CSCO only 3 trading days 
to work its magic.  A lot depends on Friday's outlook.  
Countering this sentiment though is still a large number of open 
interests telegraphing investors' expectations of $70 by 
expiration on August 20.  Tread carefully if you enter a play.

DELL $39.44 -0.50 (-1.44)  As we noted Sunday, Dell's next 
support is in the $37-$38 range, but that we would be comfortable 
buying dips at $40.  Here we are.  If buying dips is your M.O., 
then we would consider this a buying opportunity.  Why now when 
the market looks weak?  First, DELL's volume has been 
exceptionally weak since last Thursday, telegraphing that nobody 
is in a hurry to sell, despite investors' conviction to jettison 
other technology/Internet issues.  Second, DELL announces 
earnings August 17th after the close, and an earnings run will 
likely ensue (market willing) between now and then.  Of course, 
not even DELL will escape a "black hole" sell-off.  But while 
already insidiously sloughing off 300 points on NASDAQ, the 
probability becomes less likely.  Third, after 4 days of losses, 
NASDAQ is due for a technical bounce, even if it is just a 1-day 
breath of air.  This is still a precarious market not well suited 
to the risk-averse.  But if you are going to play DELL, it's much 
safer to do it when the price is in the $30's and earnings are on 
the 2-week horizon.  (By the way, Dell just passed up Hewlett 
Packard to become the biggest seller of Intel-based workstations 
in the U.S., based on unit shipments and revenue!)

JDSU $90.44 -3.56 (+0.06) After yesterday and last week, we are 
not surprised to see JDSU give back part of its recent gains.
We are not dropping JDSU as it is still $2-$3 away from major
support.  Given the recent run up of over $11.00 last week
JDSU could conceivably retrace to the $85-$86 area and maintain
its positive trend.  We would view any bounce off these levels 
as a potential buying opportunity.  Keep in mind however, that 
even though the semiconductor industry found a little strength
last week, it could certainly be short lived if the sell-off in
the broader markets gets worse.  JDSU has been doing better than 
many of the stocks in its industry; but it can't go it alone 
forever.  Make sure if we get a bounce in JDSU, that it is 
accompanied by strong volume before considering any new plays in 
JDSU.  If you currently have a play in JDSU move you stops up 
tight to protect any profits you may have.

AMGN $76.63 -2.13 (-0.25) AMGN started the week of with a bang.
Monday AMGN rose $1.88 on better than average volume of 7.09
mln. shares.  Today investors decided to take it back.  AMGN
lost $2.13 today on volume of 5.8 mln. shares.  Here's the 
key for the next couple of days.  AMGEN came down to touch its
10 dma of $75.18 at its low today.  We feel it needs to now stay
above the recent trading range it had been in to continue to make
it a viable play.  Don't forget the Healthcare and Drug industry
has taken a drubbing in the recent weeks and AMGN has held its
own.  Amgen came with $1.38 of reach its 52 week high yesterday,
and has been moving up on solid volume the past few sessions, 
which may be enough to help AMGN continue its upward trek.  If 
the industry or the NASDAQ breaks down any further it may not
be able to hold it together.  If you are in AMGN, keep your
stops tight and let the market do the rest.

INTC $72.94 +1.63 (+3.94) Intel has made a new 52 week high in 
each of the last two days.  INTC gained $2.31 on very strong
volume Monday with 38.7 mln share exchanging hands.  Today 
Intel gained another 1.63 on volume of 37.7 mln shares.  Can
it keep going?  Several analysts seem to think so, having 
raised their price targets to over $80.  Apparently, the thinking
is that INTC is undervalued, compared to some of the other stocks
in the technology sector.  The recent drop in the price of PC's
under $1000.00, coupled with INTC's recent price restructuring
and the release of their new Pentium and Celeron processors, and
the perceived demand such a change will make has driven INTC to 
new highs. Technically INTC looks strong and should continue higher
in the near term. However, don't forget how the broader markets may 
begin to influence even the strong stocks.  A close below Monday's 
low could tarnish our view of INTC.  Keep your stops tight.

VOD $208.94 -0.94 (-1.56) Like we said Sunday VOD needed to come
down to the $205-$206 area.  Well it did.  About 12:45 p.m. ET 
today VOD hit $205.56 and turned back up.  Like clock-work for one
more time it bounced off its 50 dma.  Volume on the advance the
last three hours of trading also increased.  VOD has a strong 
upward trendline beginning back in late March.  As we have 
previously mentioned VOD has been building an ascending bullish
triangle and it will break out in one direction or another.  An
ascending triangle is a bullish sign.  When it finally breaks out
we are looking for VOD to go higher.  There is still nothing new
on VOD's ex-date for what in essence is a 5:1 stock split.  We
will stay on top of it and let you know what information we 
receive.  In other news VOD and Bell Atlantic Corp(BEL) announced
today they have entered into an agreement to restructure their
ownership interests in PrimeCo Personal Communications, a 
partnership that was formed by the two companies in 1994.



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

QLGC $76.63 -5.75 (-6.81) What a fun stock! The rules have
really applied to QLGC, first with a textbook split and
earnings run, then the classic post split depression. Yesterday
could have caused one to wonder if it was going to come. We
did get a drop mid-morning yesterday, but it looked pretty
resilient at $82.  Today's market pressure was too much for 
the stock to withstand. We got a steady drop from $83 to $76 on
above average volume as investors chose to protect their profits
and exit for better days. We are currently sitting on our 10 dma
so use caution.  This could be support and cause for a bounce.
If we break through this level on the down side, it's a green
light for more profit taking. At this point, tighten your stops
and confirm the break through on volume below $76, and a
negative market, before starting a new play. 

GNET $49.13 -5.56 (-9.62) If you are surfing the GNET wave, this
trend is turning into the BIG KAHUNA on the downside. GNET's
chart shows a nice and steady downtrend, on increased volume 
that started late Monday, and continued nicely today. Today 
showed a slight mid-afternoon recovery that wouldn't hold, as we
closed near the days low on nearly 2x's normal volume. In our 
current strong negative trend, our resistance is chasing us. 
GNET is due for a bounce, based on it's chart patterns. Any 
market rebound will attract some bargain hunters, so protect 
your profits. A market analyst on Bloomberg today said that the
internets have corrected a lot; but, we still have some room to 
go. GNET should continue to follow the sector. In the news, GNET 
will soon get a new face. They recently signed a deal to move in 
the spring of 2000, into an 80,000 sq. ft. space in Seattle's 
historic Pier 70 district.  The move will allow GNET to add new 
jobs, and accommodate their rapid growth.  Again, watch for the 
bounce, and confirm market direction before entering a new play.

TERN $35.19 -1.19 (-3.94)  This technical play continues to 
reward its players.  TERN has given up almost $4 in just the last 
2 days based on overall market weakness and last week's violation 
of its $40 support.  With a nice profit now achieved, it's a good 
time to place a trailing stop order, as TERN approaches support 
of $33.  You don't want to be caught by a market bounce that may 
follow 4 negative trading days on the NASDAQ, thus wiping out 
your gain.  You can always reenter the play later, market 
permitting.  Just so you know, if TERN breaks through $33 on the 
downside, the next stop is about $27.  Volume has been steadily 
increasing too since last week.  Beware the reversal and continue 
to enjoy the ride.

TBH $75.88 +1.25 (-1.00) Telebras is falling further below its 
10 dma, and is now below its 200 dma as well, although it did 
see a bounce today, along with most of the Latin American ADRs. 
According to reports, the Mexican, Argentinean, and Brazilian 
ADRs all traded higher today. This is likely just a technical 
bounce, and we believe that TBH has further to fall. This would 
be especially true if the U.S. markets, from which they take 
their cue, continue to lose ground. Technical indicators for 
TBH are all negative, and today's bounce was probably a good 
entry opportunity for puts.

U $36.81 -1.69 (+1.19) In case you didn’t notice, there was 
some news on Monday concerning USAir.  The company’s single 
largest shareholder has filed with the SEC to explore a 
possible sale or merger for the company.  Tiger Management, 
a hedge fund, owns approximately 22% of USAir and feels the 
company’s intrinsic value is not being realized in U’s stock 
price.  There are many reasons as to why Tiger made this 
announcement.  Perhaps they are really interested in becoming 
more involved and finding strategic alliances to help the 
company succeed.  Or maybe they want to start unloading shares 
and felt this would be the best way to support the stock in 
the short-term.  Either way the downtrend was re-ignited 
today and we see the stock likely re-testing the lows of last 
week again barring any surprise company announcement.

SCH $37.75 -4.69 (-6.31) What a week for the online brokers!  
You might think after being the leading sector among losing 
stocks for the past month that they would be due for a bounce, 
right?  Nope, there is not a lot of logic sometimes on Wall 
Street.  Nevertheless, it is great for our play as we’ve just 
let it lead the way down.  It was triggered by a report from 
CSFB that stated July activity for online trades came in well 
under forecast.  They also said that the 3Q could show the 
first ever sequential drop in earnings.  The drop in the stock 
price has even exceeded our expectations.  We were looking 
for a bounce at support at $40 but never got it.  The stock 
is now resting below the 200-dma at $38 and it’s likely SCH will 
bounce initially from this level so be careful opening new 
plays from here.  Whether or not it holds this support over 
the period of the next week or so will depend on the markets 
so tighten down your stops for protection and watch for signs 
of a rally. 

AOL $88.81 -4.06 (-8.31) AOL is under the key support line 
of the 200-dma that it has held for the past few years.  We 
talked about it over the weekend and what strong support the 
200-dma has been to AOL in the past but the stock moved right 
through it this time without even a pause.  For investors that 
are long the stock, this has to be disheartening and could 
prove to be the catalyst for a lengthy Internet sector 
correction.  Only time will tell but in the short-term, we 
expect more downside.  Also we are watching for the impending 
bounce.  It is just a matter of time until investors think 
they see a bottom and jump back in.  So watch out and plan 
your stops accordingly.  There has been no other relevant 
news, both good or bad, to drive the stock this week.

LVLT $51.69 -1.50 (-2.00) Once again the market has been 
conducive to put buying this week.  After the broad markets 
rallied for most of the day on Monday, the sellers came back 
in full force to end the day lower.  This was very similar 
to what we saw in LVLT trading too.  The stock went back 
above the $54 level which was unsettling for our play but 
in the end, it was just another entry point.  The stock fell 
on Tuesday as well and hit an intraday low of $50.19.  All 
of this came despite positive news from the company on 
Monday.   They announced they were buying a state-of-the-art 
building in New York City to keep up with growing demand.  
The news of strong growth is no surprise.  LVLT has been talking 
up their growth along but it is still not enough to alter the 
current trend.  The stock is lacking any technical support at 
this level which may be why it was recommended as a short play 
in another economic newsletter this past weekend.  This is just 
another positive development for our play.  Remember to use 
stops because momentum can change on a dime.

MSPG $29.56 -1.44 (-4.00) Look out below! MSPG is really taking
it on the chin, as the Internet stocks are getting hammered
from interest rate worries.  As a put play, it's great news!
The stock is continuing down, and approaching our support of
$28. A look at the daily chart shows a steady decline for weeks.
Be cautious! We know that a positive day has to be at hand. MSPG 
is known for some big jumps up when they come, so protect what 
you've made with stop losses.  The stochastic indicator is also 
showing signs of an oversold condition but we could still see
more downside. We gapped up this morning, and showed a small bit
of buying towards the close, so have your stops in order.
It's not often that we see analysts not throwing out buy
recommendations as of late; however, Morgan Stanley initiated
coverage of MSPG with a neutral. Good reason to continue down.
Reuters also listed MSPG as one of the stocks that "did not
help the case for Internet stocks", due to their high levels
of spending and questionable future earnings. Make sure you
confirm market and stock direction before buying more puts.

SEPR $69.63 -3.13 (-3.88) Sepracor, reacting as expected, 
continued down even further to start the week.  Of course, 
with the help of a market that doesn’t seem to be able to 
sustain any sort of rally doesn’t hurt the play either.  On 
July 23, the release of SEPR's earnings with widening losses 
during the second quarter has substantially hurt the stock
($1.11 vs. $0.62).  Sepracor related those losses to costs 
incurred through research and development of new drugs.  
Since mid-July the stock has followed a distinct path down. 
First it encountered resistance at its 100 dma which pushed it
back through its 200 dma, last week if fell below the 50 dma, and 
it continues to fall closer to its next support level around the 
$60-$65 range.  With the technology sector weak and the bad 
news about the earnings, we might even see a break in this next 
level of support.  To be on the safe side, just in case the stock 
decides to turn of us, place your stop loss orders to end the 
play if needed.       

ELNK $41.44 -3.44 (-6.88) Two great sessions for ELNK this 
week as the stock rode the coat-tails of the Internet sector 
even lower.  On Monday, news was released that EarthLink was 
going to sue low-priced PC maker Microworkz for allegedly 
failing to pay money owed under a deal to supply Internet 
access with one of Microworkz's cheaper computers.  Microworkz 
in retaliation said it would counter sue Earthlink, alleging it 
supplied faulty software and did not adequately educate its 
technical staff about the program. Look at Aug. 2nd's news in 
Yahoo Finance, under ELNK, for a full report.  With the recent 
downturn in the Internet sector and new litigation news, 
Investors are weary and it shows in the stock's current price.  
On Monday, ELNK broke through support at $47 and continued 
downward.  The stock is pushing even farther below its 200 dma 
and 50 dma.  The next support level for the stock is around $36, 
so watch the stock as it approaches this level to see if its 
another breakthrough or actually finds support.  Use your stop 
losses to protect yourself if ELNK does decide to bounce upward.     

DCLK $74.50 -3.63 (-6.50)  NASDAQ violates 50-dma and DCLK sinks.  
This is turning out to be a great play.  Support for the sector 
continues to dwindle as supply (from IPO's) continues to 
increase.  However, we want to be careful here since, potentially 
we could get a bounce tomorrow or Thursday, following 4 negative 
days of NASDAQ losses.  Not only that, but DCLK is approaching 
support of $70, but DCLK may never get there, assuming the market 
gives us a small bounce tomorrow.  If there was ever a time to 
protect your profits with a trailing stop order, this is it.  
Volume has picked up a bit since last week, indicating that the 
selling may not be over.  But if you already have a nice profit, 
consider taking the money and run.

CMGI $81.88 -6.44 (-10.31) Same Internet story; different stock.  
CMGI followed the NASDAQ's break of its 50-dma, tacking on nice 
gains for investors in this put play.  Now is the time to protect 
those profits with trailing stop orders.  If CMGI continues to 
drop, you can always move the stop up.  You simply don't want to 
give up what was so hard to earn.  Keep in mind too that CMGI is 
approaching support at $77.  With volatility so prevalent in the 
sector, it may not get there if we get that bounce, following 4 
days of losses.  Otherwise, if it drops below $77 on significant 
volume, the next stop is in the $40's (don't hold your breath 
just yet). 

MER $67.25 -1.38 (-0.75)  After the early morning rally on 
Monday, MER continued to move farther away from its 200 dma 
up at $75.  Today it moved toward a bottom support level 
(daily low $66.69) not seen for months.   The stock 
bottomed out at this mark in May/June and prior to that, 
back in February.  We expect the market to be weak, but 
still confirm sentiment and direction before opening a new 
position.  In the news, Andy Collins, analyst for ING 
Barings, reported he believes Chase Manhattan (CMB) may be 
looking for a "merger of equals" with the likes of Merrill 
Lynch or Morgan Stanley Dean Witter (MWD).

MWD $87.44 -1.13 (-2.82)  MWD offered some nice entry 
points as it climbed upwards Monday morning responding to 
the lower-than-expected NAPM Index numbers.  This rally was 
short-lived and MWD's reverse carried through into Tuesday
as well.  The stock is now poised just below its 200 dma.  
Another day below this support would denote a strong 
bearish signal.  Be prepared for a bounce.  Volume is still 
moderate at about 85% of its normal levels.  In the news, 
the SEC is charging a former 24 year-old analyst at MWD and 
his friend for insider trading.  Apparently, the trading 
scheme was in place prior to the analyst beginning 
employment with the company

NITE $37.03 -4.22 (-5.10)  The internets are still plunging 
to lower levels this week.  And today, this market maker 
fell even farther in sympathy with online brokerages like 
Schwab (SCH).  NITE shed -$4.22 placing it merely points 
away from its 200 dma at $32 and what volume!  Trading 
volume was more than double with 10.02 mln. shares exchanged 
compared to its ADV of 4.47 mln!  This is usually a good 
indication of firm direction, but be careful there may not be 
too many sellers left.  Take a look at a 6-month chart and you 
can see how NITE bounced off of $34 back in April.  

EBAY $84.38 -6.88 (-13.31)  For the EBAY put player, 
profits piled up early this week.  EBAY is already over $13 
in the hole and it appears the descent could continue.  The 
fears of rising interest rates have gripped the Internet 
sector by the throat and is most assuredly squeezing the 
life out of it.  A brief reprieve came on Monday morning 
when the NAPM Index reported sharply lower numbers than 
expected and the market puffed up for a few hours.  Then 
after reality came back to the forefront (employment #'s 
are also due this Friday), and investors pulled back again.  
The morning rally did offer solid entry points for the prepared.
EBAY consistently traded in a $96-98 range for a good part 
of the day and even hit $100.  Today the stock plunged even 
deeper dipping to a daily low of $82.50 on almost double 
the normal volume.  Again, this is an INTERNET PLAY and it 
is HIGH RISK; internets move sharply and are very volatile.  
Know your tolerance for risk before beginning a play on 
this stock.  In the news, carclub.com, a comprehensive auto 
destination, has joined forces with eBay and will offer the 
community an array of automotive-related services.



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

CHKP - Check Point Software $72.00 +2.13 (+3.56 for the wk)

Check Point develops, markets, and supports secure 
enterprise networking solutions that enable customers to 
implement centralized policy-based management with 
enterprise-wide distributed deployment.  Their software 
solutions include network security, traffic control, and 
Internet protocol address management.  Check Point's largest 
customer is Sun Microsystems' SunSoft unit which represents 
about 20% of its sales.  The company has subsidiaries in 
Europe, North America, and the Pacific Rim.

CHKP is bucking the trend.  It's gaining more momentum as 
time passes in spite of the negative broad market and the 
downtrend of the Nasdaq.  Until the middle of July, CHKP 
was comfortable at $55 and $57.  Then 2Q earnings came out 
on July 20th.  The report was respectable at .53 p/s 
meeting the estimates and rising sales (due to the higher 
demand for Check Point's Internet security systems, or 
virtual private networks (VPN's).  That same day BBRS 
upgraded CHKP to a "buy" from a "long-term attractive".   
The stock then traded primarily in the $60-65 range for the 
next two weeks always hitting overhead resistance at $65
level.  Volume was only moderate; but the upward 
momentum was intact.  Finally on Friday, CHKP broke through 
the resistance and pushed upwards of $68.   More bullish 
confirmation came yesterday and today as CHKP advanced 
another $3.56 in a strongly dissenting market.   Even if the 
market turns positive, confirm stock direction.  CHKP hit a 
new 52-week high today on exceptionally high trading volume 
of 1.02 mln. shares.

In the news today, Check Point Software announced they are 
extending their open platform (OPSEC) demonstrating their 
leadership in advanced VPN's and strengthening authentication 
security.

Note:  There are no strikes above 70 for AUG or OCT. 

BUY CALL AUG-65 KEQ-HM OI=840 at $ 8.63 SL=6.75
BUY CALL AUG-70*KEQ-HN OI=903 at $ 5.13 SL=3.50
BUY CALL SEP-70 KEQ-IN OI=169 at $ 8.13 SL=6.25
BUY CALL SEP-75 KEQ-IO OI=166 at $ 5.63 SL=4.00

Picked on August 3rd  $72.00   PE = 37
Change since picked    +0.00   52 week high=$72.50
Analysts Ratings   8-7-1-0-0   52 week low =$10.87
Last earnings 07/20 est= .53   actual= .53 
Next earnings 10-20 est= .56   versus= .45
Average daily volume = 785 K
Chart = http://quote.yahoo.com/q?s=CHKP&d=3m



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

VRSN - Verisign Inc. $65.25 (-8.88)

VeriSign, Inc. provides digital certificate services designed 
to enable Web sites, enterprises, and individuals to conduct 
secure electronic commerce and communicate over Internet-
protocol networks. The company's Web-site Digital Certificate 
services are used by over 400 of the Fortune 500 companies, 
and by all of the top 25 electronic-commerce Web sites listed 
by Jupiter Communications. The company also offers the VeriSign 
OnSite service, which enables enterprises to develop and 
deploy customized digital certificate services for use by its 
employees, customers, and business partners.

VeriSign, along with most of the Internet sector has taken a 
dive leaving its investors wondering if it can get any worse.  
Taking into consideration the current trading pattern of the 
stock, the answer we feel is, yes.  On July 16, VRSN set its 
52-week high at 96.75. However, since this new high, investors 
have decided to take profits by heading for the exits.  With 
the amount of shares trading above the average volume during 
this time period, it doesn’t reflect well for the stock.  VRSN 
recently broke through its 50 dma at $70, and does not show 
any real support until the $50 range (although it may pause
at $60 with some psychological support).  With the weak Nasdaq 
and a particularly strong downturn in the stock, look for 
VRSN to continue towards this next level.  Even though we feel 
the stock will fall further, make full use of stop losses to 
protect yourself.

BUY PUT AUG-65 YVR-TM OI=198 at $4.50 SL=2.75
BUY PUT AUG-70*YVR-TN OI=533 at $7.50 SL=5.75

Average Daily Volume = 997K

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



AXP - American Express Co. $126.69 -3.38 (-5.06)

When we think of financially safe travel, we think of
Travelers Cheques.  Who better to provide them than 
American Express Co.  AXP offers credit cards, Travelers 
Cheques, a brokerage service, insurance, financial planning 
and other money type services. They provide these services 
to individuals and corporations. But that's not all! 
They'll also help you with retirement, accounting, tax 
preparation, and even educate you about finances. They are 
the largest travel agency in the world! No wonder then 
that one can truly feel safe while traveling with all this 
experience behind them.  Recent studies show that the X 
generation is accumulating more credit and debt than ever 
before. This has helped AXP continue their revenue growth at 
10%. Recent earnings of $1.41/share reported on 7-26 were 14% 
better than the previous year of 25% net earnings growth. 
Basically, AXP has been a very long term, financially stable, 
industry giant.

On 7-30, AXP negatively broke through major support of 
its 30 dma at $135.  Since then it has continued to drop, 
and closed today below its 50 and 100 dma's.  Not a good 
sign! This new trend is now confirmed with bearish signals 
in the MACD and Stochastic. The recent sell off has also 
been accompanied with larger than normal volume.  The sell-
off may be picking up steam.  If AXP drops below $125, then
$120 is just around the corner.  Watch for bargain hunters 
entering in on any market turn-around.

One thing about solid, safe, stable, long term companies,
is that it is usually solid, safe, stable, long term 
employee's that helped them get there. No wonder then that 
when CFO, Richard Goeltz announced his retirement after
25 years of service, the market got nervous about AXP.
The stocks drop in price coincides with the news.
Couple this news with the interest rate worries, and 
recent job report, and it effects a large company in a
large way. We see AXP continuing it's down trend, market
willing, due to the news and recent drops through
support.

BUY PUT AUG-125 AXP-TE OI=1066 at $3.63 SL=1.75
BUY PUT AUG-130 AXP-TF OI=1003 at $6.25 SL=4.50    
                        
Average Daily Volume =  1.6 mln

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



*****************************
SEE DISCLAIMER IN SECTION ONE
*****************************


The Option Investor Newsletter         Tuesday  8-3-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


*******************
PUT PLAY OF THE DAY
*******************

SEPR - Sepracor Inc. $69.63 -3.13 (-3.88 for wk)

Sunday Write up

Specialty pharmaceutical company Sepracor Inc. develops 
improved versions of widely prescribed pharmaceuticals. 
Sepracor seeks to offer drugs with advantages over existing 
compounds such as reduced side effects, improved therapeutic 
efficacy, effectiveness for new applications, and improved 
dosage forms.  Sepracor has developed single-isomer or active
-metabolite forms of several well-known drugs used by other 
pharmaceutical companies including Norastemizole, an 
antihistamine, (R) fluoxetine, an anti-depressant drug,
Xopenex, an asthma medication and (S)-oxybutynin, a treatment 
of urinary incontinence.

Like most of the drug sector this month, Sepracor too has 
taken a fairly good beating.  The difference between SEPR and 
some of its competition is that SEPR shows greater signs of 
weakness.  On July 23, SEPR announced its 2nd quarter earnings 
which resulted in a loss of $1.11 a share vs. $0.63 from the 
previous quarter.  Those losses were mainly associated with 
costs incurred for research and development of new drugs.  
Investors, taking in consideration both the weak sector and 
the bad earnings reported by the stock have continued to sell 
and is reflected in its current price. These past few weeks 
SEPR has broken through both its 50 dma and 200 dma and 
doesn’t show any real support until $64.  For these reasons 
we feel this is a play definitely worth mentioning.  Even 
though we have a few points to ride on this play, remember to 
be safe, place a stop loss orders for protection encase the 
sector makes a U-turn.

Tueday's Update

SEPR $69.63 -3.13 (-3.88) Sepracor, reacting as expected, 
continued down even further to start the week.  Of course, 
with the help of a market that doesn’t seem to be able to 
sustain any sort of rally doesn’t hurt the play either.  On 
July 23, the release of SEPR's earnings with widening losses 
during the second quarter has substantially hurt the stock
($1.11 vs. $0.62).  Sepracor related those losses to costs 
incurred through research and development of new drugs.  
Since mid-July the stock has followed a distinct path down. 
First it encountered resistance at its 100 dma which pushed it
back through its 200 dma, last week if fell below the 50 dma, and 
it continues to fall closer to its next support level around the 
$60-$65 range.  With the technology sector weak and the bad 
news about the earnings, we might even see a break in this next 
level of support.  To be on the safe side, just in case the stock 
decides to turn of us, place your stop loss orders to end the 
play if needed.       

BUY PUT AUG-70 ERQ-TN OI=155 at $4.06 SL=2.50
BUY PUT AUG-75*ERQ-TO OI=154 at $7.14 SL=5.25

Average Daily Volume = 435K
Chart = http://quote.yahoo.com/q?s=SEPR&d=3m



*********
STRADDLES
*********

WELCOME TO THE FIRST EDITION OF THE STRADDLE PLAY'S
By: Tom Gentile

Straddles are designed to take advantage of both a rising and
falling market. The strategy is initiated when both a call and
a put at the same strike price are bought with the same expiration
date. The Straddle buyer expects the combined price of his call
and put (Straddle) to rise over the time frame he holds the trade.
To make a profit, the Straddle buyer would need to sell his straddle
at a higher price than he originally paid for it. Prices of Straddles
rise 2 ways. First, the underlying asset could make a big move that
is greater than the price of the entire straddle, forcing it to gain
value. Second, the Straddle can gain value by higher demand of the
actual strike prices held. This means that the prices of both the
call and put increase in value because of more buyers than sellers.
This is called a volatility increase. The risk of holding a straddle
is that time decay will set in causing the price of the straddle to
drop in value. We have a 3 part system that we use in determining
markets that have breakout potential for good straddle buys. The 3
criteria that we use are:

1 - Market consolidation - We scan optionable stocks and look for
markets which appear to be consolidating. Market consolidation occurs
when buyers and sellers come to the same agreement on price for a 
particular stock, which results in less violent moves over time. This
gives the chart a look of a wedge or pennant formation. These wedges,
while they are hard to predict exactly which way the market is going 
to break out to, will normally break out one way or another, which is
great for straddle traders.

2 - Cheap option premiums - We are looking for the cheapest options
premiums by looking at implied volatility lows relative to their high
and low ranges over time. The great thing about buying options
premiums when the implied volatility is lower is that you are
further reducing your time risk over the life of the trade. Once
this is determined, we merge this information with the rule 1 above
to further filter the stocks down.

3 - Impending News - This can be anything from an earnings report to
a government report, depending on the straddle play. After filtering
stocks with our straddle criteria, we now have the few stocks that
meet our low risk / high return strategy.

Our Entry Strategy - To enter at the prices quoted below or better,
using a limit order.

Our Exit Strategy - If the Straddle gains a profit of 50% or more,
OR, exit 3 days after the earnings report is released, whichever
comes first. Keep in mind that by exiting this way, we still retain
most of the premium on the straddle if we are wrong and the market 
does not move.

MARKET POSTURE
The market over the past two weeks has been showing consolidation
across the board. Tech stocks as well as internet stocks have shown
consolidation with classic wedge formations, although the option
premiums have been a bit high. Retail stocks are also showing
consolidation, and have been exhibiting cheap option premiums. 
Also PC makers such as DELL are showing relatively cheap premiums
and to go along with that, impending news with earnings due out 
on the 17th of August.


NEW POSITIONS FOR THIS WEEK

DELL- Dell Computer $39.44
Implied volatility ranges - HI - 113, LOW - 48, LAST 50
(CURRENT = EXTREMELY LOW)

STRADDLE QUOTES - 
Sep.40 straddle - $5.50
Nov.40 straddle - $8.25

Expected Earnings Announcement - 8/17/99

DELL designs, develops, manufactures, markets and services
and supports a range of computer systems, including desktop,
notebooks, and enterprise systems (includes servers and
workstations). DELL also markets software, peripherals and
service and support programs. For the 13 weeks ended 4/30/99,
revenues rose 41% to $5.54 billion. Net income rose 42% to $434
million. Revenues reflect increased units sold. Earnings reflect
higher margins due to component cost declines. Recently, Dell 
has engaged in adding ISP service to certain computers that are
purchased. Since most ISP companies are losing money, Dell has 
designed a business plan to make ISP work for them in continuing
to grow market share. NOTE - These options are extremely cheap 
when comparing implied volatility to the range. The September 
40 straddles are quoted at 5 1/2. 

Our risk on this trade is only to earnings, which are scheduled 
to be released on 8/17/99.


POSITION UPDATES FOR THIS WEEK
There are no positions to update. Tune in Sunday for new 
weekly straddle picks. We will update our picks each Tue/Thr
with our exit strategies for each.


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

Last Summer’s Correction Had Similar Signals..

U.S. markets ended mixed Tuesday as investors pulled money out of
interest-rate-sensitive technology stocks and transitioned into
defensive blue-chip issues.

U.S. markets faded in late-day trading Monday after stocks were
unable to hold onto gains from the morning rally. News that the
economy may be slowing drove traders to speculate the Federal
Reserve might hold off on raising interest rates again. The Dow
ended down 9 points at 10,645 after an early gain of nearly 140
points. The Nasdaq index of technology stocks fell 14 points to
2,623. In the broader market, decliners led advancers 1,733 to
1,215 on moderate volume of 622 million shares on the NYSE. In
the bond market, the 30-year U.S. Treasury bond's price was off
6/32 of a point and the yield moved up to 6.12%.

Sunday’s new plays (positions/opening prices/strategy):

BTY  British Telecom   AUG185C/180C   $1.12  credit  bear-call
BTY  British Telecom   AUG165P/170P   $1.38  credit  bull-put
ESPI E-Spire Comm.     MAR10C/MAR10P  $4.81  debit   straddle
GMST Gemstar           AUG80C/AUG52P  $1.62  credit  strangle
GD   General Dynamics  FEB70C/AUG70C  $4.87  debit   calendar
LTD  The Limited       LJAN50C/AUG50C $6.50  debit   LEAPS/CC's

The British Telecom (BTY) spread had some interest as one trader
opened both positions with five contracts at $2.31 credit. Our
recorded entry was $2.38. The E-spire (ESPI) straddle also had
volume in the morning and the initial debit target of $4.81 was
available. Gemstar (GMST) was quoted incorrectly (CBOE) but the
opening credit was still respectable at $1.62. General Dynamics
(GD) opened down $2.25 and our target had to be adjusted. The
position was available as low as $4.25 and our initial debit was
$4.38. The Limited (LTD) play was slightly more expensive than
expected; the opening price was $6.50.

Portfolio plays:

Another failed rally for the broad market and that's probably a
good indication of things to come in the short-term. Few stocks
were able to make headway in the wake of continued selling and
most analysts believe we have more downside ahead. One of the
technology stocks that bucked the trend was Intel (INTC). The
chip company rose $2.31 after topping off its two PC processor
lines with new high-end chips; the 600MHz Pentium III and the
500MHz Celeron. Sun Microsystems (SUNW) also advanced $1.56 to
$69.43 after the company said it is working on a new family of
computer chips for handheld computers, screen phones and video
game machines. RF Micro Devices (RFMD) was a big winner, up
$2.43 to $79 and well clear of our sold position at $65. 

Many safety stocks such as Johnson & Johnson (JNJ) were higher
along with a couple of the big telecoms such as Motorola (MOT)
but our favorite conglomerate, General Electric (GE), continues
to struggle at $108. Most of our long term plays are weathering
the storm but it may be some time before they are significantly
profitable.

On the down side, many Internet issues were lower and the stock
that continues to fare worst is American Online (AOL). As we said
Friday, AOL may be beyond help in the short-term and our current
goal is to preserve capital in this falling market. The long side
of our ITM bull-call spread was trading at $3.00 near midday and
that may have been the last opportunity to recover a significant
amount of the initial investment. Many smaller issues suffered in
the sell-off such as Cyberian Outpost (COOL), Barnesandnoble.com
(BNBN) and Rainbow Technologies (RNBO).

Almost all of the bullish positions (and certainly any that are
profitable) are being closed to prevent further losses and you
will have to decide when/how your exits will be executed. 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 losing positions
when there are so many other profitable plays that deserve your
time and money. Accept your losses, learn from your mistakes by
evaluating each one critically then move on.

Tuesday, August 3

U.S markets ended mixed Tuesday as investors pulled money out of
interest-rate-sensitive technology stocks and transitioned into
defensive blue-chip issues. The Dow Jones industrial average was
up 31 points to 10,677 while the technology-laced Nasdaq index
fell 35 points to 2,587. In the broader market, declining issues
swamped advances  1,882 to 1,091 on volume of 729 million shares
on the New York Stock Exchange.

Portfolio plays:

Another down day for technology stocks and yet Intel Corp (INTC)
was able to hold the line at $70 again! This area appears to be
the new trading support and those that want to micro-manage the
October calendar spread can move to the higher strike for about
$4.00 debit. This will protect your position for further upside
(on a market rally) and still leave you with some margin below;
in case of an unexpected drop. Sun Microsystems (SUNW) climbed
higher for the second consecutive day on news of a forthcoming
Java-based chip architecture, MAJC (microprocessor architecture
for Java computing).

Many safety Issues continue to shine in the current fear-driven
trading. Johnson & Johnson (JNJ) and Proctor & Gamble (PG) were
two of our best performers today. Even General Motors (GM), a
fundamental Dow indicator, managed a small ($1.19) gain. One of
our previously closed issues, Qualcomm (QCOM) was the absolute
worst performer in the portfolio. The stock was down $15 at the
height of panic and ended near $140.

Questions & comments on spreads/combos to ray@OptionInvestor.com
******************************************************************
				- NEW PLAYS -
******************************************************************
Sunday’s neutral plays garnered some (Email) attention and with
the current uncertainty in the market, we are going to continue
with that approach. Implied volatilities on most options are
actually lower than normal so the appropriate position would be
a debit straddle. We thought some of you might like to try a low
cost, conservative combination strategy that works very well for
volatile issues. The position combines a bull-call and a bear-put
spread and it is often called a "Short Iron Condor".

This type of spread has limited risk, limited profit potential
and a small initial debit. Some traders prefer to leg into each
position while others order the entire play with a debit "target"
or "limit" through a discount broker to reduce commission costs.
The initial goal will be to close one of the spreads when it has
paid for the entire play, leaving the other with "free" profit
potential. The entire position can also be held to expiration
with maximum profit occurring outside either sold strike.

A sample profit/loss graph for this strategy can be viewed at:

http://www.optionmax.com/sic.htm

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy. Current news and market
sentiment will have an effect on these positions so review each
play individually and make your own decision about the future
outcome of the stock price.
*******************************
DCLK - Doubleclick Inc. $74.50     *** Volatility Play ***

DoubleClick is a leading provider of comprehensive Internet
advertising solutions for advertisers and Web publishers. Their
technology and media expertise enable it to dynamically deliver
highly targeted, measurable/cost-effective Internet advertising
for advertisers and to increase ad sales and improve ad space
inventory management for Web publishers. DoubleClick offers three
distinct Internet advertising solutions: The DoubleClick Network,
DoubleClick's DART (Dynamic Advertising Reporting and Targeting)
Service, and DoubleClick Direct.

This stock has traded in a $100 range since March and while the
trend has become somewhat subdued over the last two months, we
still expect a significant amount of movement in the next 90 days.
The most recent cycle exists between $70 & $100 but a break below
the current bottom could send the stock price plummeting to the
$50 range.

PLAY (conservative - neutral and opposing/debit spreads):

BUY  CALL OCT-90.00 QWE-JR OI=521 A=$7.50
SELL CALL OCT-97.50 QWE-JU OI=3   B=$5.38

BUY  PUT  OCT-60.00 QWE-VL OI=200 A=$5.37
SELL PUT  OCT-52.50 QTD-VX OI=58  B=$3.12

OVERALL INITIAL NET DEBIT TARGET=$4.00 ROI(max)=87%
UPSIDE B/E=$94.00 DOWNSIDE B/E=$56.00

Chart = http://quote.yahoo.com/q?s=DCLK&d=3m
*******************************
BRCM - Broadcom Corp.  $111.87     *** Volatility Play ***

Broadcom Corporation is a leading developer of highly integrated
silicon solutions that enable broadband digital data transmission
to the home and within the business enterprise. Their products
enable the high-speed transmission of data over communications
infrastructures, most of which were not originally intended for
digital data transmission. Using proprietary technologies and
advanced design methodologies, the Company has designed and
developed integrated circuits for some of the most significant
broadband communications markets.

BRCM is another stock with a $100 trading range since early March.
The most recent support/resistance area exists between $100 & $140
with some interim support near the current price. This issue is
also poised for a big move with all indicators leading down to the
150 dma at $90.

PLAY (conservative - neutral and opposing/debit spreads):

BUY  CALL NOV-135 RDZ-KG OI=32  A=$9.00
SELL CALL NOV-140 RDZ-KH OI=363 B=$7.62

BUY  PUT  NOV-90  RCQ-WR OI=298 A=$6.25
SELL PUT  NOV-85  RCQ-WQ OI=530 B=$4.50

OVERALL INITIAL NET DEBIT TARGET=$2.75 ROI(max)=81%
UPSIDE B/E=$137.75 DOWNSIDE B/E=$87.25

Chart = http://quote.yahoo.com/q?s=BRCM&d=3m
******************************************************************
                      - Speculation Only -
******************************************************************
ATHM - AtHome Corp.  $43.38     *** Merger Rumors Abound! ***

At Home Corporation is a leading provider of Internet services to
consumers and businesses over the cable television infrastructure.
Their primary offering, the @Home service, allows residential
subscribers to connect their personal computers via cable modems
to the Company's new high-speed "parallel Internet."

AtHome soared in early morning trading on a report that powerhouse
Yahoo! Inc. sought to buy the company. After the initial rally,
ATHM officials downplayed the take-over rumors but acknowledged
the two parties might form an alliance. BusinessWeek magazine had
reported late Monday that the two companies held preliminary talks
over the past several weeks. The ATHM president was quick to reply,
telling an audience at a technology conference that discussions
were about making one of those companies' home page the first
thing that ExciteAtHome users would see when they log on to the
service.

Regardless of the denial, traders bid up the front-month options
to extremes as shares of ATHM surged 14% before falling back to a
closing gain of only $0.43. The current disparity in pricing will
allow us to take a favorable, three month position on a stock
with reasonable upside potential in the current bearish market.
We expect the August positions to expire and will sell September
options after the strike date to further reduce our overall cost
basis.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL OCT-52.50 AHQ-JX OI=302   A=$3.25
SELL CALL AUG-50.00 AHQ-HJ OI=10526 B=$0.93
INITIAL NET DEBIT TARGET=$2.12 TARGET ROI=$25%

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



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