Option Investor
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Daily Newsletter, Thursday, 08/05/1999

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The Option Investor Newsletter         Thursday  8-5-99
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)
************************************************************
        8-5-99          High     Low     Volume   Advances Decline
DOW    10793.82 +119.05 10798.25 10566.18  859,773k  1,193   1,817
Nasdaq  2565.83 + 25.83  2565.83  2474.41 1162,000k  1,667   2,296 
S&P-100  681.19 +  6.93   681.26   665.72   Totals   2,860   4,113
S&P-500 1313.71 +  8.38  1313.71  1287.30            41.0%   59.0%
$RUT     429.75 +   .05   429.79   422.23
$TRAN   3283.16 +  3.09  3284.84  3261.27
VIX       27.87 -   .55    32.12    27.64
Put/Call Ratio      .66    
*************************************************************

Bull breakout or bear trap?

Bungee trading anyone? After trending downward for two weeks
the markets finally blew off this morning. This was a classic
capitulation event. The drop after the open this morning was
the event we have been waiting to see. A classic sharp sell off
on strong volume with a bounce off the bottom on strong volume.
Sometimes called a "tweezer bottom" the formation normally
signals a turning point in the markets.

 
  






While the rebound was classic and has everybody excited there
were still two major problems. The advance/decline ratios were
still terrible. They did improve from a 3:1 decliners to advancers
this morning to a 3:2 this afternoon but the technicians were
not convinced. The up volume overwhelmed the down volume in
late afternoon as traders rushed to take advantage of the bounce.
The weak advance/decline breadth showed that the rally was not
broad based and only the leaders were benefiting from the cash.
The bad breadth was also seen in the number of new highs and
new lows. The new lows swamped the highs 224 to 38. This 
indicator has been getting worse on a daily basis.

One reason for the continued bad breadth is still the non-farm
payrolls from July due out in the morning. A really weak number
could help the overall market but a really strong number could
kill it instantly. Institutional traders were covering their
bets with small purchases "just in case" but the heavy money
is still sitting on the sidelines. Remember, there is still no
reason to buy right now. The rally could simply be a technical
bounce but it looks stronger than that. Stocks will have to 
weather the jobs report tomorrow before any predictions can be
made.

The market was helped by the bond market today, as rumors of
problems overseas sent cash into the U.S. market instead. The
yield dropped to 6.05% and that helped slow the cash inflows
from the stock market. 6.05% compared to 6.16% may not sound
like much but it is the change of direction that is important.
The productivity report this morning came in weaker than expected
and could be seen as inflationary. If the productivity gains
we have been seeing are starting to taper off then wage inflation
may not be farther behind in the Fed's eyes. 

Another factor that impacted the market today was the lower 
than expected retail sales reports. While most companies posted
nominal gains they were not the robust numbers of the past.
The Gap for instance posted a +10% gain but it was only one
third of what analysts expected. This slowdown in retail sales
was a good sign that rampant consumer spending was easing and
that was a concern for the Fed.

According to analysts the market has already factored in a
minimum of a +.25% rate hike for August and a 50% chance for
a rate hike at the next meeting as well. With the interest rate
burden already priced in, the market has one less reason to 
hold back. 

The climax to the recent "correction", the Nasdaq passed the -10%
level making it an official correction, came early this morning
as the Internet stocks were hit hard, very hard. The capitulation,
traders throwing in the towel on losing trades, was dramatic.
This happens only once or twice per year and is a very profitable
trading opportunity. One broker that works for us said they could
always tell when the crash was over. The retail investors would
ALL call in the morning and say sell everything, taking big losses
in the process. In the afternoon other investors would call in 
from their yacht or their vacation homes and say "I will take
some of this, and some of that, and what else has been hit hard,
give me some of that too. Their accounts would typically be all
cash. My question here is "which one do you want to be next time"?

The shopping was fast and furious. AOL traded as low as $76, down
from a recent high of $175. It closed at $84, up +$8 from its lows.
It would probably have traded back over $90 except for the rumor
that Microsoft was going to enter the ISP business in a big way
with free Internet service. Just a rumor folks... What Microsoft
did say was "AOL has not set the standard for Internet access 
and Microsoft is researching their options". A far cry from "free
access". In reality AOL is not just an ISP and a bad email service.
(sorry but I could not resist) The AOL CEO said on a CNBC interview
after the close today that based just on price they are not worried.
They raised their price last year to $21.95 and still added more
subscribers than any other period in their history. They also bought
CompuServe and see that as their "discount" service. CompuServe has
also added more subscribers at their $9.95 rate than any other
period in their history. So AOL has both entry points as well as
a strongly loyal following. With 18 mln users they are not going
anywhere. Their ICQ product has over 40 mln users. The 800 LB 
software gorilla is going to have a fight if it goes head to head
with the 800 LB ISP gorilla. 

By the way, is AOL a buy just because it is cheap at $76, down from
$175?  Or is it over priced at $84, up from its 52 week low of $17?
The Internet pricing argument is in full swing and the action today
and the last several weeks is stark evidence of the way the market
resolves these questions. It is worth what a willing investor will
pay today. Earlier this morning there was a rush for the exits in
AOL by a large holder. Forty four trades of 100,000 shares or more
were handled in a 45 min period. Bargain hunters snatched up the
fire sale merchandise and those sellers are $35 mln poorer than 
they would have been had they held the stock.

Other big swings today were EBAY with a low of $70 and a close
+$23 higher for a gain of +$17.13 for the day. AMZN traded as low
as $82 and closed up +8.81 at $97.25. A range of $15.

INKT traded as low as 87.38 before closing up +11.19 at $103.38.
DCLK traded as low as 60.50 before closing up +12.69 at $80.38.
YHOO had a low of $110, a far cry from my $170 calls I wrote
this month, and closed at $128.38. EXDS had a low of 98.63 before
closing at $119.38 for an $11.75 gain.

This is the stuff that you wait for all year. Market washouts
and great entry points. Of course all will be for nothing if the
jobs report blows up in our face tomorrow. I must caution you
not to bet the farm either way. There is still two weeks until
the Fed meeting and many words will be spoken about the 
possibilities between now and then. What we will probably see
is a small follow through rally and then some more range trading
for the next several weeks. I should not have to remind you that
there will be some profit taking in the Internet stocks from the
big swings of today. Some will hold for a longer term but others
will be scared of the dark on Friday afternoon and close their
positions for some big gains. The most important thing about
today was the trend reversal. We have been seeing traders sell
into morning rallies and the markets selling off in the afternoon.
Today was reversed. Down strongly early but a continued rise
right into the close and a finish right at the highs of the day.
The range for the Dow today was 232 points and 91 points for the
Nasdaq.
 
Be on the lookout for the "bear trap". This is a technical
bounce after a big decline but with no follow through. With
the breadth still very negative this is a real concern. Michael
Murphy, the tech investing guru, said this was just another 
chance to sell Internet stocks into strength. Thanks Mike!

When in doubt you can still sit out. You cannot lose money from
the sidelines. If we get favorable jobs numbers tomorrow I 
would still want to see how the market reacts and if it carries
over past amateur hour on Monday before starting any new positions.
If you just can't wait then only buy half as much tomorrow and
buy the rest on Monday around noon. This way you can only lose
half as much if the rally attracts sellers instead of buyers.

We did not drop all the Internet put plays that have been doing
so well the last week but we are not advising starting new ones 
at this time. If the rally holds tomorrow we will drop them on 
Sunday and overweight calls again. One day does not make a trend.

Please, pick your entry points carefully.

Good Luck, Sell too soon.

Jim Brown
Editor




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

As of Market Close – Thursday, August 5, 1999 

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

DOW Industrials   10,500  11,320  10,794    Neutral   7.20    
SPX S&P 500        1,330   1,420   1,314    BEARISH   7.30    
OEX S&P 100          675     735     681    Neutral   7.20   
RUT Russell 2000     430     465     430    Neutral   7.20   
NDX NASD 100       2,200   2,468   2,232    Neutral   7.20        
MSH High Tech      1,080   1,250   1,117    Neutral   7.20         

XCI Hardware         920   1,090     998    Neutral   7.20  
CWX Software         700     844     723    Neutral   7.20  
SOX Semiconductor    450     535     488    Neutral   7.20    
NWX Networking       550     625     548    BEARISH   8.05  
INX Internet         500     580     392    BEARISH   7.20    

BIX Banking          690     710     639    BEARISH   7.23    
XBD Brokerage        410     440     372    BEARISH   7.23    
IUX Insurance        645     660     607    BEARISH   7.23         

RLX Retail           915     960     822    BEARISH   7.23     
DRG Drug             370     400     342    BEARISH   7.20  
HCX Healthcare       750     800     703    BEARISH   7.22    
XAL Airline          180     190     158    BEARISH   5.21      
OIX Oil & Gas        285     310     309    Neutral   5.13



Posture Alert
Did you make 15% today? The broad market rebounded strongly after 
suffering early in the trading session on Thursday. The internet 
led the way with a 6.19% gain, followed by software (+2.85%), oil 
& gas (1.78%), and the MSH (1.4%). An interest statistic is that 
the INX had a 14.5% swing from intra-day low to high. Granted, for 
an internet stock, this is an everyday event. For a sector, this 
was a huge swing. With Thursday's action, we have turned BEARISH 
on networking.  

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

/members/marketposture
 


****************
Market Sentiment 
****************

Thursday, August 05, 1999 

We've found a bottom????

When sector rotation occurs, you will witness violent swings in the 
market and in individual stocks. Last autumn we all witnessed many 
casualties ranging from communications to semiconductors. This last 
month we have witnessed most sectors taking a bath (i.e. internet, 
banking, drugs) while several have held up nicely (Dow, Energy, 
cyclical stocks, Semi's). Every year there are different sectors and 
different stocks. In the past, large cap pharmaceuticals were a 
guaranteed safe haven. These last several months prove otherwise. You 
can't give a drug stock away right now. Even with nice rally today, the 
drug stocks still closed down. In the past this would have been the 
only sector not getting hit, right now, they are dead money. 

Every year is the same story except with different sectors, different 
stocks, but the same result. When the bounce occurs, it always happens 
to stocks with the strongest fundamentals that have gotten absolutely 
destroyed. The bounce usually occurs 20 points after you have said to 
yourself, "that they can't go any lower than this. This must be the 
bottom." And then finally, after it goes down another 10 points from 
where you thought it could never go, you send that market order to sell 
out of pure frustration. That is when the first good bounce occurs. 
This morning I overheard several traders saying this is the end of the 
world. We even witnessed several throwing in the towel and selling 
great companies out of their own accounts near the bottom. That was a 
pretty good indication for a rally.

What has happened to the Internet stocks? Before, wall street only 
cared about pages viewed, hours on the site, web traffic, subscribers, 
subscriber growth, potential market share, killer apps,etc. etc. Now 
Wall Street actually wants every Internet Company to be profitable. 
C'mon. Wall Street is a bunch of sheep going through the pearly gates. 
Six months from now, everyone is going to wish that they had plenty of 
cash to buy these stocks on sale. This is just sector rotation, and the 
Internet sector has to go through this like every other sector has had 
to in the past. It is no longer the teacher's pet.    

Now before everyone goes on a buying spree, you must remember that we 
need to form a base. Today was definitely a positive, however, we are 
going to have several more (large) down days followed by strength 
before this is over. Interest rates continue to plague this market, and 
with more economic figures due out tomorrow, and with Greenspan & Co. a 
few weeks away, we will probably see more volatile days like this in 
the near term. 1 day doesn't form a base, but it's a start. 

Below is a percentage in intraday changes for several sectors from 
Thursday. This is only shown as a gauge to which sectors you may want 
to try and trade during future selloffs. It is the percentage between 
the low and the high. 

Internet     (INX)   14.5%
Nasdaq 100   (NDX)    3.9%
MS High Tech (MSH)    4.2%
Software     (CWX)    4.6%
Brokerage    (BDX)    3.9%
Networking   (NWX)    3.7%
Semi's       (SOX)    2.9%



 

 

 




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      Thurs  
Indicator                        (7/30)    (8/03)    (8/05) Alert

Pinnacle Index (OEX):          

                    
Overhead Resistance (720-750)      4.9      6.0       5.9
Overhead Resistance (685-715)      0.9      1.1       1.7
Underlying Support  (645-680)      4.7      5.7       5.8
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7        .7         .7
CBOE Equity P/C Ratio               .5        .5         .6
OEX P/C Ratio                      1.5       1.1        1.1


Peak Open Interest (OEX):

Puts                              620        620         620
Calls                             740        700         700
P/C Ratio                         1.11        .91        .84

Market Volatility Index (VIX):	

CBOE VIX                         25.83      27.07      27.87



Investors Intelligence:

Bullish                         52.20%  *
Bearish                         27.80%  *


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      Thurs
Benchmark                        (7/30)    (8/03)    (8/05)

Overhead Resistance (720-750)    4.87       6.02      5.92
Overhead Resistance (685-715)    0.94       1.13      1.71

OEX Close                      683.29     681.54     681.19
 
Underlying Support  (645-680)    4.74       5.66      5.82   
                     

 
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        .69
CBOE Equity P/C Ratio            .50      .53        .55
OEX P/C Ratio                   1.49     1.14       1.13


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


Puts                 620 / 9,874     620 / 10,475    620 / 10,413
Calls                740 / 8,862     700 / 11,468    700 / 12,337
Put/Call Ratio         1.11             .91            .84



 





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                          27.87 


 


 






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  
July 28, 1999                         53.6        24.6 
Aug  04, 1999                         52.2        27.8 *






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

Index       Last    Mon    Tue   Wed   Thu   Week
Dow      10793.82  -9.19  31.35 -2.54119.05 138.67
Nasdaq    2565.83 -14.86 -35.64-47.99 25.83 -72.66
$OEX       681.19  -0.96  -0.79 -7.28  6.93  -2.10
$SPX      1313.71  -0.67  -5.87-16.85  8.38 -15.01
$RUT       429.75  -2.14  -6.35 -6.58  0.05 -15.02
$TRAN     3283.16  37.03 -44.47 -4.57  3.09  -8.92
$VIX        27.87   2.90   0.56  1.74 -0.55   4.65

Calls               Mon    Tue   Wed   Thu   Week

HWP        114.00   0.06   3.75  1.75  3.75   9.31  New, earnings
INTC        71.44   2.31   1.63 -0.13 -1.38   2.44  Pullback
AMGN        79.19   1.88  -2.13  0.44  2.13   2.31  Strong day
CSCO        61.50  -0.31  -0.69 -0.63  1.00  -0.63  Three days!
DELL        38.75  -0.94  -0.50 -0.31 -0.38  -2.13  Entry?
CHKP        66.00   1.44   2.13 -7.13  1.13  -2.44  Dropped
TXN        139.63  -3.00   0.25 -1.00 -0.63  -4.38  New, split
SNE        120.25  -0.19  -1.63 -3.56  0.44  -4.94  Bouncing
JDSU        83.19   3.63  -3.56 -5.06 -2.19  -7.19  Bottom?
VOD        189.00  -0.63  -0.94 -9.94-10.00 -21.50  Ouch!!

Puts

AOL         83.94  -4.25  -4.06 -1.38 -3.50 -13.19  Fights on
CMGI        79.94  -3.88  -6.44 -5.88  3.94 -12.25  Spiked
ELNK        37.06  -3.44  -3.44 -1.06 -3.31 -11.25  Sell off
QLGC        73.00  -1.06  -5.75 -7.75  4.13 -10.44  Dropped
MSPG        26.00  -2.56  -1.44 -2.81 -0.75  -7.56  Free fall
DH          58.69  -0.69  -1.25 -1.63 -2.44  -6.00  New
SEPR        67.50  -0.75  -3.13  0.88 -3.00  -6.00  Stomped
EBAY        92.88  -6.44  -6.88 -8.63 17.13  -4.81  Volatile
AXP        127.13  -1.69  -3.38 -3.19  3.63  -4.63  Caution
NKE         48.00  -1.88  -0.88  0.94 -2.19  -4.00  New
VRSN        70.13  -2.13  -6.75 -6.31 11.19  -4.00  Bounced
MWD         86.69  -1.69  -1.13 -0.75  0.00  -3.56  Strained
SCH         41.75  -1.63  -4.69 -0.75  4.75  -2.31  Upgraded
NITE        39.94  -0.75  -4.22  0.72  2.19  -2.06  Opportunity
MER         66.38   0.63  -1.38 -1.13  0.56  -1.31  Weakness
TBH         75.50  -1.75   1.25 -1.13  0.75  -0.88  Inflation?
TERN        38.25  -2.75  -1.19 -2.44  5.50  -0.88  Stalled
U           34.75   2.88  -1.69 -1.25 -0.81  -0.88  No support
DCLK        80.38  -2.88  -3.63 -6.81 12.69  -0.62  U-turn
LVLT        52.75   0.19  -1.50  1.25 -0.19  -0.25  Dropped
GNET        58.75  -4.06  -5.56  1.63  8.00   0.00  Even-Steven



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

CHKP $66.00 +1.13 (-2.44)  Right after setting a new 52-
week high ($73.31) during Wednesday's open, this play 
turned on a dime.  The free fall was sharp and swift. 
CHKP's downward spiral finally stopped with the ringing of 
the bell for a total loss of $7.12  The steep losses 
extended into this morning trading.  CHKP had a recent 
pattern of bucking the market trend when we decided to add 
it to our call list.  Unfortunately, after suffering this 
surprise slaughter, we must drop it tonight.



PUTS:
******

LVLT $52.75 -0.19 (-0.25) The rally today may be credited 
to a rebound in sentiment for the NASDAQ but you can also 
thank Piper Jaffray for the Strong Buy rating.  This morning  
the news hit the wire that Piper had started coverage of LVLT 
with a Strong Buy rating and $85 price target.  The stock 
initially traded down to a low of $50.38.  We mention this 
because that is where the stock hit a couple days ago.  
Technicians may look at this as a double-bottom and possibly 
as a time to buy so we feel it is time to exit this play.

QLGC $73.00 +4.13 (-10.44) A successful investor, when asked
how he got so rich said, "I never stayed in too long." This is
why we must now drop QLGC. This has been an extremely successful
play, dropping almost 20 points from when we picked it to its
low today.  Hopefully most of you followed our advice in last 
Tuesday's update, and set your stops tight, because today we got 
that bounce.  The 50 dma was a spring-board, and shot the stock 
up, as investors jumped in after the heavy morning sell off.  
QLGC may get some resistance here if the market turns negative; 
but, we met our objective on this play, and will avoid the risk 
of QLGC's strong internals.  It's a drop for now.


 
***** 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         Thursday  8-5-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

SNE $120.25 +0.44 (-4.94) This week has been a roller coaster 
ride for the markets but after this morning it looks like 
the next leg may be up.  The market got scary in the first 
half hour of trading today only to see a surge of volume 
come in to take stocks higher on the day.  This volume is 
a welcome sight and could be signaling a short-term bottom 
for the markets.  SNE opened lower and sat flat for most of
the day right on the 30-dma, hopefully creating a bottom.  
The final few minutes brought the stock higher to close back 
above our key $120 level.  We like this upward confirmation 
and see the stock going higher if this was indeed the end 
of selling for awhile.  The market's direction tomorrow will 
rely on the Non-farm payroll numbers so please confirm before 
opening new plays.   

VOD $189.00 -10.00 (-21.50) The ascending triangle pattern we
mentioned on Tuesday finally broke. Unfortunately it broke 
down.  VOD opened $2 lower Wednesday morning and fell out
of bed.  The selling was actually somewhat orderly. By late 
morning it hit its intraday low of $198.38 and went sideways
for the rest of the session, closing down $9.94 for the day.
With the momentum in place, the stage was set for a repeat
today. Today VOD opened $6.25 lower and continued with a
repeat of Wednesday's pattern. It made a low of $186, before 
finally regaining its composure to close at $189.00, down 
$10.00 for the day.  If you had any positions in VOD, you 
SHOULD have been stopped out early Wednesday morning. Why are 
we keeping VOD as a Call play?  The term "oversold" comes to 
mind.  There was really no negative news on VOD, in the last
two days, actually Lehman Brothers reiterated their "outperform"
rating on VOD this morning, which suggests the decline has been 
over done.  The only news we could find that might have sparked
the sell-off was the deal between VOD and Bell Atlantic.  GTE
bought Bell and GTE has decided to split up a large joint venture
between VOD and Bell.  The split is 50/50 so in reality it should
not be a problem.  But in today's market, all investors need
is a reason, no matter how far fetched, and everyone jumps. VOD 
has yet to announce the ex-date for the upcoming 5:1 split.  
The trend may be changing for VOD, but it has fallen over 12% in 
two days, and we would be looking for a bounce and an opportunity 
to participate.  If we get that bounce, keep your eyes on it.
Fortunately, our risk at $189 is less than it was at $212.

JDSU $83.19 -2.19 (-7.18) JDSU managed to make its way lower the
past two days as well. We are keeping JDSU as a call play.
Again you might wonder why? If you were in JDSU, we repeat that
you SHOULD have gotten stopped out Wednesday.  It has fallen 
over $15.00 from its high at $96.25 made Tuesday morning, to 
its low of $81.00 made in the first hour of trading this morning.
We are not suggesting that you enter a new play blindly, let 
the market either consolidate or begin to move back up with
some solid buying supporting it.  The $81.00 is near the bottom 
of JDSU's ascending channel and we are looking for JDSU to hold 
and move back up.  This is another stock that has dropped over 15% 
in two days and is due for a bounce.  If we get a bounce, make sure 
you check the stock's volume and the direction of the NASDAQ, as 
well as the semiconductor industry before initiating a new play, 
and keep your stops close.

AMGN $79.19 +2.13 (+2.31) Amgen is really trying to make a run
at its 52 week high of $81.38.  It has had a gain of $2.31 for
the week, which is good. Technically the trend is up, this too 
is good.  We aren't complaining but as you know we do like to
watch the volume in any move up or down.  With the volume
having increased in the broad markets today, we would like to 
have seen more volume supporting today's advance in AMGN.  Don't
get us wrong, an up day is still an up day, and that is what
you take to the bank.  But with only 3.6 mln shares exchanging
hands today, this also suggests that there just was not that 
many people participating in the move up.  We will go with the
trend until AMGN tells us differently.  However we would be 
very cautious about entering any new plays on Amgen, until 
we are able to see that the move is supported by the masses.
Salomon Smith Barney did reiterate its buy rating for AMGN
yesterday, with a 12-month target of $112.00

INTC $71.44 -1.37 (+2.44) INTC made a new 52 week high yesterday 
at $74.31 and then paused to catch its breath, consolidating
for the balance of the day.  Today INTEL, opened about $1 lower
and headed south towards it 10 dma making a low of $69.50, off 
$3.31 from yesterday's close.  INTC seems to have this same 
pattern a lot lately.  It moves higher for a day or two and then 
stubs its toe.  Volume seems to be falling back a little too.
It has dropped about 10 mln shares the past two days.  The 
basics haven't really changed for INTC. The semiconductor 
industry has corrected and found a bit of strength again, and 
many analysts feel that INTC's stock lagged in the move up
as well.  Sales of computer chips have gained over 12% this year
to 3.65 billion and the demand should remain strong for the 
balance of the year. Looking at the chart INTC looks somewhat
"toppy" here but we will need to let the market tell us when 
to get out. Keep your stops close with the non-farm payrolls
coming out tomorrow.

CSCO $61.50 +1.00 (0.63)  We're keeping CSCO active for an 
earnings run in which it has only 3 trading days to go. . .August 
10th after the close.  With the basing we've experienced at this 
level, coupled with the potential for a run following the jobs 
report tomorrow, CSCO is running out of time.  If the jobs report 
tomorrow isn't well received, this play will be over.  Otherwise, 
we still need to make an exit by Tuesday's close.  Confirm market 
direction before playing.

DELL $38.75 -0.38 (-2.13) We cautioned on Tuesday about support 
in the $37-$38 range if the market got ugly.  If you were brave 
enough to buy the dip, while there was carnage all around, then 
congratulations!  We are playing DELL for an earnings run.  
Earnings are scheduled for release on August 17 after the close.  
Overhead resistance, as indicated by open interest is strongest 
at the $45 level, where there are over 74,000 OI.  This 
telegraphs the level at which investors believe DELL will achieve 
by expiration date, August 20.  Thus the play looks pretty good.  
Of course, if the jobs report isn't what investors want to see, 
then all bets are off.  Otherwise the play looks strong based on 
today's volume and rally off its intra-day low.



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

SEPR $67.50 -3.00 (-6.00) Wednesday, Sepracor, on lighter than 
average volume, traded flat most of the day and tried to make 
a small run to close up 0.88.  This hope was short lived only 
to be stomped today as sellers took the upper hand.  The 
general downturn in pharmaceutical stocks and in particular 
Sepracor's earnings loss reported on July 23 have continued 
to hurt the stock price.  SEPR is currently down 26.25 points 
from its high for the month set on July 16 at a price of $93.75.  
During this time the stock has fallen through both its 50 and 
200 dma which is a bad sign for SEPR.  The stock does show some 
support in the lower $60 price range, so use caution with play 
and make use of a stop loss order just in case it happens to 
turn.  If circumstances continue as they are, SEPR may break 
though these levels and fall even lower.  For tomorrow, watch 
to see what July payroll numbers are.  This is one of the key 
numbers analysts are watching to determine if the Fed. will 
decided at the end of the month to raise interest rates. 

ELNK $37.06 -3.31 (-11.25) How low can they go?  This is the 
question that is on everyone's mind.  If Earthlink is any 
standard of measure for the rest of the sector the outcome 
looks down right bleak.  While the NASDAQ made a nice recovery 
from the early sell-off this morning, ELNK was not as fortunate.  
Carnage from last week continued this week as the stock 
continued to fall further below its 50 and 200 moving day 
averages.  The next support level for the stock is around $37, 
watch and see if we can break this support level as well.  The 
overall movement of the Internet sector will help determine 
whether it finds support or not.  With internets being such a 
volatile sector, place the recommended stop loss orders to be 
on the safe side.  Be aware that some important economic data 
is being released tomorrow that may effect the play.  July 
payroll numbers are one of the key figures the Fed will use 
to determine if they need to raise rates at the end of the 
month.  Watch for the data and trade accordingly.    

VRSN $70.13 +11.19 (-4.00) After dropping 6.31 points on 
Wednesday, investors decided it was time to get back in 
causing the stock to surge today.  Following the path of the 
NASDAQ, Verisign made a strong move in late morning trading, 
leveled though the afternoon, and finishing the day on the 
upside.  The stock made a nice run recouping its losses from 
Monday, however is now approaching a level of resistance at 
$70, its 50 dma.  The stock is still down $4.00 for the week, 
which isn't bad.  Tomorrow, use caution, see how the stock 
reacts to both the resistance level and the economic data that 
is going to be released. July payroll numbers will be out and 
will help the Fed decide whether they will raise interest rates 
later in the month.  If you placed your stop losses ahead of
time, today didn't hurt quite so bad.  Be sure to use them in the
future.

TBH $75.50 +0.75 (-0.88)  Latin American ADRs tend to take their 
cue from the U.S. markets, and are greatly swayed by the U.S 
economy. If you overlay a chart of TBH trades over the last 
couple of days with a chart of the Dow, you will see that they 
match almost perfectly. Since there is not a lot of news from 
day to day on Telebras, look for those factors that will send 
the Dow up or down to affect TBH as well. A very strong 
inflationary jobs report would send shivers through the Latin 
markets just as it would the U.S markets. However, this stock 
could go up again if the report is benign,. Although it moved 
up $.75 today, TBH still looks weak technically and remains 
below its 10 dma. Some caution is advised on this put after 
TBH made such a strong recovery from its morning low and it 
closed near its high of the day.

SCH $41.75 +4.75 (-2.31) It looks like the momentum in SCH 
may have finally shifted.  The stock had held up fairly well 
on Wednesday despite the weakening NASDAQ and on Thursday 
they got an upgrade before the open which put SCH in rally 
mode.  The upgrade came from Warburg Dillon Reed who started 
SCH at a buy with a $55 price target.  This along with the 
fact that Schwab was right at technical support from the 
200-dma has sparked buying interest in the stock.  The online 
broker sector is also doing very well and it has the appearance 
of a short-term bottom for the sector but we are not fully 
convinced.  This group has fallen sharply and investors 
that were looking for a bounce in order to get out may do 
just that tomorrow.  So we don't recommend any new plays 
until after the jobs report tomorrow and we get confirmation 
that this was in fact a one day event.   

U $34.75 -0.81 (-0.88) It looks like Monday's announcement 
from Tiger Management that they would pursue a merger or 
deal has faded to say the least.  The only good that came 
out of that announcement is the great entry point for some 
more put contracts.  The real news in this play is oil 
prices which continue to stay upward of $20 a barrel.  This 
is the proverbial knife in USAir's back right now.  With all 
the other internal problems, high fuel costs will weigh 
heavily on profits.  Again, there is no support since we are 
below all moving averages and hitting 52-week lows almost 
daily.  Hopefully we will get other surprise announcements 
to provide entry points but make sure you then confirm the 
downtrend before entering new plays.  

AOL $83.94 -3.50 (-13.19) The gloves are now off in the fight 
against Microsoft and MSFT has drawn first blood.  Tuesday 
morning Microsoft announced they will be aggressively attacking 
the Internet access market by offering either substantial 
discounts or potentially free Internet access.  This would 
obviously hit AOL right in the heart of their core business.  
AOL has 17 million Internet subscribers paying $21.95 a month 
which generates 66% of their revenues.  Whether or not MSFT 
follows through is another story.  This could be a tactical 
move to force AOL to allow compatibility between the Instant 
Messaging systems, which AOL is now blocking.  Either way 
AOL's stock took it on the chin today.  They traded down over 
$10 before regaining some of those losses.  The outlook is 
still bleak but keep in mind the NASDAQ closed strong today 
and AOL has been down 6 straight days so watch out for a 
bounce.  

EBAY $92.88 +17.13 (-4.81)  Dramatic turnaround?  Oh yes, 
the internets once again proved they can move sharply and 
quickly, i.e. VOLATILITY and HIGH RISK.  Yesterday, this 
put play was right on schedule as it shed another -$8.63 
and had a bearish close right near its daily low.  But 
today, the bargain buyers could no longer sit on their 
hands after quietly watching 5 dissenting sessions.  They 
instituted an Internet rally that sparked the bellwether, 
EBAY, to double-digit gains (23%) with volume over 3 times 
its normal level.  After such a spike, it's likely there 
will be a downdraft.  If you do decide to open a new 
position, this play will require your complete attention. 
Choose your entry point prudently and be prepared if you 
need to get in and out fast.  Remember, the Jobs Report 
comes out tomorrow morning.  Whatever the outcome may be, 
it's likely to effect the internets strongly.  Today was
EBAY's contribution to our "play with stop losses" campaign.
We're not trying to be funny, but if you didn't have a stop
loss set to protect your profits, or you weren't watching
this play as we suggested; please learn how to place a 
stop loss.  BE CAREFUL.  EBAY = VOLATILITY + HIGH RISK!  

NITE $39.94 +2.19 (-2.19)  Volume continued to be strong 
the past two days.  However, buyers are now in the game and 
pushing the share price upwards.  Yesterday, BBRS 
reiterated a "buy" rating.  Their analyst, Scott Appleby, 
cited NITE as a "very compelling investment opportunity". 
It's possible NITE may have reached a bottom at $35 (hit on 
Tuesday).   Remember, if you look at the 6-month chart the 
stock bounced off $34 back in April.  However, the Jobs 
Report is tomorrow morning; it's possible the outcome could 
cause the internets to roll over once again.  With this 
information, plan your strategy carefully.

MER $66.38 +0.56 (-1.62)  MER lost another -$1.44 during 
trading yesterday closing only a fraction from its daily 
low.  Today the stock continued to show weakness.  MER 
failed to respond to the DOW's 119+ point rally!  This is a 
good sign.  Historically, MER has bounced off this 
proximate level of about $63 and $65 (except when it did a 
free fall during the bleak market conditions of September 
1998).  So far the play is going our way.  We expect the 
financial sector to continue to be weak amidst the 
interest rate concerns and the upcoming FOMC meeting.

MWD $86.69 -0.00 (-3.56)  Yesterday, MWD fell a fraction 
below its 200 dma.  Today there was no price change but 
this in itself is a good bearish signal.  This is 
especially true when you consider the market rallied 119+ 
points and MWD didn't budge.  Even the recovery in the bond 
market didn't help this investment banker.  The rising 
interest rates and future earnings growth pressure are 
putting a real strain on this sector.  It's presumable the 
tension may continue if you chose to bear in mind the 
anticipated rate increase at the Greenspan meeting in just 
a couple of weeks.  Nonetheless, always be prepared and 
consider using stops for some added security.

AXP $127.13 +3.62 (-4.62) Today we got a boost in price, as
analysts and investors approved of AXP's Internet strategy.
Several analysts stated that the stock was a good buy at these
levels. It is; however, these short term bumps aren't enough
to change the bearish trend we're in.  Today's rise in the
market was due; but, with the bounce came a lot of negative 
information re-enforcing inflation and higher interest rates.
Because the trend is down, we expect AXP to continue down
with it.  AXP remained below it's 100 dma, which should
create some resistance, as was shown both yesterday and
today.  Watch your positions closely at this level. A strong
run above the 50 & 100 dma will be cause for concern. For
now, set your stops and confirm overhead resistance before 
entering.

GNET $58.75 +8.00 (-0.00) Today GNET got the bounce we were 
anticipating from it's recent sell-off.  The gain today was
in the wake of the overall market bounce.  It doesn't appear
to have much conviction however, since a lot of today's strength
was due to computer buy programs being triggered, and some
relief on the 30 year bond yield of -0.04%. We still have a
negative advance/decline ratio, a report of higher labor
costs of +3.8%, decreased worker productivity, and more.
This is a recipe for higher inflation, and most likely
another interest hike from the Fed.  We see the trend 
continuing down.  Another important note, is the Internet
sector went below the 200 dma today.  Mr. John Murphy
indicated that this could be cause for a real "breakdown" 
in the technical sector.  GNET will fall as a result of
these conditions.  Investors may also like the acquisition of
Dogpile, LLC which was announced today, allowing GNET 
ownership of the Internet's largest metasearch services.
At this point we see our 10 dma as offering some resistance at
$60. Watch the market, and once we start down again, it could
be a good time to enter.

MSPG $26.00 -0.75 (-7.56) Mindspring continued it's sell off
today, reaching a new 26 week low.  Despite the bounce in the
overall market, ISP's like MSPG didn't like Microsoft's
announcement of free Internet access, that they are considering.
Talk about potential competition! Also, the Internet sector
is at a very critical point, as it dropped below the 200 dma
today.  If the trend continues below this level, we could see
the sell-off resume with force.  MSPG was fortunate, as it
was buoyed up by the market today, finishing up from it's low
of $23; but, as the market continues to deteriorate, as we
think it will, there won't be much to hold MSPG up.  Be 
cautious of the jobs report tomorrow. A positive report
could continue today's recovery, so be quick to protect profits.
If it confirms a reason for inflation, we see $19.00 as our 
next level for MSPG.

DCLK $80.38 +12.69 (-0.62) "If there was ever a time to protect 
your profits with a trailing stop order, this is it."  Remember 
that from Tuesday?  We hope so, as DCLK took a nosedive straight 
through resistance of $70 all the way to $60 in the first hour of 
trading today.  After that. . .a $20 rebound.  This is truly 
head-snapping, and may portend a bright recovery for the 
internets.  However, we are keeping DCLK on the put list just in 
case the jobs report tomorrow raises the red flag of inflation, 
in which case DCLK could resume its trend into the cellar.  Keep 
an eagle eye on that job report if you haven't exited the play.  
Of course, if the report is ugly, fell free to reenter the play, 
market willing.

CMGI $79.94 +3.94 (-12.25) Once again, we hope you had a trailing 
stop in place to protect those profits.  On heavy selling today, 
CMGI sank into the mid-$60 range before making a spectacular 
recovery throughout the remainder of the day, in what pundits 
were calling an Internet recovery.  You may be wondering why we 
keep it on the put list.  Fair question.  If the jobs report 
isn't favorably received tomorrow, the interest rate sensitive 
Internet sector could resume its tailspin.  Of course, if you are 
not yet out of the play, you may want to keep your finger on the 
exit trigger to protect last weeks gains (you should have already 
taken a profit on that too).  Let the job report be your guide.

TERN $38.25 +5.50 (-0.88) We have been playing TERN on technical 
merit and had been looking for resistance at $33.  Almost to the 
dollar, TERN began to rise on brisk buying volume (sellers did 
most of their damage yesterday).  Again, the only reason we have 
TERN still on the put list is for the possibility of a negative 
job report, which would give us the green light to open another 
play.  If not, the play will be over.  Keep a sharp watch on that 
job report and consider setting a trailing stop to protect your 
profits (that is if you haven't already harvested them yet).



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

HWP - Hewlett Packard $114.00 +3.75 (+9.31 this wk)(-3.06)

Hewlett-Packard Company (HP) designs, manufactures, and 
services products in the computer hardware industry.  HWP 
provides systems for integration, outsourcing, consulting, 
education, financing, and customer support.  HP is currently 
the #2 (behind IBM) computer hardware provider in the world 
today.  As a global corporation, more than half of HP's total 
sales revenue comes from outside the US.  To further fuel 
its growth, HP is positioning itself as an Internet hardware 
specialist, and developing software and support base for 
its current as well as future clients. 

Over the last five days HP has withstood a volatile ride in 
the tech sector.  Since last Friday, HP's stock price has 
been accelerating in anticipation of a strong earnings report 
due to be released on Aug 16th.  Solomon Smith Barney 
announced on Tuesday that they were raising their price target 
from $105 to $130.  They reported that rumors of a stronger 
than expected Q3 are substantiated and the near term outlook 
for the company appears to be positive.  These rumors may 
turn out to be the catalyst for a positive earnings run over 
the next couple of weeks.  The stock on Thursday closed up 
more than $3.75 on heavy volume (3.69 mln shares traded) to 
end the day on its high of $114.00.  Furthermore, we think 
that HP should be viewed as a possible split candidate.  This 
is adding to the excitement and optimism among traders.   

HP has made the news this week on several fronts.  First, 
there was an unusual purchase of $115 call options on Tuesday.  
It was reported that an anonymous investor purchased 6,200 
calls contracts in late morning trading.  The total sum of 
his investment was over $1.3 mln.  Second, HP announced on 
Aug 3rd that it would launch a Windows NT(R)-based personal- 
workstation.  This workstation will be capable of supporting 
high end 3-D animation and video editing.  HP will showcase 
this new solution at the SIGGRAPH 1999 conference in Los 
Angeles on Aug 10-12.  Finally, HP has an all-color HP 
OfficeJet T Series that will provide quick, brilliant photo-
quality color printing.  It will provide stand alone color 
faxing as well as high-quality color scanning.  The OfficeJet 
T Series will be ideal for customers who want an efficient, 
productive, full-color home office printer.  

BUY CALL AUG-110*HWP-HB OI=3216 at $6.75 SL=5.00
BUY CALL AUG-115 HWP-HC OI=8115 at $4.00 SL=2.50
BUY CALL SEP-115 HWP-IC OI= 429 at $6.75 SL=5.00
BUY CALL SEP-120 HWP-ID OI= 491 at $4.75 SL=3.00
 
Picked on Aug 5 at  $114.00        PE = 36                     
Change since picked    0.00        52 week high=$118.44      
Analysts Ratings  7-9-9-0-0        52 week low =$ 47.06       
Last earning 04/99 est  N/A        actual 0.88                
Next earning 08-16 est 0.80        versus 0.58               
Average Daily Volume = 3.28 mln. 
Chart = http://quote.yahoo.com/q?s=HWP&d=3m

***

TXN - Texas Instruments $139.63 -0.63 (-4.38 this wk)(+2.00)

TXN sold its defense electronics and memory chip units almost 2 
years ago to focus their digital signal processor (DSP) business.  
TXN is the world's largest supplier of DSP's, commanding over 45% 
of the segment.  You will find them in over half the world's cell 
phones, modems, cars, and camcorders to name a few items.  In 
addition, they manufacture microcontrollers, microprocessors, and 
analog and logic chips.  Only one third of its business is in the 
U.S.  75% of its revenues is derived from semiconductor sales.  

First allow us set the big caveat for this play.  It all depends 
on investors' reaction to the jobs figures before tomorrow's 
open.  Don't start a play unless the news is favorable.  That 
said, we're adding TXN tonight as a split play with the idea that 
we can benefit from 1 extra day.  You may recall that just prior 
to earnings, TXN announced a 2:1 split payable on August 16, just 
6 trading days away.  As a long-term hold, TXN is a fine company. 
But as a 1 week play, TXN isn't exhibiting typically good 
attributes.  TXN did not participate in today's action and 
actually lost value all day long until the last hour of trade, 
where it popped up $3 from buyer activity.  Nonetheless, TXN had 
a loss on the day.  Most of its volume (24% greater than average 
today) resulted from sellers.  While this doesn't sound all that 
appealing, the negative sentiment will disappear quickly tomorrow 
on favorable job numbers, and TXN will likely join any ensuing 
rally.  Again, this is a split play, but we must see good job 
numbers first and an overall positive market tone before getting 
in.  Otherwise, barring some other surprise (which is certainly 
possible from TXN), we'll have to send this one to the drop pile. 
Call it a contingency split play.  (don't forget, we don't advise
holding over a split)

In the news today Hambrecht and Quist began coverage with a buy 
rating.  Also, TXN received some favorable mention from 
technology guru, George Gilder in his monthly newsletter.


BUY CALL AUG-135*TXN-HG OI=5851 at $8.00 SL=6.25
BUY CALL AUG-140 TXN-HU OI=1416 at $5.38 SL=4.00
BUY CALL AUG-145 TXN-HW OI=1701 at $3.38 SL=1.75
BUY CALL SEP-140 TXN-IU OI= 282 at $9.63 SL=7.25
BUY CALL SEP-145 TXN-IW OI= 247 at $7.50 SL=5.75

Picked on August 5th at $139.63    PE = 62
Change since picked       +0.00    52 week low =$ 45.38
Analysts Ratings     11-8-5-0-1    52 week high=$155.38
Last earnings    07/99 est 0.86    actual 0.92 surprise = 6.9%
Next earnings    10-20 est 0.85    versus 0.41
Average daily volume = 2.50 mln. 
Chart = http://quote.yahoo.com/q?s=TXN&d=3m



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

DH - Dayton Hudson Corp $58.69 -2.44 (-6.00 for the week)

Dayton Hudson is a general merchandise retailer.  
Presently, they operate 851 Target's, 268 Mervyns, and 63 
other department store locations throughout the US.  DH 
also has a catalog unit, Dayton Hudson's Rivertown Trading 
and an apparel supply unit, Associated Merchandising. 
However, Target is the force behind the corporation and 
accounts for over 75% of total sales.

The retail sector has reported robust July sales; and it's 
expected that 2Q earnings will be strong.  However, rising 
interest rates suggest the future may not be very bright 
for merchants.  Consumer spending and retail sales could 
taper off in the coming months.  This forecast unsettles 
investors.   The retail group is now breaking down as the 
investors sell on fear.  Today DH announced a same-store 
July sales increase of 8.1%, yet shed -$2.44 (a 4% decline) 
This loss placed the stock below its 200 dma - a bearish 
indication.  If DH can maintain this position, it would 
provide even better confirmation.  The trading volume was 
also very heavy today.  DH sold off on double its ADV.  
Watch the stock's reaction tomorrow to the jobs report.  If 
the data substantiates another rate increase, DH may 
continue its descent.  The company's earnings' report is 
expected in a couple weeks on August 17th.

BUY PUT AUG-60*DH-TL OI=643 at $2.94 SL=1.50
BUY PUT AUG-55 DH-TK OI=560 at $0.81 SL=0.00

Average Daily Volume = 1.51 mln.
Chart = http://quote.yahoo.com/q?s=DH&D=3m




Plays Continued in Section Three



***********

SEE DISCLAIMER IN SECTION ONE

***********
The Option Investor Newsletter         Thursday  8-5-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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New Puts Contd.   
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NKE - Nike, Inc $48.00 -2.19 (-4.00this week)

Located in Beaverton, Oregon, is the shoe company that controls
more than 40% of the U.S. athletic shoe market.  Nike designs 
and sells shoes for most any sport you can think of.  They also
have a line of casual shoes and of athletic wear and equipment.
NKE operates NIKETOWN, shoe and sportswear outlets in several
cities, including Boston, New York, and Seattle.  Their products
are marketed in approximately 110 countries around the world.

Since the release of their 4th quarter earnings in late June,
Nike has really struggled. Their earnings were a penny ahead
of street estimates at $0.38 per share and well ahead of the
previous year.  One thing that apparently bothered investors,
was that revenues for NKE were down 5% at $2.18 billion for 
the same period the previous year.  At that time shares of NKE
were trading at $63.38.  The following morning the stock opened
about $2 lower and as they say "the rest is history".  NKE paused
in the middle of July to try and regain its "footing", climbing
back to the $59 area only to resume its decline the following 
week.  Earlier this week GAP Inc., a specialty clothing retailer,
sued Nike in a challenge to a non compete agreement that's keeping
Nike's chief information officer from starting a new job at the
Gap.  Technically Nike looks as though there is still more room 
to the downside.  There is support at about $44.00.  We would 
confirm weakness in the stock after waiting for the non-farms
payroll report tomorrow.

Not much else in the news, Tuesday analyst Faye Landes at 
Thomas Weisel Partners raised her coverage on NKE from a buy 
to a Strong Buy, with a 12-month price target of $65.00.
Obviously, it didn't do much good.

BUY PUT AUG-50*NKE-TJ OI=1427 at $2.88 SL=$1.50
BUY PUT AUG-55 NKE-TK OI= 955 at $7.38 SL=$5.75

Average daily volume  1.16 mln.
Chart = http://quote.yahoo.com/q?s=nke&d=3m



***************
PLAY OF THE DAY
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HWP - Hewlett Packard $114.00 +3.75 (+9.31 this wk)(-3.06)

Thursday's Write Up

Hewlett-Packard Company (HP) designs, manufactures, and 
services products in the computer hardware industry.  HWP 
provides systems for integration, outsourcing, consulting, 
education, financing, and customer support.  HP is currently 
the #2 (behind IBM) computer hardware provider in the world 
today.  As a global corporation, more than half of HP's total 
sales revenue comes from outside the US.  To further fuel 
its growth, HP is positioning itself as an Internet hardware 
specialist, and developing software and support base for 
its current as well as future clients. 

Over the last five days HP has withstood a volatile ride in 
the tech sector.  Since last Friday, HP's stock price has 
been accelerating in anticipation of a strong earnings report 
due to be released on Aug 16th.  Solomon Smith Barney 
announced on Tuesday that they were raising their price target 
from $105 to $130.  They reported that rumors of a stronger 
than expected Q3 are substantiated and the near term outlook 
for the company appears to be positive.  These rumors may 
turn out to be the catalyst for a positive earnings run over 
the next couple of weeks.  The stock on Thursday closed up 
more than $3.75 on heavy volume (3.69 mln shares traded) to 
end the day on its high of $114.00.  Furthermore, we think 
that HP should be viewed as a possible split candidate.  This 
is adding to the excitement and optimism among traders.   

HP has made the news this week on several fronts.  First, 
there was an unusual purchase of $115 call options on Tuesday.  
It was reported that an anonymous investor purchased 6,200 
calls contracts in late morning trading.  The total sum of 
his investment was over $1.3 mln.  Second, HP announced on 
Aug 3rd that it would launch a Windows NT(R)-based personal- 
workstation.  This workstation will be capable of supporting 
high end 3-D animation and video editing.  HP will showcase 
this new solution at the SIGGRAPH 1999 conference in Los 
Angeles on Aug 10-12.  Finally, HP has an all-color HP 
OfficeJet T Series that will provide quick, brilliant photo-
quality color printing.  It will provide stand alone color 
faxing as well as high-quality color scanning.  The OfficeJet 
T Series will be ideal for customers who want an efficient, 
productive, full-color home office printer.  

Comments

We wanted to add this play on Tuesday but held off due to 
market weakness.  After today's potential bottom, HWP looks 
in great shape to go higher but it will depend on the Jobs 
report tomorrow.  If we don't get a market-friendly number 
than we could see the selling return.  Therefore confirm 
the market sentiment before playing.

BUY CALL AUG-110*HWP-HB OI=3216 at $6.75 SL=5.00
BUY CALL AUG-115 HWP-HC OI=8115 at $4.00 SL=2.50
BUY CALL SEP-115 HWP-IC OI= 429 at $6.75 SL=5.00
BUY CALL SEP-120 HWP-ID OI= 491 at $4.75 SL=3.00
 
Picked on Aug 5 at  $114.00        PE = 36                     
Change since picked    0.00        52 week high=$118.44      
Analysts Ratings  7-9-9-0-0        52 week low =$ 47.06       
Last earning 04/99 est  N/A        actual 0.88                
Next earning 08-16 est 0.80        versus 0.58               
Average Daily Volume = 3.28 mln. 
Chart = http://quote.yahoo.com/q?s=HWP&d=3m




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COMBINATION PLAYS   
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A Change In Character Or Just Another Relief Rally?

U.S. stocks closed higher on Thursday as blue-chips rallied and
investors relented on their recent battering of Internet stocks.

Wednesday, August 4

U.S. markets closed lower Wednesday as the blue chips fell in a
late afternoon sell-off and the Internet stocks suffered another
relentless beating. The Dow finished slightly below the opening
numbers at 10,674 after climbing more than 150 points during the
day. The technology-heavy Nasdaq composite was down 48 points at
2,539 and now officially in a correction with a loss of 10% from
its record high of 2,864.48. In the broader market, declining
issues beat advances 2-to-1 on active volume of 784 million
shares on the New York Stock Exchange.

Tuesday's plays (new positions/opening prices/strategy):

BRCM  Broadcom     NOV135C/140C   $1.38  debit  bull-call 	
BRCM  Broadcom     NOV90P/NOV85P  $1.38  debit  bear-put
DCLK  DoubleClick  OCT90C/OCT97C  $2.00  debit  bull-call
DCLK  DoubleClick  OCT60P/OCT52P  $2.00  debit  bear-put
ATHM  AtHome Corp  OCT52C/AUG50C  $2.12  debit  calendar

Broadcom (BRCM) and Doubleclick (DCLK) were both active at the
open but returned quickly to their starting points (near 9:40 AM)
and the combination straddles should have been achievable at the
suggested prices. AtHome (ATHM) moved higher in early trading but
soon slumped with the faltering Internet market. The target entry
price was available by mid-morning. All of these issues finished
the day at significantly lower prices.

Portfolio plays:

In today's battle of the bears and bulls, the Dow managed a draw
but the Internet and technology issues were again pummeled into
submission. Emulex (EMLX) and RF Micro Devices (RFMD) were the
hardest hit, both losing almost 10% of their value. Safety stocks
were not immune and Johnson & Johnson (JNJ) lost $2.19 to finish
at $92. Small-cap issues are not faring any better and diversity
has offered no real protection with companies like Cendant (CD),
Novell (NOVL), National Semiconductor (NSM), Rite-Aid (RAD), and
Riggs National (RIGS), all losing ground in the sell-off.

On the positive side, Oil stocks were on the move and all four of
our bullish positions moved up nicely. Ensco (ESV) and Noble (NE)
were both up $1.25 after Bank Of America started coverage of the 
drilling group and Halliburton (HAL) gained over $1 with Unocal
(UCL) not far behind (up $0.81). Retails also performed better
than most with The Limited (LTD) leading the group; up $1.12 to
$47, after an upgrade from Salomon Smith Barney.

The Barr Laboratories (BRL) straddle made another favorable move
today as the stock price gapped-up almost $2 to $37.31. The
bullish portion of the position; NOV-40C, was sold for $2.25 to
close the play at $1.00 profit in only three weeks. The Vulcan
Materials (VMC) debit straddle is also trading at $1.37 credit
and since the initial movement was to the downside, we will take
this opportunity to close the play before a technical rebound
reduces our current profit. 

Once again, those of you in short-term bullish positions should
consider using any individual rallies for early exits to lock-in
profits and preserve capital. If you have positive returns on
any long-term plays, now might be the best opportunity to hedge
your profits or roll down on the sold positions. The market will
eventually rebound but the distance to the bottom is unknown and
there is no reason to risk your hard earned money while the
correction runs its course.

Thursday, August 5

U.S stocks closed higher on Thursday as blue-chips rallied and
investors relented on their recent battering of Internet stocks.
The Dow was up 119 points to 10,793 after shaking off a loss of
more than 100 points and the Nasdaq composite index, heavy with
technology stocks, closed up 25 points at 2,565. In the broader
market, declining issues led advances 1,817 to 1,192 on active
volume of 854 million shares on the New York Stock Exchange.

Portfolio plays:

Today's recovery was once again led by the Dow and most blue-chip
issues are now seen as a sign of long-term safety in the wake of
the recent Internet bashing. The one sore spot in that analogy is
General Motors (GM), which has long been used as an broad market
indicator, but continues to fall in the wake of economic pressure.
Our other general, General Electric (GE), had a comforting rally
back to $109 and today's move places the bullish diagonal spread
at $5.25 credit; a small but favorable profit should you elect to
exit early. The other big blue-chip rally came from recent merger
monster Dupont (DD) as it vaulted over $3 (to a high near $75) on
an announcement the company recent resolved litigation with Syncor
International. Proctor & Gamble also participated in the bullish
festivities, up $1.12 to finish at $94.

Oil stocks continued to rise and Halliburton (HAL) shined, moving
up $2 to a 52 week high near $50. The troops followed in its wake
and both Noble (NE) and Ensco (ESV) gained significantly in the
sector-wide rally. Another star performer was one of our smaller
cap issues, Paxson Communications (PAX). The stock moved up $1
and the SEP-15C traded as high as $0.50; a very small profit but
one that conserves capital in this distressed market. Macromedia
(MACR) moved back to the sold strike at $35 while AtHome (ATHM)
battled hard for a $4 gain to the recent support at $45. Emulex
(EMLX) let us breathe again with a $9 rally to close above $100
and the credit spread can be closed at a $0.62 profit.

The current abomination seems to be British Telecom (BTY) as it
has broken out of its recent trading range and now exists at an
interim support level near $158. The cause of this move may be
that European investors are worried the U.S. market is on the
verge of a long-term down trend rather than temporary correction.
One analyst said the British Telecom problem started last week
when their earnings didn't meet expectations. He went on to say
"These sectors are highly rated, depending on the continued flow
of good news. When it turns disappointing there is downside".
That appears to be an understatement at best.

Questions & comments on spreads/combos to ray@OptionInvestor.com
****************************************************************



NEW PLAYS -

Oil stocks appear to be one of the current havens for investors
and this week's bullish upgrades included coverage from Banc of
America Securities on seven oil drilling companies. Earnings of 
diversified oilfield service firms were expected to hit a low
this quarter but improve near the end of the year. The drilling
contractors are also expected to report lower quarterly earnings,
because the rising oil prices will take longer to affect their
bottom line. Eventually, improved commodity prices (oil) will
support an increase in exploration and production budgets, which
will in turn flow to the service companies and drillers.

When Internet and technology sectors suffer, this group performs
very well and can hedge your portfolio against further downside
moves. All of these plays are based on the performance of the oil
services industry and many of the candidates are breaking through
recent tops with excellent technical indications. News and market
sentiment will affect any position so always review each play
individually and make your own decision about the future outcome
of the stock price.

*****

BHI - Baker Hughes  $33.50     *** A Trading Range *** 

Baker-Hughes, Inc. operates in two industry segments, oilfield
products and services and process products and services. In
addition to these industry segments, the Company manufactures
and sells other products and provides services to industries
not related to either the petroleum or process industries.

A nice rally with the oil service group today but this stock
appears to be consolidating near $32. We expect this issue to
continue trading in a range between $30 to $35 and resistance at
the sold strike should eliminate any short-term upside risk.

PLAY (conservative - bullish/calendar spread):

BUY  CALL OCT-35 BHI-JG OI=951  A=$2.25
SELL CALL AUG-35 BHI-AG OI=2100 B=$0.56
INITIAL NET DEBIT TARGET=$1.50 TARGET ROI=25%

It is generally best to establish this type of spread at least
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 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 spreader would like to have the stock 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.

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

*****

HAL - Halliburton  $50.56     *** A New 52 Week High ***

Halliburton Company provides energy services and engineering and
construction services. The Company is comprised of two business
segments. Halliburton Energy Services provides a wide range of
services & products to provide integrated solutions to customers
in the exploration, development and production of oil and natural
gas. Their engineering and construction services include services
for both land and marine activities.

Geoff Kieburtz of Salomon Smith Barney said that after clearing
the hurdle of a weak second quarter, the oil services industry
is poised for recovery. The established trading range near $45
(and a new 52 week high and solid bullish indications) along
with a fair disparity in the ITM September call options offers
us a favorable, low risk position.

PLAY (very conservative - bullish/debit spread):

BUY  CALL SEP-40 HAL-JH OI=2882 A=$11.75
SELL CALL SEP-45 HAL-JI OI=1653 B=$7.62
INITIAL NET DEBIT TARGET=$3.87 ROI(max)=28% B/E=$43.87

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

*****

ESV - Ensco  $22.50  *** Volatility Play *** 

Ensco International is an offshore drilling contractor that also
provides related oilfield services. Ensco owns 33 offshore rigs,
including 23 jack-up and 10 barge rigs. Subsidiary Ensco Marine
has a marine transportation operating fleet of 35 oil support
vessels, including 6 anchor-handling tugs, 21 supply vessels,
and 8 minisupply vessels.

We like the long-term chart but some consolidation is expected
after the recent rally. The short-time frame and small initial
cost offer us a favorable speculation position with low risk.

PLAY (conservative - neutral/horizontal spread):

BUY  CALL SEP-22 ESV-IX OI=1167 A=$1.93
SELL CALL AUG-22 ESV-HX OI=559  B=$1.06
INITIAL NET DEBIT TARGET=$0.75 TARGET ROI=25%

Time spreads (horizontal spreads) involve the sale of one option
and the purchase of a more distant option, both with the same
strike price. The philosophy for using this type of spread is
that time will erode the value of the near-term option at a
faster rate than it will the far-term option. The spread that is
established when the underlying stock is at or near the strike
price of the options used is a neutral spread. If the stock price
remains relatively unchanged until the near-term option expires,
the neutral spread will make a profit.

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

*****

DO - Diamond Offshore  $36.12     *** A Cut Above The Rest ***

Diamond Offshore Drilling engages principally in the contract
drilling of offshore oil and gas wells. The Company is a leader
in deep water drilling with a fleet of multiple offshore rigs,
consisting of semi-submersibles, jack-ups, and drill-ships.

A bullish chart on one of the industry leaders and the small
disparity in the September options will allow us to participate
in this low-risk play at a discount.

PLAY (conservative - bullish/covered-combo):

BUY  STOCK - DO  A=$36.25
SELL CALL SEP-35 DO-IG OI=2449 B=$3.12
SELL PUT  SEP-35 DO-UG OI=105  B=$2.00
INITIAL (OVERALL) NET DEBIT TARGET=$33.00 
COMBINED ROI (MARGIN) = 12%

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


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