Option Investor
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Daily Newsletter, Tuesday, 08/17/1999

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The Option Investor Newsletter         Tuesday  8-17-99
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)
************************************************************
        8-17-99          High     Low     Volume   Advances Decline
DOW    11117.08 + 70.29 11117.08 11011.65  696,656k  1,834   1,151
Nasdaq  2671.22 + 25.94  2680.00  2631.34  902,509k  2,060   1,783
S&P-100  699.28 +  6.61   699.43   691.44   Totals   3,894   2,934
S&P-500 1344.16 + 13.39  1344.16  1328.76            57.0%   43.0%
$RUT     436.00 +  2.18   436.00   432.73
$TRAN   3205.51 -  6.66  3234.06  3171.35
VIX       22.53 -  0.42    24.07    22.53
Put/Call Ratio      .59    
*************************************************************

The great rate debate continues.

Good job guys! I left for Seattle after doing the newsletter last
Tuesday night and the Dow had just bounced off 10550. I left the
market in your hands for five trading days and you added +567
points. Great job! Where would you like me to go next? Sorry,
no four letter words ending in "L". 

Seriously, I am amazed at the market jump. The PPI last week was
weak and I could see a nice bump from that. The CPI this morning
was exactly as expected and I could see another relief rally today
but +567 points from last Tuesday's low? The advance decline line
also reversed although not strongly.

 
 
 






Actually there are several factors that helped the markets
recover. The first of course was the PPI last week. The PPI
measures inflation at the wholesale or producer level. Inflation
should show up here first but the unexpected drop in the PPI
knocked the wind out of the Fed's inflation case. The markets,
which had already priced in TWO rate increases, rejoiced and 
went on a spending spree.

Secondly, as you can see by the first chart, the Dow held
support at 10,550 on Aug-10th. This level had not been seen
since June-24th and we did see a double bottom retest on 
Aug-5th and Aug-10th. This holding of support put a bottom 
under the market which had been severely beaten up in recent
weeks.

Thirdly, we were due for a technical correction. The drop
from the July-16th high of 11,250 was pretty steep with only
one pause on July-27/28. The Dow had been range bound for
about two weeks between 10825 and 10600. The PPI along with
the hold at successful support gave us a springboard for the
relief rally.

There is still trouble on the horizon in the form of the
Aug-24th Fed meeting and rate hike but I think the worst is 
over. With the rate hike already priced into the market we
may get through the meeting without any major disaster.

The tech sector got some major help today after the close
when Dell Computer beat the street by +$.02. The press from
Dell was very positive and there was some claims that Y2K
was not having as big an impact as previously expected. Unit
sales were up a whopping +55% with revenue up to $6.14 bln
from $4.33 bln last year. Web sales have soared to $30 mln
per day. I can remember just two years ago when they were
bragging about passing $1 mln per day. The street should be 
happy with Dell's numbers and techs should enjoy a boost.
Dell was up +$1.88 in after hours trading. 

Hewlett-Packard however was the goat for the day. Investors
hammered HWP for only beating the street by +$.05 when it
was discovered that .03 was "unusual interest income" and
not normal operations. HWP dropped -5.75 and joined the list
of "glad we did not hold over earnings" stocks.

Brokers got a boost today from Etrade which announced a deal
with Instinet to offer after hours trading to their customers
beginning in September. Etrade customers will be able to trade
from 4:PM to 6:30 PM eastern time every day on both Nasdaq and 
NYSE stocks. The CEO was on CNBC after the close today and said 
this was only the first step and he expects 24 hr trading very 
soon. 

Stocks got help from bonds again today with the yields closing
at 6.01%. This is significantly better than the 6.26% from
last Tuesday. The feeling in the bond market is that the Fed
can't justify another increase in October based on the PPI/CPI
numbers and bonds have seen their lows. We hope this is true
but when it comes to building that wall of worry the bond
traders are experts. I fear that the closer we get to next
Tuesday's FOMC meeting the more worried they will get.
We have had several reports recently that confirmed employment
was still rising. However there is no sign of nationwide
wage pressures. The Fed will be in a quandary but will probably
err on the side of another rate increase after August just to
be careful.

We have a double witching options expiration on Friday and
that will also help hold the markets up. They will need help
after gaining +567 points in only five trading days. Remember
that nothing goes up or down in a straight line. The markets
need to rest after any multi-day move. We did close right
at the high for the day and that normally means another
jump at the open. 

I really enjoyed meeting the hundreds of subscribers at the
Seattle Money Show and many of you had some good suggestions
about how we could improve the newsletter. We have some great
plans in the works and we know you will be excited. One of the
announcements we will make in the next three weeks will be so
incredible it will catapult you into the next level of trading.
I spoke with some readers about it at the show and the level
of interest was outstanding. You WILL NOT be disappointed!


Please, pick your entry points carefully.

Good Luck, Sell too soon.

Jim Brown
Editor



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

As of Market Close - Tuesday, August 17, 1999 

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

DOW Industrials   10,500  11,320  11,117    Neutral   7.20
SPX S&P 500        1,330   1,420   1,344    Neutral   8.17 *
OEX S&P 100          675     735     699    Neutral   8.13
RUT Russell 2000     440     465     436    BEARISH   8.06
NDX NASD 100       2,250   2,468   2,337    Neutral   8.13
MSH High Tech      1,125   1,250   1,168    Neutral   8.13

XCI Hardware         920   1,090   1,022    Neutral   7.20
CWX Software         725     844     769    Neutral   8.13
SOX Semiconductor    450     535     512    Neutral   7.20
NWX Networking       555     625     576    Neutral   8.13
INX Internet         500     580     441    BEARISH   7.20

BIX Banking          690     710     668    BEARISH   7.23
XBD Brokerage        410     440     399    BEARISH   7.23
IUX Insurance        645     660     616    BEARISH   7.23

RLX Retail           915     960     869    BEARISH   7.23
DRG Drug             370     400     350    BEARISH   7.20
HCX Healthcare       750     800     719    BEARISH   7.22
XAL Airline          180     190     155    BEARISH   5.21
OIX Oil & Gas        285     310     314    BULLISH   8.10



Posture Alert    
CPI + PPI = Nice rally! The broad market rallied again thanks to
no surprises from the Consumer Price Index. There are now only
seven days left until the Fed meets, and with the 30yr bond
getting close to breaking below 6%, this market could explode in
either way, depending on how Greenspan plays his cards. With
Tuesday’s action, we have turned Neutral on the S&P 500.     


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

members.OptionInvestor.com/marketposture



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

7 days and counting!

We are at a key moment in this market! There are only a few trading
days left until the Fed meets, and the bond market seems to be 
shrugging off any indication of future interest rate hikes, beyond
this upcoming one. Will the 30yr Treasury break below 6%, or will
we see 6.25%+ after next week? Is this the start of the strongest
rally of the year, or is this a big HEAD-FAKE? Many questions, and
if you have the answer, we would like to know. But after this last
week, what we do know is that many investors are starting to gain
the confidence of old. We’ve talked to many who are buying
anything.com, or buying way out of the money (front month that
expire in a few days) call options, or margining themselves to the
gills because this is the bottom baby and I need to make up my
losses! Wrong!

This mentality is probably a little early to the party. The
sentiment is building too quick and too soon. The party starts
at 10pm and it is only 6am. The Interest Rate Game is doing a
commercial break, but will be back in 2 minutes and 2 seconds.
There are many outcomes that can happen next week, but the LAST
THING you want to do is to give back all of the gains that you
have made these last couple of weeks. The ace-in-the-hole is
truly held by one man, Mr. Greenspan. Anything can still 
happen at this next meeting (i.e. 50 basis increase, warnings of
future hikes, etc), so be careful in what you do. 
 
It is very positive to see the long bond at 6%, and would be
extremely positive if it can break below this key benchmark
and hold. However, to see the long bond back at 6.25% or higher
is not out of the question, and most likely. Remember how quick
things fall, because it only takes 2 days to wipe out 2 months
worth of work. 

The last thing we want to do is to portray such pessimism, but
to buy heavily before this meeting is not the smart play. You
may not buy at the bottom, but at least you won’t buy at the top
and watch’em drop like a rock. The best thing you can do is to
sell to soon, play the market both ways, or at least hedge
yourself if you have to go long. If after next week’s meeting,
you see the long bond at 5.9%, you better BE LONG OR BE WRONG.
But, if you see the bond at 6.3%, hopefully you were
prepared.  
 

 


 


 




BULLISH Signs: 

Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors
decreased 2.2% and Bearish sentiment increased 1.5%.


Mixed Signs: 

Interest Rates:
The yield on the 30-yr Treasury is still above key 6% barrier,
but off the highs of 6.272%.

Market Posture:
Several indexes are starting to show signs of bottoming out,
including the Dow, Healthcare, Software, Networking, and
Internet.


BEARISH Signs:

Pinnacle Index:
The Pinnacle Index for the OEX (715-745) is now reaching levels
of extreme optimism.  From a contrarian standpoint, resistance
is building in this area, and may indicate a short term top.

Russell 2000: 
Broke below both the 50 and 200 day moving averages, proving
very bearish.
  
Peak Open Interest:  
The contraian put-call ratio clocking in at 1.1 suggesting
bullish sentiment picking up steam.

Market Posture 2:
Several indexes continue on their bearish decline, including
drugs, healthcare, brokerage, banking, airlines, Russell 2000,
Insurance, and Internet.

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 690-780 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 690-780)
Date                 Open Interest     Change %    Alert

Friday, July 16           32,285        
Friday, July 23           62,455        +93.4%
Friday, July 30           74,895        +131.9%
Friday, Aug. 06          113,258        +250.8%
Friday, Aug. 13          117,620        +264.3%




Market Sentiment at a Glance     Friday     Tues
Indicator                        (8/13)    (8/17) Alert

Pinnacle Index (OEX):          

                    
Overhead Resistance (715-745)      8.0      9.4
Overhead Resistance (680-710)      2.3      1.5
Underlying Support  (630-670)      4.4      5.9
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7       .6
CBOE Equity P/C Ratio               .5       .5
OEX P/C Ratio                      1.2      1.1


Peak Open Interest (OEX):

Puts                              670       650
Calls                             700       700
P/C Ratio                          .9        1.1

Market Volatility Index (VIX):

CBOE VIX                         22.53



Investors Intelligence:

Bullish                         50.00%  *
Bearish                         29.30%  *


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                        (8/13)    (8/17)

Overhead Resistance (715-745)    8.03       9.42
Overhead Resistance (680-710)    2.33       1.51

OEX Close                      688.82     699.28
 
Underlying Support  (630-670)    4.36       5.94
                     

 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is building at the OEX 715/745 level
while the underlying support is holding at the OEX 630/670 level.



Put/Call Ratio                  Friday     Tues
Strike/Contracts                (8/13)    (8/17)


CBOE Total P/C Ratio             .69       .62
CBOE Equity P/C Ratio            .49       .48
OEX P/C Ratio                   1.21      1.09


(OEX)
Peak Open Interest   Friday           Tues
Strike/Contracts     (8/13)           (8/17)



Puts                 670 / 13,875     650 / 15,466
Calls                700 / 15,403     700 / 14,381
Put/Call Ratio          .90              1.08


 


 



(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 05, 1999     Bottom?             32.12

August 17, 1999                         22.53


 


 



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
Aug  04, 1999                         52.2        27.8
Aug  11, 1999                         50.0        29.3 *




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

Index       Last   Mon    Tue   Week
Dow      11117.08 73.14  70.29 143.43
Nasdaq    2671.22  7.47  25.94  33.41
$OEX       699.28  3.85   6.61  10.46
$SPX      1344.16  3.09  13.39  16.48
$RUT       436.00 -0.23   2.18   1.95
$TRAN     3205.51 33.10  -6.66  26.44
$VIX        22.53  0.57  -0.42   0.15

Calls              Mon    Tue   Week

BVSN       103.94  1.38   9.06  10.44  New 52-week high
LVLT        63.38  5.38   3.50   8.88  New, $ managers buying
VRSN        89.25  2.81   3.44   6.25  Picking up speed...
NXLK       103.19  0.38   5.19   5.56  Jumped over 5% today
MMCN        54.13  4.13   0.13   4.25  Extremely bullish signs
SNE        131.38 -0.31   2.25   1.94  Rising Asian markets
NOK         87.19  0.00   1.44   1.44  Breaking through 50dma?
SLB         66.63 -0.50   1.88   1.38  Interest rate haven.
LXK         73.88  1.75  -0.50   1.25  Poised against HP&IBM
TXN         75.38  1.25  -0.38   0.88  Dropped, no glory here
VISX        95.56  1.63  -1.56   0.06  20 new centers by 2000
HGSI        60.13 -0.06   0.06   0.00  Preparing for bull run
INTC        79.00 -1.19   0.44  -0.75  Trend is your friend
SLR         72.56 -2.13   0.31  -1.81  Signed mega deal w/IBM
LSI         56.50 -0.38  -2.00  -2.38  Pulled down by HWP

Puts

TBH         72.50 -0.63  -1.25  -1.88  No strength here.
TAN         44.50  1.50  -0.81   0.69  Dropped, found its base
U           33.56  0.81   0.00   0.81  Caution is the key
AHP         41.88 -0.06   1.06   1.00  Regulators approve drug
AMR         63.25  1.13   0.25   1.38  American is soaring
DH          61.88  1.50   0.63   2.13  Dropped, too strong
ATHM        39.63  1.06   1.56   2.63  Dropped, positive tone



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

TXN $75.38 -0.38 (+0.44) Learn to say good bye.  TXN split
after the close Monday.  It certainly gave us an opportunity
to take some money off the table prior to the split.  It started
off strong with the dawning of the new week.  Texas Instruments
made a new high at $153.50 just after 11 a.m. ET.  The sellers 
stepped in and took advantage of the increase $3.19 for the day.
TXN drifted lower for the balance of the session, closing down 
$1 for the day.  We must step aside for the time being, and let 
the post split activity play out.  With the semiconductor industry
attempting to regain its strength, we will keep our eye on TXN
for another opportunity in the near future.



PUTS:
******

DH $61.88 +0.63 (+2.13)  In a positive market yesterday DH 
pushed through overhead resistance at the 200-dma ($60) on 
average volume; likely in anticipation of strong 2Q 
earnings results.  Not to disappoint investors, DH came in 
today at .49 p/s versus the .46 p/s consensus by First 
Call.  Profits we up 33% - $228 mln. versus $172 mln. same 
quarter a year ago.  The sharp rise in profits was due to a 
13% sales increase in snacks and clothing by the Target 
stores.  As a result of the boost from the earnings' 
announcement, the strong Dow, and the neutral CPI numbers, 
we're dropping DH as a put play tonight.  The more aggressive
players may want to hang on...since lately the trend has
been down after an earnings announcement - even a good one.


ATHM $39.63 +1.56 (+2.63) Here comes the bounce in ATHM.  The 
stock is licking its wounds from last weeks beating and trying 
to mount a rally with the rest of the sector.  So far it has 
been successful as investors are forgetting the bad news from 
last week.  The stock has rallied both days this week on light 
volume.  This is in part from ATHM delivering press releases 
with a positive tone to try and improve overall sentiment.  
On Tuesday they announced an $85 million investment in an online 
e-commerce site called Tickets.com.  There was also some news 
about the ongoing saga of open-access but nothing trade worthy. 
But if we have learned one thing over the years, it is that 
you can't fight the trend and the trend for Internet stocks 
may be starting to turn.  Therefore, we are dropping ATHM from 
the put list.  There are probably not many plays open since 
the stock spiked up on the open Monday but if you do have an 
open play, we recommend adjusting both your amount you're 
willing to sell for a profit and your stop loss.  A close
above $40 could be dangerous to playing puts.

TAN $44.25 -1.06 (+0.44) It is time to go shopping elsewhere. Tandy
is still in a near term down trend, and could continue to find its 
way lower.  It did move up to resistance yesterday just under
the $46 area and gave back over $1 today.  We are letting TAN 
go at this time because it does seem to be finding a little 
strength and could be beginning to form a base in the $42-$46
area.  The retail index has also found some new strength in the
past few sessions, even though it may be short lived.  To keep our
interest we would need to see further weakness in the sector as
well as the stock itself, which isn't happening at this time.


 
***** 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  8-17-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.



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

SLR $72.56 +0.31 (-1.82) SLR was down most of the trading session 
today, but finally closed up 0.31 to finish the day at 
$72.56. Volume was a little on the light side with 1.15 mln 
shares changing hands. However, despite the anemic gains today, 
there was a gigantic news released on the company today. It 
was announced today that SLR was selected as a worldwide 
manufacturer of IBM's print circuit board (PCB) assemblies in 
its PC service lines. SLR reported that it has signed a 3-year 
letter of intent with IBM, and plans to establish a full-
service NPI center in Greenock, Scotland.  Furthermore, the 
letter of intent also addresses intellectual property rights 
with regards to PC motherboards. 

VISX $95.56 -1.56 (+0.06) It was a pretty tough day for VISX, even 
on the heels of a positive CPI, and promising industry news.  
VISX closed down 1.56 to end the trading session at $95.56.  
However, even on a discouraging day of trading, there are two 
encouraging pieces of information concerning VISX that were 
released on Monday.  First, competitor Baush and Lomb (B&L) has 
run into some resistance from the FDA over their new laser 
Technolas 217.  It was reported that there is uncertainty whether 
the FDA’s Ophthalmic Device Panel would review the laser.  
Second, Starr Surgical Company announced yesterday that it 
has formed a wholly owned subsidiary that will be called 
Laser and Implant Technology Centers (LITC).  By the end of 
their fiscal year in 2000, Starr is planning to open twenty 
locations nation wide.  Starr Laser centers will feature the VISX 
Star S2 system in each of the 20 location.  Today's move appears
to be more of a consolidation as it builds support at its
30 dma.  However, if VISX closes under its 30 dma, then we
would be concerned and we might consider closing the play.

LSI $56.50 -2.00 (-2.38)  On Monday the stock showed 
strength as it traded in the proximity of its 52-week high 
($58.88 set on Friday) and then managed to close just a 
fraction away from this mark as the DOW receded in the 
afternoon in anticipation of the CPI numbers.  But now, LSI 
is settled back to the higher-end of its support level.  
Even though the sentiment was bullish today, Hewlett-
Packard's rapidly falling shares pulled down the hardware 
and chip sectors.  In response LSI gave up a couple of 
dollars by the closing bell; however, the volume was lower 
than normal.  With this in mind, watch for a bounce on 
strong volume to confirm direction before starting a new 
play on this chip maker.

VRSN $89.25 +3.44 (+6.25)  VRSN is certainly snapping back 
in tip-top form from the recent Internet bashing.  This 
momentum-driven play picked up more speed as it advanced 
another 7.5% in the past two days.  Needless to say the 
momentum is continuing and we haven't gotten a pullback 
yet.  Overhead resistance is not too far away at $96.75, 
the 52-week high set in mid-July.  If you are looking for 
an entry before the stock consolidates (and this could be 
at any time now), you'll need to use an intraday pullback 
to jump in.  Please act with caution on this play, it is a 
VOLATILE INTERNET STOCK and can move sharply.

SLB $66.63 +1.88 (+1.38) The beginning of this week has been 
a little bumpy for Schlumberger.  Because oil prices fell 30 
cents on Monday, the stock was also down fractionally to end 
the day.  Even with the benign CPI report released by the 
Labor Department today, many investors were shaky about 
getting back into interest rate sensitive stocks.  However, SLB, 
not affected as much by interest rate changes, closed with a 
nice gain. Other factors helping the stock was an article 
released that BP Amoco was fighting a blaze Monday evening at 
a 125,000 barrel per day unit, which turns crude oil into 
gasoline.  With last weeks oil reserves being lower than 
expected, Monday’s fire at Amoco, and the gradual increase 
of oil prices, the stock price reacted accordingly.  The 
stock continues to trade above its 50 dma and 200 dma, making 
another run at its high at $68.50, which is only a few points 
away.  Even though we see the stock breaking to new levels, 
use caution since this play is so sensitive to oil prices. 

NOK $87.19 +1.44 (+1.44) With little help from the labor 
department, Nokia has slowly but surely worked its way 
higher.  Investors not impressed with today’s CPI figures 
were hoping for a number lower than analysts expectations.  
But unfortunately, by matching these expectations investors 
remained weary about future interest rate hikes.  Despite 
these worries, by late afternoon, some sidelined investors 
headed back into telecommunication stocks helping lift the 
stock.  The stock's turnaround is evident since hitting its 
August low at $78.75.  We expect NOK to continue this upward 
trend, breaking through its 50 dma.  Remember that NOK was 
named one of the 100 best-managed companies in the world, 
and investors know it.  Because the market is so volatile, 
be careful and place your stop loss orders.

BVSN $103.94 +9.06 (+10.44) Today BVSN was launched to a new
52 week high! What helped this dramatic gain? A combination
of things. The outlook for the stock continues to receive
good reviews from investors, analysts, and companies associated
with Broadvision. Today, an alliance was formed between BVSI 
and U.S. Interactive, to provide customers with even more
creative solutions for e-commerce and communications. The
synergies created by the combination have very attractive
prospects. The CPI numbers this morning helped jump start
the stock, and unlike most of the market, BVSN was able
to maintain and hold it's gains throughout the day. Late
afternoon the stock regained momentum on good volume, and
continued the trend to the new high. Support sits at $84 (which
is a long ways down and its 10 dma - be careful here!), and
resistance is yet to be seen. Today's stall in the market hints
at caution, as investors anticipate a rate increase. Wait for
a pull back before initiating a new play.

HGSI $60.12 +0.06 (0.00) Are we there yet? How much longer?
We're starting to feel like anxious young vacationers wanting
to arrive. Today started out, looking like we would get our
boost, but the market died on us, and we faltered. What this
is doing however, is creating a very strong support base for
us. HGSI's 10 dma is now catching up to us, and is at $59. It is 
arguable that HGSI is forming a bullish ascending triangle.  It 
is just tough to see because the intraday movement has been so
tight lately.   However, when the break does come, it should be
positive.  We did get a negative breakout on the MACD, but with 
HGSI the chart shows that they are usually flat and short. Even 
though we are preparing technically for the bull run, caution is 
still advised due to the market and speculative nature of this 
play (which we consider risky).

LXK $73.88 -0.50 (+1.25) The futures this morning had investors
excited about the market as a result of the CPI numbers. But, what
should have, didn't happen. This creates a bit of concern, and with
LXK having participated in some nice gains recently, causes us to
advise caution. The stock should continue to gain, as managers
take positions in LXK; however, this may not happen until the
market uncertainty passes. Charts indicate the momentum is
beginning to fade, and the relative strength may be turning.
Long term buy signals are improving however, so watch the stock
closely before starting a new play, and when the market internals 
improve, and confirm a bullish trend it may be safe. Good news in
an article stating that the company is now poised to go head to 
head with HP & IBM. Growth, earnings, and high tech solutions
to cost reductions have positioned the company to compete with
the big two. Protect your profits due to market uncertainty.

SNE $131.38 +2.25 (+1.94) Japan's Nikkei market closed higher 
for the seventh straight day on Tuesday and that helped propel 
Sony to another 52-week high.  In fact the stock closed just 
under its day-high as well which was at $131.50.  A strong 
market in Japan wasn't the only thing fueling this play either.  
SNE announced Monday that they would keep pace with Nintendo 
by lowering the price on their playstation by 25%.  On Tuesday 
Sony announced that their Preferred Customer program increased 
benefits to their loyal customers by offering better rewards 
and more discounts.  Wall street like these developments and 
the stock gained ground to hit new highs both days this week.  
This stock has shown the interest of investors who want to 
take part in the Asian stock market rebound.  

MMCN $54.13 +0.13 (+4.25) We expected the broader markets to be  
quiet on Monday and it was.  MMCN didn't let the major markets 
hold it back however.  MMCN gapped up $3.87 at the open and 
closed up $4.12 for the day.  Volume for the session was very
strong with 1.9 mln. shares exchanging hands, over 4 times its 
norm.  Near term this is an extremely bullish sign and suggests
further moves to the upside.  Today MMCN made a new high at $55.13
and fell back to close at $54.13, up just $0.13 for the session.
We do need to point out that one week ago MMCN traded at a low of
$37.88.  Yesterday's high again, was $55.13, that's a move of over
45% in 5 trading days.  As we said before we do believe MMCN will 
move higher, however the folks that bought stock in MMCN last
week may decide that 45% is not a bad move.  If you entered 
the play on MMCN, move your stops close in case the bears decide
to have their way with MMCN, for a few days.  If you didn't enter
a play in MMCN yesterday or today, only consider a new play with
a strong move up accompanied by strong volume.  Mild support 
should be at $52, but for those willing to handle any volatility
stronger support should be found at $50.  Set your stops 
accordingly.

INTC $79.00 +0.44 (-0.75) Just another high in the life of Intel.
Just when we think INTC may be getting a little "top heavy",
it makes a new high.  That's not to say that our basic view of 
the chip maker has changed. As we know "the trend is your friend"
and right now our friend is headed north.  The further a stock
goes up without, a pullback sometimes makes us a little uneasy. 
Volume in the major markets the past two days has been anemic,
and it is worth noting that volume in Intel the past two days has
been 25% less than the norm at 16.9 mln. shares.  The release of 
earnings this morning by Hewlett-Packard seemed to knock the air 
out of the PC stocks and the chip makers.  Their earnings came in 
a nickel ahead of estimates, but simply didn't impress the analysts
on Wall Street.  The past two sessions Intel has showed a pattern
of starting out the day sideways to lower and recovering in the 
last hour of trading.  We do believe that Intel will continue to
make its way higher, but move your stops up close, to protect your
profits, in case we get a few days when INTC hits that proverbial
bump in the road.  For those readers who have not yet entered a 
play in INTC, do so ONLY on a positive move up with better than
average volume, combined by a solid move in the chip makers 
sector and the major indices.

NXLK $103.19 +5.19 (+5.56) The bounce continues. Nextlink started 
out Monday drifting lower to $93.00, down $4.63 for the session.
The last 30 minutes of the day the buyers stepped up to the plate
driving NXLK back up to close up $0.38 for the day.  This morning
with the CPI numbers coming in benign, investors put NXLK back
on their buy list for another day.  NXLK jumped over 5% today,
closing at $103.19 on volume of 492K.  We are sticking with NXLK,
and sticking with our view that at this time the recent recovery
is primarily driven by the reduced interest rate "fears", and 
somewhat technical in nature.  Yes it has recovered approximately
70% of its recent decline, but most of the recent gains have come
on average or lower volume, which does make us somewhat suspect.
A gain is still a gain and a profit is still a profit, regardless 
volume.  With fears of inflation and interest rates waning somewhat,
NXLK could continue its recovery. We are still awaiting the ex-date
for the 2:1 split. We would suggest if you haven't taken your money
off the table on this recovery, be careful and sell too soon.



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

TBH $72.50 -1.25 (-1.88) It was another great day for TBH put 
players. The stock was down 1.25 to close the trading 
session at $72.50. Volume today was below average with 1.27 
mln shares changing hands.  On Monday, many Latin American
ADR's dipped before the shadow of the upcoming U.S. CPI report.
Trading was light on Monday as investors used the economic 
report as an excuse to sit the session out.  Today was a 
different story.  Several of the ADR's rallied on the good news
of the CPI report this morning.  However, TBH was not one of them.
A normally very responsive stock, TBH failed to show any
strength while the U.S. Dow rallied into the close.  On the 
contrary, TBH slipped further south and closed near the low of
the day.  Its 10 dma, currently near $73.75, has been acting
as resistance for the stock price.  Until we get a significant
rally above this resistance, TBH will continue to remain a put 
play.

AHP $41.88 +1.06 (+1.00) Looking for some direction. That seems 
to be the theme for American Home Products this week.  Despite 
some good news for AHP yesterday, it was not enough to help 
the stock, which ended the day on the downside.  News was 
released that US Regulators approved its drug Sonata for adult 
insomnia.  The drug was designed to take on its competitor 
Monsanto Co’s top-selling sleep aid Ambien.  The approval of 
the new drug has been a ray of light for a company that has 
been under gloomy skies lately.  Looming overhead is the 
trials that persist to haunt AHP.  Several people have filed 
lawsuits against the company claiming that Pondmin and Redux, 
dietary supplements, caused heart valve damage.  This dispute 
has continued to hurt the stock price that is close to its 
52-week low of $40.50.  Breaking to a new low is foreseeable
considering the approval of Sonata minimally helped the stock 
today.  This may be a good entry point, however, continue to 
use caution with this play since the stock has fallen so far 
so fast.

U $33.50 +0.00 (+0.81) Well it may be looking like time to 
say goodbye to our play of USAir but here is why we are not 
convinced.  First of all, this rally has been minimal.  It 
has only taken us back to the 10-dma but has failed to move 
us above that level.  Second, the volume on the rally has 
been terrible.  This is a classic indicator of a bounce, not 
a new trend.  Third, oil prices continue to be very strong.  
Everyday that oil stays above $20-$21 dollars is another day 
that USAir will have to dip into future earnings to pay for 
fuel.  But we do want to be cautious here and use patience 
in picking entry points.  The stock should begin a new trend 
lower anytime since it has failed to move higher.  In all 
cases, stops will enhance your plays and preserve your capital.  

AMR $63.25 +0.25 (+1.38) Despite higher oil prices, American 
is soaring this week.  Well soaring is a little strong maybe 
but it's much better than the sentiment of late.  AMR started 
the week on a positive note by sending letters to all frequent 
flyers apologizing for delays and including 2500 free sky miles 
as an apology.  This is a step in the right direction for a 
company that has lost the faith of its customers.  But the 
big news this week will be labor talks that are going on with 
the company's pilots.  Any resolution to this issue will be 
considered a positive for AMR's stock.  But more problems with 
a new salary structure is bound to translate into losses on 
Wall Street.  So keep an ear tuned to the news wire for any 
recent developments and use stops to avoid a rally sparked by 
the two sides reaching an agreement.  



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

LVLT - Level 3 Communications, Inc. $63.38 +3.50 (+8.88)

Level 3 Communications, Inc., is a communications and information 
services company that is building the first international network 
optimized for Internet Protocol technology.  The Level 3 network 
combines local, long distance, and undersea networks, connecting 
customers end-to-end across the U.S. and in Europe and Asia.  The 
company expects to complete its planned network construction in 
phases beginning in the first quarter of 2000.  In the interim, 
Level 3 is offering service in the U.S. and Europe using a 
combination of company owned facilities and leased network 
connections.  LVLT is a spin-off of construction mammoth, Peter 
Keiwit and Sons' of Omaha, Nebraska.

LVLT is back on our call list thanks to renewed buying interest.  
Based on increasing volume over the last 3 trading days, it looks 
like money managers are accumulating the issue again, following 
its descent from $100 in April.  After 3 long months, it too has 
finally traded on the positive side of its 30-dma.  It does have 
a bit of that "spikey" look to it on the chart, indicating that 
the play may be short lived if the volume dries up.  But its move 
has been accompanied by successively increasing daily volume 
above its average of 1.47 mln. shares (1.86 mln., 2.29, mln., and 
2.40 mln. on Friday, Monday, and today, respectively).  Closing 
near its high of the day is another good sign, signaling that the 
buying should continue.  Of course that all depends on the market 
cooperation.  Currently, we don't have LVLT figured to remain a 
long-term play, but for the next few days, with the markets 
cooperation, more fund buying could propel it higher.  We 
caution you about picking the right entry point.  These last few
days have not allowed for much intraday swings (except upward)
and it may be due for a pullback.  However, LVLT did just break
above its 50 dma which is a positive sign.  These next two days
will be important as we see if LVLT can hold above its 50 dma and
whether the stock price consolidates at this new level or 
continues higher.

USB Piper Jaffray began coverage of LVLT with a "strong buy" 
rating on August 5.  That rating was reiterated today with a new 
price target of $85.

BUY CALL SEP-60 QHN-IL OI=856 at $7.00 SL=5.25
BUY CALL SEP-65*QHN-IM OI=886 at $4.38 SL=2.50
BUY CALL SEP-70 QHN-IN OI=518 at $2.50 SL=1.25
BUY CALL DEC-65 QHN-LM OI=227 at $9.75 SL=7.25
BUY CALL DEC-70 QHN-LN OI=169 at $7.75 SL=5.50

Picked on August 17 at  $63.38    PE = N/A
Change since picked       0.00    52 week low =$ 22.38
Analysts Ratings     1-6-2-0-0    52 week high=$100.12
Last earnings  07/99 est -0.41    actual -0.37 surprise = 9.76%
Next earnings  10-29 est -0.51    versus -0.15
Average daily volume = 1.47 mln 
Chart = http://quote.yahoo.com/q?s=LVLT&d=3m



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

none today



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

SNE - Sony Corp $131.38 +2.25 (+1.94 for week)

Sony is a consumer electronics and multimedia entertainment 
company.  It sells products like TVs, VCRs, MiniDisc systems, 
stereos, digital camcorders, DVD video players, and the 
Playstation home video game system.  It is also in the process 
of strengthening its position in the music and image-based 
software markets.  Some of Sony’s entertainment assets include 
Columbia TriStar Motion Picture, Columbia TriStar Television, 
Sony Pictures Studio, and Columbia and Epic record labels.  
Other high-tech products include flat-screen TVs, digital 
TVs, CD-ROMs, and digital cellular telephones.  

Sunday’s Write Up

Last week we said Sony was poised to spring higher and it 
did not disappoint us.  It was one of the few stocks that was 
moving up since Monday and therefore was in a great position 
when the market started to move on Wednesday.  We had lots 
of positive news to help fuel the stock as well, starting 
with an upgrade from Merrill Lynch.  They raised their price 
target for SNE due to cost-cutting efforts and restructuring 
that will help the company’s bottom line.  There was also a 
report on Thursday that Sony will work with Nippon Zeon to 
develop plastic disks for computer hard drives which helped 
drive the stock but the good news doesn’t end there.  Friday 
morning Sony had a press release stating they would start 
selling music on the Internet in Japan.  The new site would 
feature music from Japan’s top producers and singers.  So 
what do you get if you combine all this news together?  A 
new 52-week high!  It broke above the old high of $126.88 
on Friday and closed at $129.44, just under the day-high.  
These are all bullish signs but it will be interesting Monday 
to see if the market can hold its gains.  Don’t commit to 
any new plays if the market seems jittery.

We mentioned all the pertinent news above but wanted to expand 
on the plastic hard drive news.  The press release states that 
the cost of making plastic disks with a storage capacity of 
five gigabytes would be 30 to 40 percent lower than other 
conventional aluminum disks.  SNE is in talks with Castlewood 
Systems Inc, among others, on commercialization of hard disk 
drives using plastic based disks.  Leave it to Sony to find 
a better and cheaper way to improve electronic products.

Tuesday’s Write Up

Japan's Nikkei market closed higher for the seventh straight 
day on Tuesday and that helped propel Sony to another 52-week 
high.  In fact the stock closed just under its day-high as 
well which was at $131.50.  A strong market in Japan wasn't 
the only thing fueling this play either.  SNE announced Monday 
that they would keep pace with Nintendo by lowering the price 
on their playstation by 25%.  On Tuesday Sony announced that 
their Preferred Customer program increased benefits to their 
loyal customers by offering better rewards and more discounts.  
Wall street like these developments and the stock gained ground 
to hit new highs both days this week.  This stock has shown the 
interest of investors who want to take part in the Asian stock 
market rebound.

BUY CALL SEP-125*SNE-IE OI= 73 at $10.13 SL=7.50
BUY CALL SEP-130 SNE-IF OI= 27 at $ 7.00 SL=5.25
BUY CALL OCT-125 SNE-JE OI= 63 at $12.00 SL=9.50
BUY CALL OCT-130 SNE-JF OI=349 at $ 9.25 SL=7.00

Picked on July 2nd at $125.19     P/E = 31
Change since picked     +6.19     52-week high=$131.38
Analysts Ratings    0-0-0-0-0     52-week low =$ 60.25
Last earnings 07/29 est=  N/A     actual= N/A
Next earnings 10/99 est=  N/A     versus= N/A
Average Daily Volume = 190 K
Chart = http://quote.yahoo.com/q?s=SNE&d=3m



STRADDLES
*********

Markets Breakout while Fundamentals Consolidate

Amazing how the markets seem to get wider and wider in terms of
price movement, while the news gets more and more non-eventful.
The latest PPI report issued last Friday, along with today’s CPI
report, was about as eventful as watching paint dry.  Yet the
markets seem to get a jump-start in terms of price movement.
Today’s movement in the market averages confirms this price
movement.  For those of you who feel like you missed the earnings
boat, don’t fret.  A new batch of indecision, greed, and fear will
be along in about 4-6 weeks.  So what do we concentrate on in
straddleville when there are no fundamentals?  Well there are
continued government fundamentals which do show themselves nearly
every week. If you must buy options, than at least find markets
with options that have low implied volatility.  The sector that
is currently at the bottom of the option premium pile is a
surprise.  The computer services sector looks to be making a
bottom.  When comparing this sector currently with what the
options were trading for at the beginning of the year, anyone
would claim them cheap.  


Straddle Mailbag for this Week

I received a question, which I found needed more than just an 
answer.  Some explanation and perhaps an example would help as 
well.   

“Can you explain how you look at a chart to determine if a stock 
is straddle worthy?”  Well, I cannot guarantee that anything is 
“straddle worthy” but here is what I look at to determine if I feel 
that a stock is going to breakout to one side or another.  The 
number one thing that I like to see is if the market is tightening. 
That means the daily range of the stock is getting smaller and
smaller.  You may refer to this consolidation on the chart as wedge
formations.  Now some of these wedges as I like to call them are 
very viewable to the naked eye.  I have taken an example from an
earlier write-up, and will point out the wedge formation for you
to see.  

Take a look at the chart of Exxon that was in Sunday’s Straddle 
write-up, Notice that over the last several months how the
market just started to drift from low to high and back.  The
highs were getting lower, and the lows were getting higher.
This is what I am talking about.  This is a classic wedge that
most technical analysts will tell you to stay away from.  That’s
because most technicians only know two words in their vocabulary;
BUY and SELL.  What I am betting on is that this consolidation
will lead to a breakout one way or another.  As the market gets
closer and closer to the center of the wedge, I can just hear
the fight announcer on ESPN just before a major battle yelling
“LETS GET READY TO RUMBLE!!!   This fight, however, is to
determine who is right, the bulls or the bears.  I must admit,
consolidation is easier to see on some charts than on others.
Sometimes you can see a wedge on a chart as plain as day.  Other
times, its there, but either a bullish wedge or a bearish one.
To conclude, consolidation usually precedes a move in one
direction or another.  As straddle traders, we really don’t care
which way it goes, as long as it gets going!    



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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 
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information provided has been obtained from sources deemed 
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The newsletter staff makes every effort to provide timely 
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delivery times due to factors beyond our control.




The Option Investor Newsletter         Tuesday  8-17-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.



COMBOS
******

Market Rallies On Favorable Economic Report..

U.S. stocks finished higher Tuesday, following a session of very
volatile trading, on news that inflation in consumer prices was
about what most experts expected last month.

Another rally in blue chip stocks led markets to a higher close
on Monday ahead of the next important economic report; the July
Consumer Price Index. The Dow rose 73 points to 11,047 while the
the Nasdaq composite rose 7 points to 2,645. The S&P 500 stock
index gained 3 points to 1,330. Declining issues led advances by
1,548 to 1,392 on the New York Stock Exchange and the rise in the
Dow came on moderate volume of 581 million shares on the NYSE.
The long Treasury bond rose 3/32 to yield 6.09%.

Portfolio plays:

Our big winner today came in the form of merger news as Nielsen
Media Research (NMR) jumped $4.50 to $37 after Dutch publisher
VNU launched a $2.5 billion offer for the company. The bullish
debit spread is trading near maximum profit after only one week.
Another recovering issue; Medtronic (MDT), moved higher after
Deutsche Bank Alex Brown reported that a preliminary injunction
against Tyco International's (TYC) unit, U.S. Surgical, could
add about $0.04 a share to the earnings of Medtronic. We expect
the positive announcement to boost prices in the short-term and
will use the movement to roll forward the LEAPS/CC’s play into
September. Other hi-tech stocks performed well in today’s rally
including: BroadCom (BRCM), EMC Corporation (EMC), ExciteAtHome
(ATHM) and Sun Microsystems (SUNW); which was rolled forward to
September in both of our calendar positions. Emulex (EMLX) was
up almost $12 to $117 in the bullish activity and some of that
movement may have been due to the appointment of Michael Smith
to vice president of the company’s Worldwide Marketing division.

Many of our smaller issues continue to rebound. Positions that
have now moved back into profitability include the bullish debit
spread on Entremed (ENMD), which traded at a $0.50 profit during
the morning session; Novell Networks (NOVL), a recently adjusted
NOV30C/SEP30C calendar spread that has a new debit of $1.00 and
Network Associates (NETA), which rebounded to a high near $17.68
in today’s trading; allowing a small positive return on both the
debit and calendar spreads. Tommy Hilfiger (TOM) moved above $40,
a recent resistance area, and boosted our long-term LEAPS/CC’s
play into a credit position with an overall profit of $4.00.

General Electric (GE) is once again showing strength near $105
and the current rally should provide enough positive support to
hold the bullish diagonal position above our break-even price of
$109.38. Those of you currently in the play may consider closing
it prior to the Fed’s interest rate announcement for the existing
profit. Gemstar (GMST) investors have finally started to exhibit
some buying pressure with the stock trading near support at $50.
The August credit strangle (AUG80C/52P) appears to be comfortably
OTM with only four days until expiration.

Tuesday, August 17

U.S. stocks finished higher Tuesday, following a session of very
volatile trading, on news that inflation in consumer prices was
about what most experts expected last month. The Dow was up 70
points at 11,117 after a late day rally while the Nasdaq index of
technology stocks gained another 25 points to close at 2,671. In
the broader market, advancing issues beat declines 1,834 to 1,144
on moderate volume of 689 million shares on the NYSE. The 30-year
bond rose a full point, with the yield falling to 6.01%.

Portfolio plays:

What started out to be a terrible month has rebounded into a very
profitable period and today’s late market rally boosted many of
our plays into positive territory. One of the best performers was
Medtronics (MDT), up $2 to $73 providing an excellent opportunity
to roll the long-term position into September. Costco (COST) was
another previously negative play (we closed at a small loss) that
moved safely into profitability near $79. Gemstar (GMST) added $5
to rise above $60 for the first time in weeks and Qualcomm (QCOM)
tacked-on almost $12 to finish near $173, over $30 above our sold
position in the August (bullish) debit spread. Doubleclick (DCLK)
moved $7.50 higher to $92 with the rebounding Internet issues and
Excite@home (ATHM) continues to recover, trading as high as $40
today after a report they purchased a large stake in tickets.com.
International Paper (IP) was another positive mover, finishing a
few cents short of our sold strike at $55. The current calendar
position can now be rolled forward to September for $1.38 credit,
reducing the overall cost of the long option (OCT-55C) to $0.37.
One of the few losers was Motorola (MOT), down $2 to finish just
below $90.

Many of the brokerage stocks rebounded and two of our recently
under-performing issues; Lehman Brothers (LEH) and Merrill Lynch
(MER) made solid gains. Both long-term positions were candidates
for roll-outs; the MER AUG80C/SEP80C at $2.38 credit and the LEH
AUG60C/SEP60C at $1.75 credit.
  
Oil stocks were also positive in today’s broad market rally and
our current positions in Halliburton (HAL), Noble (NE), Diamond
Offshore (DO) and Baker Hughes (BHI) all moved higher. The BHI
calendar spread is trading exactly at the sold strike ($35) and
we are considering an early move to September. The current credit
for the AUG/SEP roll-out is $1.25, which would bring the overall
cost of the OCT-35 call to $0.25. There are many other positions
to move forward this week and a complete summary of monthly plays
will be posted after Friday’s monthly expiration.

Good Luck!

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

I had a great time at the Seattle Money Show, the highlight of
which was meeting with all of the readers (current and future)
that chose to attend. Most of the traders that I spoke to were
very happy with the products that the OIN offers and we also
received some excellent suggestions for new sections and other
improvements. As far as the Spreads/Combos Section, most of you
favored time selling strategies such as calendar spreads and
LEAPS with Covered-Calls. A large compliment of readers were
interested in out-of-the-money credit spreads while slightly
fewer wanted more in-the-money debit spreads. The final group
favored neutral positions such as straddle combinations and
credit strangles and there were just a few that indicated an
interest in the complex and exotic arbitrage plays. I hope that
we can continue to improve all of the newsletter products and
we look forward to meeting more of you at the next show in San
Francisco, October 29-31.
**************
PRD - Polaroid  $25.37     LEAPS/Covered-Calls

Polaroid Corporation and its subsidiaries, designs, manufactures
and markets a variety of products used primarily in instant image
recording fields. Its products are used in amateur & professional
photography, graphic arts, science, medicine, government, and
education.

Polaroid is approaching monopoly status in their industry with a
huge percentage of the worldwide market for instant imaging. They
are well known in international manufacturing sectors and they're
also one of the biggest patent holders in the United States. They
also have tremendous technological expertise in the area of new
research.

Polaroid is beginning to offer a number of new products. These
include a disposable instant camera and a pocket-size instant
camera that creates images the size of large postage stamps, with
adhesive backs. These new cameras could double Polaroid's sales
to nine million this year. They also plan to have branded film
with popular cartoon characters on it and both of these products
are marketed primarily to the younger age groups, to give PRD a
different area of distribution. The new disposables will be sold
in outlets like Toys 'R' Us, 7-Eleven, hotels, liquor stores and
entertainment areas. Another future plan currently on the drawing
board is the possibility of putting an instant film back in the
digital camera. Polaroid is negotiating with some major producers
of digital cameras to license their instant technology to them.

With new management and the ongoing possibility of a potential
merger with industry-leading candidates like Sony, the next few
months are expected to be positive for the share value. The
December quarter is usually their best one. They could earn as
much as $1.50 a share this year, against a loss in 1998 and next
year's earnings could be as high as $2 to $3.

This new outlook has produced a short-term rally in the stock
price and the option prices are favorable. We will protect the
downside for the first few months by selling ATM positions.

PLAY (conservative - neutral/calendar spread):

BUY  CALL JAN01-25 ZRD-AE OI=252  A=$6.62
SELL CALL SEP99-25 PRD-IE OI=1124 B=$1.62
INITIAL NET DEBIT TARGET=$4.75 TARGET ROI=100% (17 months)

Chart = http://quote.yahoo.com/q?s=PRD&d=3m
**************
DISH - Echostar Comm.  $72.50     *** Personal Preference ***

Echostar Communications through its subsidiaries, is a leading
manufacturer & worldwide distributor of direct-to-home satellite
television (DTH) products. DTH products allow reception, direct
to the end user, of video, audio, data and other information via
satellites positioned in geostationary orbit. The company is also
developing a digital direct broadcast satellite (DBS) system for
the United States.

Echostar rose $7 to $72.75 today after analysts Dennis Leibowitz
and Karim Zia at Donaldson, Lufkin & Jenrette raised the company
from a “buy” to a “top pick.” This comes just one week after DISH
reported a 42% increase in total quarterly revenue; $350 million
for the three months ended June 30, 1999. EchoStar also reported
pre-marketing cash flow of $129 million, almost twice as high as
the previous period. The company also experienced strong network
subscriber growth during the second quarter, adding 332,000 new
customers, an increase of 84%.

The company is rumored to be working on a new up-link technology
where they can provide satellite Internet services. You may have
seen Hughes' DirecTV/DirecPC, which broadcasts Internet content
via satellite directly to a PC but the most widely used platform
is still the TV. Echostar is now working on that technology and
most experts believe the company is now positioned to become the
premier provider in the industry.

I am offering this play because I like the current bullish outlook
on the stock (from the analysts that follow the industry) and the
current technical trend. In addition, I just installed DISH in my
front yard (a five foot dish on a ten foot pole) and in my opinion,
any company that can produce a perfect digital picture in Chugiak,
Alaska (my home town) is worthy of my vote.

PLAY (aggressive - bullish/diagonal spread):

(Market/stock price opens higher)

BUY  CALL DEC-65.00 QHS-LM OI=89  A=$16.62
SELL CALL AUG-75.00 UAB-HO OI=521 B=$1.37
INITIAL NET DEBIT TARGET=$15.00 TARGET ROI=50%

(Market/stock price opens lower)

BUY  CALL DEC-65.00 QHS-LM OI=89  A=$16.62
SELL CALL AUG-72.50 UAB-HV OI=187 B=$2.31
INITIAL NET DEBIT TARGET=$14.00 TARGET ROI=50%

Plan to sell another ITM call option next week, after the August
expiration.

Chart = http://quote.yahoo.com/q?s=DISH&d=3m
**************
PGEX - Pacific Gateway  $22.87     *** Volatility Play ***

Pacific Gateway’s goal is to provide global Internet and high
bandwidth services by expanding its network to provide companies
with all facets of connectivity. In addition, the company is a
diversified facilities-based international telecommunications
carrier serving a wide array of domestic & international service
providers and retail customers. PGEX and its subsidiaries are a
party to 44 operating agreements providing landing rights in 28
countries and have ownership interests in 19 digital undersea
fiber optic cable systems. In addition, PGEX has a U.S. network
spanning twelve major metropolitan cities and is developing
additional offshore markets.

PGEX reported favorable quarterly earnings in mid-July with
revenues increasing 27% on 49% volume growth. The company now
has five years of profitable operations and a current backlog
of $73 million in new contracts expected to yield $1.30 - $1.50
in future EPS. Over 65,000 customers now utilize PGEX’s retail
services and their new business venture, PGExpress, is planning
to open a slew of global Internet Data Centers in 1999.

Implied volatility remained at extreme levels today in the call
options on PGEX although trading volume was fairly low. One of
the market-makers noted that a regular retail customer likes to
open positions with a bias towards long volatility. That can be
a bonus to us if the stock trades in a reasonable ($3-$5) range
for the next few days.

This is a ten week bottom-fishing position based on the favorable
disparity in front month options. We expect to move to a diagonal
spread (one direction or the other) when the short option expires
this Friday.

PLAY (aggressive - bullish/calendar spread):

BUY  CALL OCT-25 QAE-JE OI=213 A=$3.00
SELL CALL AUG-25 QAE-AE OI=401 B=$0.31
INITIAL NET DEBIT TARGET=$2.50 TARGET ROI=25% (two months)

Chart = http://quote.yahoo.com/q?s=PGEX&d=3m
**************
OMQP - Omniquip  $12.06     *** Technicals Only ***

Omniquip International is the largest North American producer of
telescopic material handlers, marketed under the SKY TRAK and
LULL brand names. The company also manufactures a line of skid
steer loaders and other material handling equipment. Omniquip's
products are used in a wide variety of applications by commercial
and residential building contractors, as well as by customers in
other construction, military, industrial & agricultural markets.

The company reported record third quarter results in early August
with a 25% increase in sales. The incredible third quarter sales
reflects strong markets for OmniQuip's products, especially the
telescopic material handlers, and higher than anticipated sales
of Snorkel aerial work platforms, as the result of an aggressive
inventory reduction program. The new Snorkel sales force reduced
inventory by $14 million in the third quarter and recorded the
highest sales month (June) in Snorkel's history.

The earnings are old news but the stock price continues to move
higher and the last two days have been extreme. The technicals
are favorable and traders drove the implied volatility higher
today. We will use the new call option interest to open a low
cost speculation play on this unique issue.

PLAY (aggressive - bullish/diagonal spread):

BUY  CALL SEP-10.00 OJQ-IB OI=664 A=$3.00
SELL CALL AUG-12.50 OJQ-HV OI=547 B=$0.50
INITIAL NET DEBIT TARGET=$2.38 TARET ROI=15%

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




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