Option Investor
Newsletter

Daily Newsletter, Thursday, 08/19/1999

HAVING TROUBLE PRINTING?
Printer friendly version

The Option Investor Newsletter         Thursday  8-19-99
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)
************************************************************
        8-19-99          High     Low     Volume   Advances Decline
DOW    10963.84 - 27.54 10995.50 10873.29  680,499k  1,382   1,643
Nasdaq  2621.43 - 36.30  2657.74  2612.28  870,696k  1,650   2,094 
S&P-100  687.83 -  5.27   692.36   683.97   Totals   3,032   3,737
S&P-500 1323.59 -  9.68  1331.83  1315.37            45.0%   55.0%
$RUT     432.77 -  0.33   433.10   429.88
$TRAN   3166.30 - 20.06  3187.34  3143.71
VIX       25.46 +  1.42    27.00    25.08
Put/Call Ratio      .80    
*************************************************************

Same market.  Different day.  Good night.

Actually, the widening trade gap was the first falling domino 
that sparked a chain reaction culminating in a loss for the DOW 
and NASDAQ in today's trading.  Oh no!  Not another economic 
explanation, you say?  Yes, but we'll keep this really simple.  
Here's how it works.

In short we all awoke to find that our imports far exceeded our 
exports last month, part of an accelerating trend, where we buy 
more stuff than we sell to other nations.  As a result, it means 
that the dollar weakens (trust us on this).  If the dollar 
weakens, foreign goods and services become more expensive.  That 
sounds like inflation.  Yep. . .sure is.  From previous updates, 
you now know that inflation's handmaiden is the bond rate, which 
will, of course, rise too.  Rising rates equal lower profits, 
which equal cheaper stocks.  There, now wasn't that simple?  

That's the domino chain for today.  Now everyone is worried about 
the weakness of the dollar and Greenspan's hypothesized reaction 
to it.  The supposition is that it may mean 1) a greater rate 
hike on August 24; 2) another rate hike after August 24; 3) a 
tightening bias to boot; 4) a boost in the federal funds rate AND 
the discount rate; 5) make up your own "sky is falling" story; 6) 
all of the above.  Frankly, this is making a mountain out of a 
molehill, and should demonstrate to all of us that there is a 
significant lack of other financial news that allows anything to 
fill the information vacuum.  Nature abhors it; so does the 
market. 

Don't fall victim to the smokescreen.  The fact is all eyes are 
acutely focused on August 24, Tuesday's FOMC meeting, wherein the 
market expects a 25 basis point rate hike, period.  In front of 
that meeting, nobody wants to open a new position, but they are 
not worried sufficiently to sell what they already own.  
Investors are simply sitting on the sidelines waiting for the 
Fed's cue.  In a nutshell, that is why there is no appreciable 
volume.  There is simply no reason for the market to go up, and 
yet no selling pressure to bring it down.  And so it goes; hurry 
up and wait.

As for today's market, here goes. . .the DOW took a nosedive to 
10,900 during amateur hour in a fearful response to the trade 
deficit numbers.  After bouncing around within 25 points on 
either side of 10,900 for most of the morning, the DOW took off 
like a freshly hooked fish toward 11,000 following the lunch 
hour.  Though it made it to 10,995, a reversal ensued bringing it 
back down to 10,900, where it firmly bounced north again.  In the 
final half-hour, the DOW recovered 63 of its previously lost 
points to close at 10,963, down 27 points on weak (again) volume 
of 680 mln. shares.  This should come as no surprise since most 
investors are sidelined waiting for the Fed meeting.  Just so you 
know, the average volume is about 785 mln. shares.  While early 
numbers showed decliners trumping advancers 2:1, the ratio 
narrowed to 4:3 by days end - a nice comeback, but still a 
negative day.  New lows are becoming fewer, as only 90 issues 
claimed that dubious distinction today, while new highs remained 
flat at 42.

Technically speaking, that magical 10,900 number, where the 
market found lots of support today, just happens to be the DOW's 
50-dma.  That we had a strong bounce, with a close nearer to its 
high, is a good sign.  The bad news is that 11,150 seems to be 
the upper end of the trading range.  That leaves only 250 points 
of trading range - a pretty narrow span from which to snag 
profits.  Can you say range-bound?  Sure, we knew you could.  
Again, keeping your powder dry is important.  But for those who 
MUST play in a sideways market (a capital muncher if there ever 
was one), pay close attention to the trading range.  Be prepared 
to go short (play puts) at the top, and go long (play calls) at 
the bottom, and exit quickly if a trade moves against you.

The NASDAQ experienced a bit more pain today, as it gapped down 
about 30 points to 2637 from yesterday's already weak close.  Not 
stopping there, it kept going down to 2612 before it stabilized 
around 2620.  Shortly after lunch, somebody opened the bullpen, 
as the NASDAQ made a lunge for 2640, which didn't last long.  In 
a continuing display of weakness in what appeared to be orderly 
profit taking, internets, telecoms, and financials dragged the 
index back down to close at 2621, off 36 points for the day.  
Another lackluster volume day here too at only 871 mln. shares 
traded.  NASDAQ won't go anywhere without a substantial volume 
increase.  Decliners kept there lead over advancers about 5:4, 
while new lows were statistically even with new highs, 55 to 54, 
respectively.

Though equity and index options expire tomorrow, which would 
normally prop up the market temporarily, the Nasdaq couldn't hold 
its 50-dma and closed near its low of the day (not a good sign if 
you are looking for a strong Friday).  If it can't keep above 
this, then it may test the 2500-2550 range again.  With only 
Greenspan on the horizon for Tuesday, August 24, we expect to 
remain range-bound between 2550 and 2700.  You may want to 
consider waiting to open a new call position until we get a clean 
bounce off or strong break over the 50-dma (2650) or, a reversal 
following a descent to the 2500-2550 range.  As we've said 
before, it's tough to play a range-bound market for a profit.

For those with a bit more tolerance for risk who just aren't 
comfortable sitting out, it's still a tradable market.  You just 
need to be agile.  Still, in front of the Fed meeting Tuesday, 
you may want to consider opening a hedged OEX position so that 
you profit on a breakout in either direction.  We might suggest 
playing puts, but there's an old adage on Wall Street that you 
never short a quiet market.  You need other sellers to join in 
order for that to work, something that isn't likely to happen 
before Tuesday (and maybe not after, depending on the Fed's 
comments/actions).

The fact is that volumes are likely to remain low, not just in 
front of the FOMC meeting, but until after the labor day weekend 
when traders return from vacation.  Until then, volume (necessary 
for a breakout to the upside) will remain light and we will 
likely remain range-bound for the next 2 weeks.  Now truly is a 
good time to go on vacation.

Looking into the crystal ball, what do we see?  Given that 
tomorrow is double witching day (index and equity options 
expire), we expect to see a bit of support tomorrow, just not a 
barnburner, but still fraught with higher than usual volatility.  
If you trade over the next 2 days (Friday and Monday), pay close 
attention to the trading ranges of the market indexes and take 
positions in particular companies whose movement tends to be 
similar.  September options will be a bit cheaper on Monday.  For 
the real aggressive, you can always sell puts on a breakout 
tomorrow with the idea that they will expire worthless in 
something less than 7 hours.  Remember to tighten up those stops 
if you are sitting on profits.  You won't want to lose them on 
ill-timed volatility.  In short, trade using support and 
resistance if you must play, or get hedged for Tuesday.  You 
won't be penalized for waiting either.  As always, sell too soon.

Buzz Lynn
Research Analyst



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

As of Market Close - Thursday, August 19, 1999 

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

DOW Industrials   10,500  11,320  10,963    Neutral   7.20
SPX S&P 500        1,320   1,420   1,324    Neutral   8.17
OEX S&P 100          675     735     688    Neutral   8.13
RUT Russell 2000     440     465     432    BEARISH   8.06
NDX NASD 100       2,250   2,468   2,279    Neutral   8.13
MSH High Tech      1,125   1,250   1,141    Neutral   8.13

XCI Hardware         920   1,090   1,005    Neutral   7.20
CWX Software         725     844     757    Neutral   8.13
SOX Semiconductor    450     535     492    Neutral   7.20
NWX Networking       555     625     561    Neutral   8.13
INX Internet         500     580     422    BEARISH   7.20

BIX Banking          690     710     657    BEARISH   7.23
XBD Brokerage        410     440     391    BEARISH   7.23
IUX Insurance        645     660     610    BEARISH   7.23

RLX Retail           915     960     854    BEARISH   7.23
DRG Drug             370     400     351    BEARISH   7.20
HCX Healthcare       750     800     717    BEARISH   7.22
XAL Airline          180     190     155    BEARISH   5.21
OIX Oil & Gas        285     310     313    BULLISH   8.10



Posture Alert    
Pre-Fed Blues? Thursday’s lackluster action will probably be
viewed as a big trading day, in comparison to the next two sessions
before the Fed meets. The Internet (INX) sector led the Nasdaq down,
posting a -6.18% drop, followed by Networking (NWX -1.65%), and the
Nasdaq 100 (NDX -1.67%). Drug and Healthcare sectors were the only
positive indexes, posting small gains. No changes to the posture
board.  




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

members.OptionInvestor.com/marketposture




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

Sentiment Blues!

Wow! The latest Investors Intelligence Survey showed that bulls
decreased by -4.2% this last week and bearish investors increased
by +2%. This is a very large change for one week, and this statistic 
probably has a correlation to the upcoming Fed meeting. Bullishness
has now decreased by 16% from the highs in June, and bearish
sentiment has increased 6.5% since mid-July. From a contrarian
standpoint, this is exactly what you want to see. We will probably
need to see these percentages go even farther before this market
has truly bottomed out, but this is a good start.

Below is an illustration on sentiment for Dell Computer. As you
already know, Dell had a blowout quarter and handily beat
expectations for the first time in several quarters. The stock
rallied hard, but had an extremely tough time getting through
the 45 barrier. Not only had Dell bumped off of 45 numerous
times before, which would serve as technical resistance, but
sentiment for August was too great at this key benchmark as
well. Hopefully, this illustration will better help you
understand why Dell did not break that benchmark with such
good news and heavy volume on the day of their earnings.  


Dell Computer (DELL) 
                     Open                           Open      Put/Call
Month/strike/symbol  Interest: Month/strike/symbol  Interest: Ratio:   
 

Aug 35      DLQ HG    11,296   Aug 50      DLQ TG   26,052   2.306
Aug 37 1/2  DLQ HU    15,002   Aug 50      DLQ TU   20,684   1.378
Aug 40      DLQ HH    51,141   Aug 40      DLQ TH   39,541    .773     
Aug 42 1/2  DLQ HV    46,709   Aug 42 1/2  DLQ TV   12,709    .272
Aug 45      DLQ HI    87,751   Aug 45      DLQ TI    8,282    .094
Aug 47 1/2  DLQ HW    21,625   Aug 47 1/2  DLQ TW    3,292    .152
Aug 50      DLQ HJ    43,842   Aug 50      DLQ TJ    3,223    .073
Total:               277,366                       113,783    .410  

Looking at the above illustration, at the 35, 37 1/2, and 40 strikes, 
there was a large group of bearish investors, who were betting that 
Dell would take a large tumble after earnings. With sentiment being
so heavily bearish at these three strike prices, what you want to
imagine is an artificial support in this range, due to the bearish
sentiment. Now granted, many of these contracts may be naked
positions, spreads, straddles, and other sorts of hedging, but for
hypothetical purposes, we are assuming only long option positions.

As we move up in strike, you will notice the bears disappearing,
and the bulls coming out of the woodwork. At the 45 strike, there
are a whopping 87 thousand contracts outstanding, correlating into
over 8.7 million shares of Dell stock, if exercised. This 45 strike
is the overhang that we mentioned in Sunday’s letter. This is a huge
amount of calls, especially compared to the puts at this respective
strike. With the option traders hedging themselves whenever someone
trades an option, you can only imagine the large hedge position that
some market-maker or firm has on Dell. With such a short time until
the August expiration, you should be able to put 2 and 2 together to
realize the resistance that Dell has at this number. Once August
expiration is done with, we will closely watch to see if everyone
tries the September series. If the bullishness is not nearly as
great (between 45-50 for SEP), then the lid may be lifted off of
Dell, if not, look for a trading range bound stock.


 


 


 


 




BULLISH Signs: 

Investor Intelligence:  
As a contrarian indicator, the percent of Bullish investors
decreased 4.2% and Bearish sentiment increased 2.0%.


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 1.3 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      Thurs  
Indicator                        (8/13)    (8/17)    (8/19) Alert

Pinnacle Index (OEX):
                    
Overhead Resistance (715-745)      8.0      9.4       9.8
Overhead Resistance (680-710)      2.3      1.5       1.3
Underlying Support  (630-670)      4.4      5.9       6.9
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7       .6        .6 
CBOE Equity P/C Ratio               .5       .5        .4
OEX P/C Ratio                      1.2      1.1       1.2


Peak Open Interest (OEX):

Puts                              670       650       650
Calls                             700       700       700
P/C Ratio                          .9        1.1       1.3

Market Volatility Index (VIX):	

CBOE VIX                         25.88



Investors Intelligence:

Bullish                         45.80%  *
Bearish                         31.30%  *


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      Thurs
Benchmark                        (8/13)    (8/17)    (8/19)

Overhead Resistance (715-745)    8.03       9.42      9.80
Overhead Resistance (680-710)    2.33       1.51      1.30

OEX Close                      688.82     699.28     687.83
      
Underlying Support  (630-670)    4.36       5.94      6.87
                     

 
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       Thurs
Strike/Contracts                (8/13)    (8/17)     (8/19)



CBOE Total P/C Ratio             .69       .62       .63
CBOE Equity P/C Ratio            .49       .48       .44
OEX P/C Ratio                   1.21      1.09      1.23


(OEX)
Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (8/13)           (8/17)         (8/19)


Puts                 670 / 13,875     650 / 15,466    650 / 14,382
Calls                700 / 15,403     700 / 14,381    700 / 11,473
Put/Call Ratio          .90              1.08          1.25



 


 





(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 19, 1999                         25.88



 


 




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
Aug  18, 1999                         45.8        31.3 ***




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

Index       Last    Mon    Tue     Wed    Thu   Week
Dow      10963.84  73.14  70.29 -125.70 -27.54  -9.81
Nasdaq    2621.43   7.47  25.94  -13.49 -36.30 -16.38
$OEX       687.83   3.85   6.61   -6.18  -5.27  -0.99
$SPX      1323.16   3.09  13.39  -11.32  -9.25  -4.09
$RUT       432.77  -0.23   2.18   -2.90  -0.33  -1.28
$TRAN     3166.30  33.10  -6.66  -19.15 -20.06 -12.77
$VIX        25.46   0.57  -0.42    1.51   1.42   3.08

Calls               Mon    Tue     Wed    Thu   Week

GTW         89.25   2.88   0.63    5.75  -1.75   7.50  New
LVLT        60.88   5.38   3.50   -0.88  -1.63   6.38  Bounce
VRSN        88.25   2.81   3.44    1.31  -2.31   5.25  Potential
SLB         67.25  -0.50   1.88   -0.81   1.44   2.00  Not out!
LXK         73.94   1.75  -0.50    0.06   0.00   1.31  Roller
MMCN        50.88   4.13   0.13   -4.38   1.13   1.00  Ride it!
NXLK        98.13   0.38   5.19   -8.50   3.44   0.50  Split?
HGSI        59.81  -0.06   0.06   -0.75   0.44  -0.31  Support!
IDPH       123.25  -1.25  -6.50    2.94   3.31  -1.50  New
BVSN        91.94   1.38   9.06   -4.75  -7.25  -1.56  Wild ride
SNE        127.88  -0.31   2.25   -1.19  -2.31  -1.56  Cycle
NOK         83.50   0.00   1.44   -1.06  -2.63  -2.25  Keeper
INTC        77.31  -1.19   0.44   -0.50  -1.19  -2.44  Hold on
LSI         56.25  -0.38  -2.00   -1.06   0.81  -2.63  Upturn
SLR         70.38  -2.13   0.31   -1.56  -0.63  -4.00  Going up
VISX        89.94   1.63  -1.56   -6.44   0.81  -5.56  Dropped

Puts                Mon    Tue     Wed    Thu   Week

TBH         69.63  -0.63  -1.25   -2.50  -0.38  -4.75  Bearish
AMR         60.19   1.13   0.25   -1.75  -1.31  -1.69  Go pilots
T           48.19  -0.19   0.69   -1.13  -0.44  -1.06  New
AET         78.25   0.69   0.94   -1.69   0.00  -0.06  New
IP          54.00  -0.75   1.13   -1.63   1.25   0.00  New
U           32.81   0.81   0.00   -0.44  -0.31   0.06  Patience
AHP         45.63  -0.06   1.06    2.63   1.13   4.75  Dropped





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

VISX 89.94 +0.81 (-5.56) Goodbye VISX!  There just doesn’t 
seem to be anything on the horizon that will move this stock. 
Currently, the stock has turned south and does not meet our 
standards of a productive call play.  VISX, along with the 
entire vision healthcare sector, seem to have lost there drive 
this week due to increased competition which may mean lower 
selling prices for their product.  Today VISX has moved to its 
50-dma and is just too speculative to keep on our play list.  
With the tone of the markets and a FOMC meeting on Tuesday, a 
search for an exit point would be considered a prudent strategy.  
If any further option plays present themselves in regards to 
VISX, we will be the first to let you know.




PUTS:
******

AHP $45.63 +1.13 (+4.75) Doom and gloom was the outlook for 
American Home Products when we first chose the stock as a put 
play.  With thousands of lawsuits filed against the company 
by individuals that used there dietary supplements Pondimin 
and Redux claiming it caused heart valve damage, we thought 
there was little hope for the stock.  Even when US Regulators 
approved its drug Sonata for adult insomnia, it was not enough 
to help the dying stock.  However, Wednesday’s news release 
about merger rumors with Glaxo Welcome was enough to entice 
investors back into the stock.  The stock has made a large 
enough U-turn that we have decided to end this play.  If you 
are not already out, look for an exit or let your stops pull 
you out of the play.




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




******************
FREE TRIAL READERS
******************
If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an Email to

 "subscribe@OptionInvestor.com" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333



*************************************************************
                      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 8-19-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.




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

SNE $127.88 -2.31 (-1.56) Sony has dropped for the past two 
days but those of you that have been following our play know 
that this is standard procedure.  SNE has gone through these 
cycles for the past couple weeks.  It will rally for a week 
and pullback for a week.  What we like to see is the highs 
getting higher and the lows getting higher and that is just 
what Sony has given us.  It also typically drifts lower on 
weak volume which is another positive indicator.  In fact 
this is likely to be an opportunity for some new plays.  But 
the one wild card to watch out for is the dollar which is 
continuing to fall against the yen.  This makes Sony’s products 
more expensive in the U.S., thus hurting sales and profits.  
We don’t expect that the yen will be able to hold at such a 
high mark against the dollar but keep your on it just in case.  
Remember, a weak dollar = a weak Sony.

LVLT $60.88 -1.63 (+6.38) Yesterday LVLT moved up to an intra-
day high of $64.94, until the end of the day, when it fell 
back $2.50 to close at $62.50.  A gap down this morning didn't 
help either, as LVLT continued its descent to $58.63 before 
reversing course to close at 60.88.  Volume was weak yesterday 
and only average today.  The real strength of this play lies 
in the bounce off its 30-dma of $58.63, despite the lack of 
any heavy buying volume on the rebound.  While the market 
headed south for most of the afternoon, LVLT's volume did 
pick up but the price remained flat into the close - a show 
of relative strength.  LVLT currently rests right on its 
200-dma and looks poised to bounce from there tomorrow.  Dips 
to $59 appear to be buying opportunities if you can stomach 
a bit more risk.  For those in the more conservative camp, 
resistance is at $65 and you may want to wait for a breakout 
over $65 before taking a position.  Since tomorrow is expiration 
day, generally we can expect the market to remain volatile.  
If you buy tomorrow, be prepared for a flat Monday in front 
of the Tuesday FOMC meeting.  Unless the dip is too good for 
you to pass up, perhaps waiting until Monday will give you 
a better entry.  Again it is more safe to wait on the side 
ahead of Greenspan if LVLT is showing a lack of direction.

SLB $67.25 +1.44 (+2.00) As the bears took control of the last 
couple of sessions, Schlumberger was one of the few stocks to 
emerge on the positive side.  This morning, after the trade 
deficit numbers were released, investors, seeing the potential 
for higher inflation, decided to head to less interest rate 
sensitive stocks like SLB.  Despite oil prices being mixed the 
past two days and Tuesday’s gasoline inventory rising 337,000 
barrels, investors consider it a safety play rather than buying 
rate sensitive technology and Internets.  Since there is a lot 
of uncertainty in the near future for rate sensitive stocks, 
SLB is a more conservative play.  Also keep in mind that the 
balance of power can shift just as fast back to high-tech if 
the momentum changes.  In case this was to happen, make use 
of your stop loss orders to be safe.  All in all, with oil 
prices hanging around $22 a barrel, SLB should have more 
upside potential from here.  

NOK $83.50 -2.63 (+2.25) With the market being so interest 
rate sensitive right now, any economic data hinting inflation 
is enough to have investors running for the doors with there 
tail between there legs.  This is what happened this morning 
when the latest trade deficit numbers were released.  The 
increased deficit put pressure on both the weakening dollar 
and rising bond yields, increasing the possibility of future 
rate hikes.  These worries did not help our play, however, 
this may be a buying opportunity if the market turns.  NOK is 
still trying to break though its 50-dma at $85 and until it 
does use extreme caution and choose your entry points wisely.  
Continue to watch the general sentiment of the market, it’s 
a great indicator for this particular play.

INTC $77.31 -1.19 (-2.44) INTC equaled its all time high on 
Wednesday at $79.81 during the first hour of trading before 
consolidating for the balance of the day, closing down only 
$0.50.  Intel is down only $2.44 for the week.  It appears as 
though the institutions have not given up on the chip maker  
as the selling has come on light volume, averaging only 16.5 
million shares per day so far this week.  INTC gave up just 
$1.19 in today's trade making a low of $76.81 after the first 
hour of trading.  The basic story here seems to be the same 
as in the broader markets, no new buyers and not many sellers.  
What is left is a stock that is trading sideways, looking for 
some leadership.  If you haven't been stopped out yet, keep 
your stops close.  Again we would suggest not entering a new 
play on Intel until some fresh buying enters the market, or 
in other words, a good move up accompanied by, you guessed it, 
VOLUME.  In the news, Analyst Scott Randall at Soundview 
Technology Group did reiterate Intel as a strong buy Wednesday 
morning.  Also Intel announced Thursday it has decided to stop 
making its discrete "stand alone" graphics chips, but does 
intend to continue with its integrated chipset production, 
focusing on the integrated solutions.

NXLK $98.13 +3.44 (+0.50) We are keeping NXLK as a call play
even though we would have hoped you were stopped out yesterday.
Nextlink gave up $8.50 in yesterday's session closing just 
under $95.  Right out of the gate this morning NXLK dropped 
another $5.69 hitting $89 in the first 15 minutes of trading.  
Again this is why Jim has that pesky ‘1st hour of trading’ 
rule.  Just after noon ET, NXLK regained its composure and 
mounted its assault back up the hill making a high of the 
day at $99.50.  That is a $10 range in less than three hours 
and the very reason we love to play NXLK.  The stock has 
been extremely active recently creating lots of opportunities 
to profit.  NXLK held up better than many of its partners in 
the Telecomm industry.  There seemed to be quite a bit of 
concern today with the initiation of the recent price wars 
and the pending interest rate increases.  We will continue 
to watch NXLK, as we are anticipating a split run for the 
2:1 split, which we anticipate to be around August 27th.  
The $94-$95 area should provide support for Nextlink.  Please 
use caution in opening a new play in NXLK as the recent action 
may be too much for conservative players.

MMCN $50.88 +1.13 (+1.00) Talk about falling out of bed.  After
starting the day out higher Wednesday morning, MMCN stubbed 
its toe and drifted sideways to lower for most of the rest of 
the session.  As we said for "most" of the session, however 
in the last 20 min of the day MMCN lost $2.38 to close at 
$49.75.  With the momentum to the downside already built in 
MMCM opened down $0.38 this morning and lost another $2.57 to 
make a low of $46.81 before catching up with itself.  Shortly 
before 11 ET investors decided enough was enough and stepped 
in to run MMCN back up to a high of $52.50 before settling at 
$50.88 up $1.13 for the session.  What a ride!  We are not 
sure if the wild is out of MMCN yet and caution should still 
be advised here.  But given the strength of the recovery today 
we still believe MMCM will make its way higher.  Volume has 
been a little better than average the past two days at about 
600K which is more than you can see for the broad markets 
where volume has been anemic.  Before considering a new play 
in MMCN wait for positive movement accompanied by new buyers 
(volume) and keep your stops close.  One positive was Needham 
& Co analyst David Wong who reiterated his strong buy rating 
of MMCN Wednesday morning. 

SLR 70.38 -0.63 (-4.00) Well, it was not a hearty day for SLR 
on Thursday.  The stock lost 0.63 points to end the trading 
session at 70.38.  Volume today was well beneath its daily 
average of 1.28 million with only 673 thousands shares changing 
hands.  After some further analysis today, it would be wise 
for participants in this play to use caution, at least until 
the Fed meets next Tuesday.  Currently, SLR is sitting on its 
10-dma.  This should be monitored carefully, because if the 
stock penetrates this barrier the momentum could continue on 
a downward spiral.  Also, pay close attention to the correlation 
between overall market performance and SLR’s stock price.  We 
want to see signs of SLR outperforming the market before any 
new plays are opened.
 
LSI $56.25 +0.81 (-2.63) The sharp decline by fellow chip 
maker Applied Materials (AMAT) put a wrench in the trading 
yesterday as LSI lost $1.06 on low volume.  But this call 
play driven by the general upturn in the semiconductor sector 
fared better today.  The volume picked up slightly and LSI 
closed within a fraction of its daily high.  Both are good 
signs as LSI is consolidating at its support level of $56  
from the 10-dma.  Gruntal & Co is also confident on LSI.  On 
Wednesday, they reiterated their strong buy rating for the 
stock and set a 12-month target price of $80.  Still the 
conservative player will want to wait for a solid bounce out 
of support with a show of volume before initiating a new 
position.  Keep your eye on other stocks in the sector for 
signs of movement since this is a tightly knit group. 

VRSN $88.25 -2.31 (+5.25) This momentum play has slowed down 
a bit on Thursday to take a much needed break.  VRSN finally 
pulled back to consolidate after 7 consecutive days of gaining 
a total of $22.75 or 35%.  Volume also dropped to about 75% 
of its normal levels the past couple of days.  This pullback 
offers an opportunity to jump in the game if you are one of 
those HIGH RISK INTERNET players.   There's still potential for 
profits, market permitting of course, with overhead resistance 
over 8 points away at $96.75 which is the 52-week high set in 
mid-July.  You may have noticed that potential today as the 
stock bounced back and forth.  Today alone gave investors a 
chance for multiple plays.

BVSN $91.94 -7.25 (-1.56) The market giveth and the market
taketh away.  May your stops have triggered today to save your
hard earned profits.  Today we got taken on a ride down with 
BVSN.  The stock opened today with a severe negative price gap 
before recovering a bit to plateau at around $97 and then lost 
it in the last two hours of trading.  We are still above our 
10-dma so a positive confirmation in the market could provide 
an entry opportunity.  The drop today did turn some of our 
technical indicators negative.  The news for BVSN is also in 
the negative with two analysts downgrading the stocks future 
outlook.  The sharks are in the water so be careful!

LXK $73.94 +0.00 (+1.31) Considering the skiddish market 
of late, LXK is holding it's own.  Investors should remain 
cautious, as the market is, until the FOMC meeting sheds 
light on our direction from here.  Today our market was on 
course for being a very light volume day and this translates 
into volatility.  LXK followed suit, looking like a roller 
coaster on it's daily interval chart.  Our 10-dma support is 
slowly catching us and as it approaches, may create another 
good buying opportunity next week.  The sidelines aren’t such 
a bad place to be when uncertain and market uncertainty is 
certainly what we have.  Be patient and LXK should provide 
some more good plays.

HGSI $59.81 +0.44 (-0.31) HGSI was like a scary ride today!  
The morning looked like we were done for as we dropped below 
support.  The afternoon provided relief as a late day bump 
kept us above support at $59.50.  We did say this play was 
speculative, so check your risk tolerance (and your blood 
pressure.)  HGSI turned negative on the MACD today, so set 
your stops as well.  The stock is coming dangerously close 
to losing its spot on the call list.  But there are reasons 
to keep your eye on HGSI.  One reason is the company announced 
the hiring of a great asset today.  Dr. Vivian Albert will 
direct the Molecular Biology division.  She has an impressive 
record and three patents.  She should prove to be beneficial 
as the company progresses towards a break through.  As my 
youth soccer coach said, "When in doubt, kick it out!"  
Prudence would indicate doubt in the market so don't throw 
in a new play until some positive certainty is confirmed.




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

U $32.81 -0.31 (+0.06) Trading has been pretty quiet lately 
in USAir.  The stock is acting like it is ready to rollover 
after finding resistance from the 10-dma but it has downturn  
has been less convincing than normal.  The stock has been 
drifting around on light volume this week.  This is probably 
from a lack of news, which is the first time in awhile.  We 
are still expecting a retest of the lows from last week but 
the low trading activity makes this a game of entry and exit 
points.  Use patience on your entry and don’t be afraid to 
take a small profit.  There is still money to be made while 
the stock drifts lower.  

AMR $60.19 -1.31 (-1.69) The news of a failed deal with their 
pilots has sent AMR to the lows for the week.  The news came 
out on Wednesday that the pilots have again rejected a deal 
to incorporate pilots from Reno Air, which AMR has agreed to 
purchase, into a salary arrangement.  This news sent AMR off 
of its highs of $64.50 yesterday to close only fractionally 
off the day-low today of $60.19.  The silver lining in the 
news is that AMR will go ahead with their plan to purchase 
Reno Air on August 31, thus avoiding another setback.  But 
until they strike a deal with the disgruntled AMR pilots, 
they will constantly have a dark cloud hanging over their 
stock price.  This will obviously help our play.  Technically, 
AMR bounced off resistance from the 200-dma at just over $64.  
We talked about this last weekend as being a good entry point.  
If you are in a play, it may be time to tighten down the stops 
after the nice two-day drop.
 
TBH 69.63 -0.38 (-4.75) TBH is still showing us bearish 
movements that investors can profit from.  The ADR closed 
down 0.38 to finish below seventy dollars at 69.63.  Volume 
today was slightly on the heavy side with 2.5 mln shares 
changing hands.  Political concerns, and the sliding dollar, 
are developments that should place continuing pressure on 
TBH.  Historically, TBH has an unprecedented correlation 
with the Dow.  With so many uncertainties facing the Dow of  
late, it should be apparent to all of our market savvy investors 
that bearish momentum should continue until the first part 
of next week before the FOMC meeting.  Since last Friday 
TBH has lost more than 4.75 points off its trading price and 
as of this afternoon, there is no new news or developments 
to propel the ADR.  




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

IDPH - IDEC Pharmaceutical $123.25 +3.31 (-1.50 this wk) 

IDEC Pharmaceuticals focuses on the commercialization and 
development of targeted therapies for the treatment of cancer 
and autoimmune diseases.  The company's only approved product, 
the best-selling Rituxan, treats non-Hodgkin's lymphoma which 
afflict approximately 240,000 patients in the United States 
and rheumatoid arthritis, which afflicts almost 2 million 
people in the United States.  IDEC's antibody products act 
chiefly through immune system mechanisms, exerting their effect 
by binding to specific, readily targeted immune cells in the 
patient's blood or lymphatic systems. 

One look at the chart and you know we are looking at a mover 
and a winner.  The question is, can it continue?  Anyone who 
bet against it during the past 3 months has lost and lost big.  
We think the trend will continue as the momentum behind the 
stock soars and it is soaring for good reason.  IDPH owns the 
rights to the popular drug, Rituxan, which they developed.  
The sales for Rituxan grew by 112% to over $68 million in 
the second quarter.  They also get royalties for sales of 
Rituximab which IDEC discovered but is marketed by Genetech.  
The bottom line is that sales are booming as the drug is now 
widely accepted.  Also IDPH only has 12.8 million shares in 
float.  This is making it difficult for institutions to gather 
the number of shares they want.  That brings us to where we 
are today only $3.00 from a new high and a 300% return year 
to date.  The stock has a history of consolidating for awhile 
and then spiking up.  We want to open plays as the spike 
begins but it will require quick judgement.  Due to the steep 
rise, the premiums are expensive so be careful.  You don’t 
want to be holding during the consolidation phase and losing 
precious premiums.  Today’s relative strength could be a 
sign a new move coming so plan your strategy accordingly.  

There has been no news this week but there are rumors about 
a possible stock split coming as soon as September.  These 
are nothing more than rumors at this point but common sense 
would lead us to believe it is highly possible.  They are 
authorized for 50M shares and have less than 25M outstanding 
so they could split the shares right now without a vote by 
the shareholders.

BUY CALL SEP-120 IDQ-ID OI=1126 at $10.00 SL=7.50
BUY CALL SEP-125 IDQ-IE OI= 720 at $ 7.50 SL=5.75
BUY CALL SEP-130 IDQ-IF OI=   1 at $ 5.25 SL=3.50
BUY CALL OCT-125 IDQ-JE OI=   6 at $11.13 SL=9.00

Picked on Aug  19th at   $69.69    P/E = 78
Change since picked       +0.00    52-week high=$126.31
Analysts Ratings      6-5-1-0-0    52-week low =$17.25
Last earnings 07/22 est=    .79    actual= .80
Next earnings 10/20 est=    .41    versus= .08
Average Daily Volume = 446 K
Chart = http://quote.yahoo.com/q?s=IDPH&d=3m


GTW - Gateway Inc $89.25 -1.75 (+7.50 for the week)

Gateway is the #2 direct marketer of PCs in the US only 
behind global leader, Dell Computer.  Instead of using 
resellers, Gateway takes orders via phone or Web site and 
ships directly to the computer user saving the customer 
markup costs.  They develop, manufacture, and support a 
broad product line of desktop and portable PCs, digital 
media PC's, servers, workstations, and other PC-related 
items.  The company has also expanded into the Internet 
access market (gateway.net) and is continuing to add new 
Gateway Country showrooms across the US.  Its array of 
customers include individuals, businesses, government 
agencies and educational facilities.  Chairman and founder, 
Ted Waitt, still owns 41% of the company.

Gateway is our new split play.  On August 10th Gateway 
announced a 2:1 stock split and investors responded in an 
undeniable, positive manner.  On strong volume, GTW has 
popped out of its comfortable support at $75.  The momentum 
continued and GTW tacked on a couple more points over the 
next few days.  But yesterday when Dell surged up following 
its great earnings report and a host of upgrades, GTW reached 
new heights with $5.75 in gains!  Plus during intraday trading 
on Wednesday it peaked at $91.25 to set another 52-week high.  
With the strong sector news from Dell and the pay date for 
the stock split only a couple of weeks away on September 7th, 
GTW's momentum should continue to build.  The slight pullback 
today should provide opportunities for solid entries over the 
next couple of trading days.  Watch out for a pullback as the 
next support is at $82 from the 10-dma. 

In the news, Gerard Klauer Mattison & Co reiterated a "buy" 
rating and set a $100 target price on GTW. 

BUY CALL SEP-85 GTW-IQ OI=1297 at $ 8.00 SL=6.25
BUY CALL SEP-90 GTW-IR OI=1125 at $ 5.13 SL=3.00
BUY CALL SEP-95 GTW-IS OI= 935 at $ 3.13 SL=1.50
BUY CALL DEC-90 GTW-LR OI=  38 at $11.50 SL=9.25
BUY CALL DEC-95 GTW-LS OI=  52 at $ 9.38 SL=7.00

Picked on August 19th at $89.25   PE = 30
Change since picked       +0.00   52 week high=$91.25
Analysts Ratings     13-7-1-1-0   52 week low =$36.12
Last earnings 06/99    est= .55   actual= .56   surprise=1.82%
Next earnings 10-21    est= .68   versus= .51
Average daily volume = 1.58 mln.
Chart = http://quote.yahoo.com/q?s=GTW&d=3m




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

IP - International Paper Co. $54.00 +1.25 (+0.00 this wk)

International Paper has helped provide paper and associated
paper products to the world for over 100 years.  Despite the
fact that the "electronic age" has come, diversification and
combinations are allowing IP to stay competitive.  Diversifying
by providing several forest products such as lumber, photo-
sensitive films, and chemicals, and combination through merger
and acquisition with companies like Union Camp which they 
recently purchased.  This business strategy has allowed IP
to realize a 2% revenue gain, despite the recent "hard times"
experienced in the paper and forest products industry.  IP 
is committed to providing their global clients with value 
added products and ideas on a continuing basis.

IP is almost like a long volley in a tennis match.  Bouncing 
almost consistently between $55 at the high and $50 at the
low for the last three months.  We feel this play will continue 
to channel based on the anticipated market conditions.  The
stock is currently close to the high in the channel at $54. 
If the market continues to correct into the FOMC meeting on 
Tuesday, we think IP will provide investors a put play as it 
channels down to around $50.  Then as the market turns positive 
again, we will adjust positions to calls and ride the channel 
to $55.  Keep in mind that this play is based on past patterns 
and we may need to adjust as we go.  But for now we expect IP 
to once again hit $50 in the short-term.  This is the kind of 
play that you will want to map out your exit and stop loss 
orders as soon as you enter the play.

Confirming IP's commitment to providing the industry with new 
ideas and products, the company announced the introduction of 
a product called LamMate.  This product will provide users 
with a more cost effective solution to the commonly used high 
pressure laminates.  Costs are reduced in the new product due 
to improved and innovative manufacturing processes.  IP also 
announced the acquisition of Argentina's Bolsaflex company.  
The company is involved in the flexible packaging market and 
allows IP, through Union Camp, to capture this market area.

BUY PUT SEP-55 IP-UK OI=317 at $2.81 SL=1.50
BUY PUT SEP-50 IP-UJ OI=159 at $0.88 SL=0.00

Average daily volume = 1.79 mln
Chart = http://quote.yahoo.com/q?s=IP&d=3m


T - AT&T Corp $48.19 -0.44 (-1.06 this wk)

AT&T furnishes voice, video and data services which includes 
cellular phone and Internet services.  AT&T targets businesses, 
private consumers and most government entities.  In its quest 
toward telecom market dominance, AT&T has bought the #2 cable 
operator TCI (now AT&T Broadband & Internet Services).  The 
company intends to use cable to dramatically expand its 
customer base by offering local as well as long distance phone 
services.  Currently, AT&T serves more than 90 mln consumers, 
and is now forming a partnership with British Telecomm that 
will solidify a strong global position.

The juggernaut of the telecommunications industry has made 
it to our put list.  T gave us the green light today when it 
finally penetrated its 10-dma and is showing strong signs of 
continuing to head south.  After reviewing several charts, it 
appears that T has not ended the trading session above fifty 
dollars since Aug 09.  With the chaotic state of the Dow over 
an interest rate hike, and no positive sector support, it looks 
like today’s penetration could be the catalyst for declining 
stock performance in the short-term.  Today, AT&T lost $0.44 
to end the trading session at $48.19.  Trading volume was well 
below its average of 9.56 mln shares and closed the day with 
only 6.91 mln changing hands.  As a Dow component, this type 
of performance should be no great surprise today or tomorrow 
if the bearish momentum continues to play out its hand.  AT&T 
appears to show lots of indications of loosing ground over the 
short-term, so it maybe wise to implement a little due diligence 
and see if this play is right for you. 

BUY PUT T-UJ SEP-50 IO=4959 at $1.50 SL=0.75
BUY PUT T-UK SEP-55 IO=2338 at $7.13 SL=5.75 

Average Daily Volume = 9.56 mln
Chart = http://quote.yahoo.com/q?s=T&d=3m


AET - Aetna Inc. $78.25 -0.75 (-0.81 this wk)

Aetna is a leader in the managed health care industry.
Their products are centered around three different areas,
healthcare, retirement services and international business.
AET provides group and individual health care products, life
and health insurance and financial services.  There retirement
services include investment products, along with administrative
and pension plan services.  In an attempt to solidify their 
position in the Insurance and financial services industry
Aetna has recently purchased U.S. Healthcare, New York Life's
NYLCare, and Prudential Healthcare.

To say that AET has been struggling lately would be an
understatement.  AET started its slide back in early May,
after hitting a 52 week high of $99.88.  AET has not been
able to keep up with others in the insurance industry.
The industry index peaked about the same time and then flat-
lined until late July.  At the end of July Aetna released 
second quarter earnings of $1.10 per share, compared to 
analysts estimates of $1.09.  This equals an increase of
about 12% compared to the same period last year.  Total 
revenues grew 23 percent.  It would appear as though Aetna
is in for a good year, however apparently not good enough
for Wall Street.  AET has been recently trading in the $80
area which seemed to be providing support for the health 
care company.  Honestly we don't see anything in the near
future that could prop it up.  Earlier this month AET did
attempted to surpass the $84.00 mark only to be greeted by 
a wave of selling.  The scenario seems to be no new interest
and sooner or later AET falls under its own weight.  Even
though the "wall of worry" concerning interest rates and 
inflation may be waning it hasn't helped AET.  We would look
for further weakness in AET as an opportunity to buy puts.
Technically there is no support until the $74-75 area and
then $65-67.  As always confirm market direction and assess
your risk profile before entering any new position.

In other news, a report issued August 9th, in Bloomberg cited 
more than half of the U.S. health maintenance organizations 
lost money and the industry as a whole reported a loss of $490 
million.  On July 30th SG Cowen did reiterate a strong buy 
rating for AET, citing a 12-month price target of $110.00.  

BUY PUT OCT-75 AET-VO OI=131 at $2.50 SL=$1.50
BUY PUT OCT-80 AET-VP OI=250 at $5.00 SL=$3.75
BUY PUT OCT-85 AET-VQ OI=114 at $8.38 SL=$6.50
     
Average daily volume = 571 K
Chart = http://quote.yahoo.com/q?s=AET&d=3m



******************
FREE TRIAL READERS
******************
If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $10 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an Email to

 "subscribe@OptionInvestor.com" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333


*************************************************************
                      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 8-19-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

AMR - AMR Corporation $60.19 -1.31 (-1.69this week)(-0.06)(-2.94)

Sunday's Write Up

American is the #2 airline in the United States behind UAL's 
United Airlines.  AMR is a leader in air transportation, in 
the development and application of information technology for 
aviation, and travel and tourism.  American serves about 180 
destinations in the Americas and Europe with hubs in Chicago, 
Dallas/Fort Worth, Miami, and San Juan, Puerto Rico.  They 
offer a wide range of other aviation-related activities, 
including management services, training and consulting.  AMR 
also provides commuter service through American Eagle and owns 
Reno Air, which operates primarily in the western US.  

AMR has a busy week and month ahead as they continue to try 
and iron out problems with their pilots.  They will go back 
to bargaining table again this week to try to settle the issue 
of pay for Reno Air pilots.  Reno Air is the company they have 
agreed to buy in a transaction listed to settle at the end 
of the month but a deal needs to be struck first.  The problem 
is AMR pilots get paid double that of Reno Air so management 
is left to try and incorporate a new salary plan to make both 
sides happy.  This event should take center stage this week 
and we will be watching for headlines that affect our play.  
The other main event is the continual rise in oil prices.  
It closed the week just under $22 a barrel or double what it 
was just seven months ago.  This is the catalyst that caused 
AMR to drop through the 200-dma a week ago.  The stock has 
rebounded and is trying to claw its way back above this key 
support line but the light volume is signifying that investor 
interest is just not there.  So watch for confirmation that 
the stock does roll over after hitting the 200-dma and consider 
this a possible entry point.  Also don't forget your stops in 
case there is a surprise announcement concerning labor talks.  

Tuesday's Update

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.  

Thursday's Update

AMR $60.19 -1.31 (-1.69) The news of a failed deal with their 
pilots has sent AMR to the lows for the week.  The news came 
out on Wednesday that the pilots have again rejected a deal 
to incorporate pilots from Reno Air, which AMR has agreed to 
purchase, into a salary arrangement.  This news sent AMR off 
of its highs of $64.50 yesterday to close only fractionally 
off the day-low today of $60.19.  The silver lining in the 
news is that AMR will go ahead with their plan to purchase 
Reno Air on August 31, thus avoiding another setback.  But 
until they strike a deal with the disgruntled AMR pilots, 
they will constantly have a dark cloud hanging over their 
stock price.  This will obviously help our play.  Technically, 
AMR bounced off resistance from the 200-dma at just over $64.  
We talked about this last weekend as being a good entry point.  
If you are in a play, it may be time to tighten down the stops 
after the nice two-day drop.

BUY PUT SEP-60*AMR-UL OI=559 at $2.75 SL=1.38
BUY PUT SEP-65 AMR-UM OI=320 at $5.88 SL=4.25

Average Daily Volume = 940 K
Chart = http://quote.yahoo.com/q?s=AMR&d=3m




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


Market Review for Thursday, August 19, 1999  Markets have 
continued to consolidate through the week, as choppy markets 
have lead to a non-decisive market.  How long is this going to 
continue.  The break-out picks for stock market consolidation 
are moving.  Most of the stock picks for the last two weeks 
were moving down.  The best breakout mover continues to be 
Maytag, as the stock is hovering around 65.  Looking at all 
optionable stocks, my results show that nealy 34% of all 
optionable stocks are in their lowest range of volatility, 
when looking at the premium range for the last 2 years.  Only 
13% of all optionable stocks are considered very expensive.  
Most of this shift is due to the downslide in the Internet 
stocks.  As prices of individual stocks head south, so do 
the implied volatility of most.  There are some exceptions to 
the rule, such as when stocks reach new lows or fall very close 
to zero.  The covered call and naked put section of this Email 
have mainly stocks below $20.  Why is this?  Because most stocks 
that fall below $20 per share start to rise in options volatility, 
mostly do to some dreamers that think the stock will return to 
past levels.  These dreamers bid up the price of the options, 
making them more expensive than normal, therefore causing in 
increase in implied volatility.  

Straddle Mailbag for Today


There was a great question on Implied Volatility Ranges that I 
wanted to answer to everyone.  OI subscriber David writes, I'm 
wondering what IV Range means, and what last IV means.

The IV is really the options premium converted into a percentage 
called Implied volatility.  What we do is look at a range of up 
to 2 years.  We look at the high, the low, and the current IV.  
Knowing your range Hi-low, and looking at today’s current, you 
can easily see where the current option premium is versus its 
long-term range.  That tells you if the options are cheap when 
comparing them to a past time frame.  While I cannot guarantee 
that the range will hold, its a safe bet that looking at implied 
volatility compared to its range would reduce risk.  Using option
-buying strategies when options implied volatility is at its range 
lows, and using option-selling strategies when implied volatility 
is at its highs will reduce risk.  Hope it helps you.

Check in Sunday’s edition for more breakout stocks that I look at 
for straddle positions, as well as stocks that have some cheap 
options relative to their highs and lows in Implied Volatility.

Tom Gentile
Optionetics




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

Rising Imports Spur New Inflation Fears..

U.S. stocks fell again Thursday after a report on the increasing
trade deficit fueled fears the Federal Reserve may need to move
aggressively to slow the strong economy.


Wednesday, August 18

The markets moved lower amid profit-taking on Wednesday and blue
chip issues were hardest hit with Hewlett Packard (HWP), AT&T (T)
and American Express (AXP) causing half of the Dow’s losses. The
most watched index of industrial stocks was down 125 points at
10,991. The technology-laden Nasdaq composite ended 13 points
lower at 2,657. In the broader market, decliners beat advancers
3 to 2 on moderate volume of 676 million shares on the NYSE. The
30-year Treasury bond rose 8/32, lowering the yield to 5.99%.

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

Echostar      DISH  DEC65C/AUG72C  $14.00  debit  diagonal
Echostar      DISH  DEC65C/AUG75C  $14.87  debit  diagonal
Polaroid      PRD   LJAN25/AUG25C  $4.75   debit  LEAPS/CC's
Pacific Gtwy  PGEX  OCT25C/AUG25C  $2.68   debit  calendar
OmniQuip      OMQP  SEP10C/AUG12C  $2.38   debit  diagonal

Tuesday's new plays were a mixed lot. DISH opened $1.25 higher
but fell almost immediately, down to an early low of $70. By
10 AM the stock had tested $71 successfully and appeared to be
trading in a stable range. The difficulty of course, was which
way to play the position; bullish or bearish. In this case, our
personal outlook favored an upward bias but the market appeared
to be trading near a recent resistance area. We decided to open
the bullish spread (a slightly better theoretical price) but we
will track both plays and discuss the common spread management
techniques along the way. A target debit of $14.00 was easily
achieved for the ATM play and a slightly lower (adjusted) target
of $14.87 was the initial opening price for the OTM position. In
the end, the stock recovered and closed near the opening price.
Of course, we will watch this position closely until the Friday
expiration. PRD was up and down in a small range throughout the
day and our initial debit was a little higher than the positions
that traded; a low of $4.62 was observed near noon. PGEX was also
difficult from the start as limit orders (before the open) pushed
the prices to the ends of our spread. Without actually trading it
personally, I would estimate the best available opening price was
near $2.68, about $0.19 short of our target. OMQP was also unique,
trading down to the $10 range before rebounding to close up $0.12.
It will be interesting to see if this position profits on Friday.

Portfolio plays:

Many of our portfolio stocks actually rebounded today and one
of the best performers was Barnes&noble.com (BNBN). The stock
moved up $2.50 to just above $19 on news of an upgrade by Henry
Blodget, the Internet analyst at Merrill Lynch. Unfortunately,
our positions had already been closed to preserve profits (or
limit losses). Another of the smaller (and previously adjusted)
issues Internet issues, Cyberian Outpost (COOL) moved higher
with the group, closing near $9.25. Rainbow Technologies (RNBO)
was the final participant in the rally of smaller web stocks
and the positive move allowed us to roll forward the bullish
calendar spread into September to a new debit of $0.68 on the
OCT15C/SEP15C position.

As the expiration period winds down, we are in the final stages
of closing our remaining positions (both positive and negative)
to prepare for the monthly summary. There are a few profitable
August (ITM) spreads that must be exited before Friday. Those
include: TNB (AUG50P/45P) and SQNT (AUG12C/15C); both at the
maximum profit, and TMK (AUG 30C/35C/40C - butterfly) at $1.62
credit. ESV (SEP22C/AUG22C), was a short-term volatility play
with an August position that will need to be closed on Friday
along with the rest of our sold (short) option. It is currently
trading near break-even on an older spread (and a small profit
on a newer one) so we will recommend that you consider closing
the play early.

Many of the long-term positions were rolled into September today.
Those positions (and the current bought/sold options) include:

Home Depot         HD    AUG65C/SEP65C  at $1.50 credit
Johnson & Johnson  JNJ   AUG95C/SEP95C  at $2.38 credit
Johnson & Johnson  JNJ   AUG100C/S100C  at $1.50 credit
Motorola           MOT   AUG90C/SEP90C  at $3.00 credit
Sepracor           SEPR  AUG85C/SEP80C  at $4.00 credit
Worldcom           WCOM  AUG90C/SEP85C  at $1.00 credit

Thursday, August 19

U.S. stocks fell again Thursday after a report on the increasing
trade deficit fueled fears the Federal Reserve may need to move
aggressively to slow the strong economy. The Dow ended down 27
points at 10,963 and the technology-laden Nasdaq composite fell
36 points to 2,621. In the broader market, declining issues beat
advances 1,610 to 1,377 on moderate volume of 673 million shares
on the NYSE. The benchmark 30-year U.S. Treasury bond fell 14/32
with the yield rising to 6.03% from Wednesday's close of 5.99%.

Portfolio plays:

Lots of activity today, even in a down market. The big mover was
one of our newest positions; Echostar (DISH), climbing $5 to $77.
Of course the bullish move was happily welcomed but we would have
preferred a rally NEXT week. Tomorrow we will have to close the
sold (short) position and decide what bias to take in the coming
month. Newmont Mining (NEM) has chosen expiration week to make a
a final attempt at profitability. The stock price is trading at
our sold strike and the play will produce a positive return if
nothing drastic occurs tomorrow. National Semiconductor (NSM)
also closed up $1.25 to $30 and our new sold position (September)
will probably be at that (higher) strike price. Omniquip (OMQP)
is holding steady at $12-$13 and we expect the position will be
profitable after Friday’s close. RF Micro Devices (RFMD) split
today and our credit spread (safely OTM) is now based on a the
$27.50/$30.00 strikes.

The oil stocks were up today (as they usually are when the broad
market falters) and Unocal (UCL) made a nice move, climbing $2 to
$43. Implied volatility was up and as the stock climbed, new call
buyers piled on while some others bought cheap protective puts.
Halliburton (HAL) and most of our other drilling/oil service
stocks followed suit. Baker Hughes (BHI) finished right at $35,
the sold strike, and we expect the position will remain near that
price through Friday afternoon. That issue has routinely produced
some of the best calendar spreads in our portfolio.

A few more of the long-term positions were rolled into September
today. The current plays include: Dupont (DD), Halliburton (HAL),
Intel (INTC), National Semi (NSM) and Unocal (UCL). There are
still a few remaining spreads to close/adjust or roll-forward on
Friday and the complete summary of August positions will be
posted in Tuesday’s newsletter.

Good Luck!

Questions & comments on spreads/combos to ray@OptionInvestor.com
******************************************************************
				- NEW PLAYS -
******************************************************************
CHIR - Chiron Corporation  $29.37     *** Merger/Take-Over? ***

Chiron develops, manufactures and markets human healthcare
products for treatment, prevention and diagnosis of disease
utilizing innovations in biology & chemistry. CHIR has a strong
commitment to research as an essential component of its product
development effort. CHIR focuses their research and development
on areas in which they have particular strengths; infectious
diseases, cancer and cardiovascular diseases.

Chiron recently filed updated survival data that reinforces the
long-term benefit of their drug product Proleukin for patients
with advanced-stage kidney cancer or melanoma. According to the
company, the data shows that the drug, a recombinant form of
interleukin-2, can extend cancer-free survival 10 years without
further treatment in some patients with metastatic kidney cancer
or metastatic melanoma. In a follow-up story, the company also
announced that it has begun a Phase III trial to help define the
potential added benefits of Proleukin when combined with other
anti-HIV therapies and determine whether or not the drug can
augment the immune system; resulting in a delay of HIV disease
progression.

In addition to the new drug developments, CHIR appears to be a
takeover target of Novartis AG, a healthcare products company
headquartered in Switzerland. The company is rumored to have an
offer of $40 a share in the works. The new speculation has moved
implied volatility and volume higher recently and the small
disparity in September ITM options will provide us with a
favorable speculation position.

PLAY (aggressive - bullish/diagonal spread):

BUY  CALL OCT-25 CIQ-JE OI=2195 A=$5.12
SELL CALL SEP-30 CIQ-IF OI=1324 B=$1.62
INITIAL NET DEBIT TARGET=$3.25 TARGET ROI=25%

Chart = http://quote.yahoo.com/q?s=CHIR&d=3m
******************************************************************
UCL - Unocal  $43.00     *** Merger/Takeover? ***

Unocal Corporation explores for and produces oil and gas in Asia
and the United States Gulf of Mexico. The company also produces
geothermal energy, provides electrical power, manufactures and
markets nitrogen-based fertilizers, petroleum coke, graphites,
and specialty minerals.

Oil stocks rebounded today on bullish sentiment after the market
discounted a small increase in gasoline that brought values down
earlier in the week. Traders and analysts remained confident about
the oil sector’s recent rally, based on the speculation that major
producers would adhere to their output cuts, and reduce the global
supply glut. Big draws on crude stocks in the latest weekly data
also boosted the positive outlook for the sector.

In today’s trading, gainers among oil and energy shares outpaced
losers almost two to one and Unocal (UCL) was one of the group
leaders, up almost $2 to $42.81 amid speculation of a possible
merger with rival Texaco (TX). Officials from both companies
declined to comment but trading volume and implied volatility
in options increased as traders moved into bullish positions.

We have heard this rumor before and there is really no way of
determining its validity until the announcement occurs. However,
it appears there is just enough disparity and time value in this
position to overcome a fair sized move in either direction. With
the standard negotiating delays and share value speculation that
surround most mergers (even after they are announced), we are
willing to take the plunge.
 
PLAY (aggressive - bullish/calendar spread):

BUY  CALL JAN-45 UCL-AI OI=391 A=$4.25
SELL CALL SEP-45 UCL-II OI=95  B=$1.93
INITIAL NET DEBIT TARGET=$2.12 TARGET ROI=50% (five months)

Chart = http://quote.yahoo.com/q?s=UCL&d=3m
******************************************************************
XON - Exxon  $81.94     *** Portfolio Hedge ***

Exxon's principal business is energy, involving the exploration
for and the production of crude oil and natural gas in the US and
over 100 countries worldwide. Additionally, Exxon manufactures,
transports, and sells crude oil, natural gas, and other petroleum
products. Exxon's chemical division is engaged in the exploration,
mining, and selling of basic petrochemicals, including olefins
and aromatics, and is a leading supplier of specialty rubbers and
of additives for fuels and lubricants. Exxon also has interests in
electric power generation facilities.

In today’s market-wide slump, Exxon was one of the few Dow stocks
that avoided the sell-off. The oil sector rally helped along with
news of Exxon’s partnership with Enterprise Products Partners L.P.
(EPD) in an agreement to own and operate a propylene concentration
unit being built in Louisiana. The unit will refine propylene, a
basic building-block petrochemical used in plastics, new synthetic
fibers and foams.

The outlook for the market is weak (at best) and most investors
tend to move into hedge and safety issues when it falters. The
long-term technical trend for this issue is favorable and with a
historically stable range near the current price, it should be an
easy position to manage, even for novice traders.

PLAY (conservative - bullish/Covered-Calls On LEAPS):

BUY  JAN01-85 ZXO-AQ OI=189  A=$11.00
SELL SEP99-85 XON-IQ OI=1554 B=$1.00
INITIAL NET DEBIT TARGET=$9.75 TARGET ROI=150% (17 months)

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



******************
FREE TRIAL READERS
******************
If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $10 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an Email to

 "subscribe@OptionInvestor.com" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333


*************************************************************
                      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.


DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives