Option Investor
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Daily Newsletter, Thursday, 08/26/1999

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The Option Investor Newsletter         Thursday  8-26-99
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)
************************************************************
        8-26-99          High     Low     Volume   Advances Decline
DOW    11198.45 - 127.59 11333.00 11191.48  719,010k  1,155   1,799
Nasdaq  2774.62 -  30.98  2819.90  2774.11 1104,691k  1,711   2,128 
S&P-100  714.60 -   9.23   723.83   714.07   Totals   2,866   3,927
S&P-500 1362.01 -  19.78  1381.79  1361.62            42.2%   57.8%
$RUT     436.02 -   1.84   438.25   436.02
$TRAN   3213.86 -  95.39  3310.09  3213.86
VIX       22.33 +   1.66    22.66    20.91
Put/Call Ratio      .65   
*************************************************************


Four steps forward, one step back!

After four straight days of advances the Nasdaq rested. After
gaining more than +7% in the last four days the Nasdaq finally
gave up -31 points in a pause to refresh on its effort to best
the previous high of 2864. The rollover on the Nasdaq was all
the bears needed to drop the Dow for a -127 loss. No one is
concerned about the pullback and simply view it as a normal
cycle. After the Fed blessing on Tuesday, we view it as the
calm before the rally.
 








Look at the charts above and you will see several points of 
interest. First the advance/decline line has stopped its
free fall descent but advances did get beaten by declines
today by a margin of 6 to 4. 

Secondly we try to convince readers constantly that the markets
move in tandem and these charts are a prime example. Each
includes the Fed spike, the Thursday/Friday sell off last
week and the drop today. Also note the GE chart. Do you
see any similarities? They are all the same. Stocks follow
(or lead) the market. The reason for this quick lesson is
to remind readers that any good call plays we currently have 
or pick in the next couple of days, MAY go down before they
go up in the expected Labor Day rally. They can still be
good plays but they will follow the market. Sorry for the
sideline here but we have a lot of new readers from the Money
Show and we want to get them started off right.

Back to the business. The Dow and Nasdaq dropped on simple
profit taking from a great run. The chances of a -3% pullback
on a +7% gain is almost 100% under normal circumstances. In
reality we view any pullback here as a buying opportunity
after the Fed blessing. -3% would be -84 points so we are
sure not going to gripe about a -31 today.

Part of the drop today was fueled by the drop in oil stocks as 
well. Oil stocks are reeling from news that Germany is planning 
to sell 30 mln bbls from its reserves and Iraq pumped more oil 
last month than any month since the gulf war 10 years ago, 18.8
mln bbls. The news prompted a -.89 drop in oil prices yesterday
and only a +.35 recovery today. There is worry that OPEC will
now ramp up production to try and capture some revenue while
the price is still high. After curtailing production to get
prices back up, they don't want Iraq grabbing all the dough.
This of course would slam prices back to where they were 
several months ago and start the process all over again. 

Retailers took a hit today after a downgrade from Merrill
Lynch but they are expected to rebound quickly. Consumer
spending is still running rampant as evidenced by that
component of the GDP report today. Actually the GDP was 
market positive with a weaker than expected +1.8% growth.
The previous estimates were for +2.3% growth. While this
was market positive the business inventories could have been
seen as market negative. They came in less than expected and
it is widely believed that manufacturers will now have to
ramp up production to build inventories for the holiday
season approaching. Consumers have more spendable income
and are not holding back. While this could be inflationary
the Fed is not expected to do anything else this year.

Bonds were very positive today with yields dropping to 5.86%
before bouncing to close at 5.90% on profit taking as well.

Volume was strong today on the Nasdaq with over 1 bln shares
traded again but the NYSE was only moderate with 715 mln
shares. Strong volume on a down day is not a good sign but
we feel the Nasdaq volume was helped by bargain hunting in
the Internet sector. Internets were mixed but mostly positive
and many are starting to break out again.

Of growing interest in the technical analysis circles is the
wide divergence between the Transports and the Dow. Dow theory,
as many of you know, requires the transports to confirm any
Dow move. If the transports are dropping it will be hard for
the Dow to sustain any rally. The index had rallied on Tue/Wed
based on the drop in oil prices but dropped -96 points today.

The big news today was the Cisco Systems purchase of Cerent
for $6.9 bln. Cerent makes multiplexors for telecoms. Specifically
they make a box that takes high speed voice and data from copper 
wire lines and converts it to fiber and then back again on the
receiving end. The technical features of this box are thought to 
be a breakthrough in the industry. Some industry watchers are very
skeptical and concerned that CSCO would pay $7 bln for a company
with inception to date sales of less than $10 million. $10 MLN !!
Lets see, if I could get that kind of multiple for OIN then we
would be worth $10 bln or more. Yes, for that price I am for sale.
(I can dream can't I?)

The CSCO purchase sent TLAB stock plummeting but analysts rushed
to prop up TLAB. Calling for a buy of TLAB on any weakness and
reiterating an $80 price target the stock did manage to close
for only a loss of -$5.31. TLAB actually has a bigger market than
Cerent based on client types and market share. In 1997 CSCO was
selling into a $25 bln data market. With the addition of Cerent 
and several others recently they expect their market to be $150 
bln by 2002.

Speaking of price targets and upgrades, DLJ is really pounding 
the table on Priceline.com (PCLN) now $72 with a price target of
$190. The news stopped a downward slide with a +7.44 gain. Still
we need to see a continuation of the upward move before making
it a play.

Got any dirty money? How about some IMF loans you want to skim.
If so then call the Bank of New York. The big story out today
was news of more than $15 bln in money that had been laundered
by the Russian Mafia through the Bank of New York. When you hear
Mafia you automatically think of the criminal enterprises of
gambling and protection among others. In Russia they evidently
think big. There are many rumors that the scam may have gone
all the way to the Kremlin and involved misdirecting IMF loan
money to finance elections and personal fortunes. I hope they
got their moneys worth, I thought you could buy Russia for less
than $15 bln last summer.

Now if you have some money lying around, dirty or otherwise, 
then it is about time to put it to work. If you have been reading
this commentary for long then you know I am expecting a rally
after Labor Day. Actually the bargain hunting should start next
week as the early birds try to get a head start. Tom Galvin with
DLJ came out today with a 10,800 target for the DOW. He is basing
the target on third quarter earnings which are expected to be 
better than any 3Q for the last four years. This, along with the
Fed blessing should propel the market strongly for the next six
weeks. If you have cash then start looking for places to put
it next week and look at any weakness as a buying opportunity.

Pick your entry points carefully, sell too soon.

Jim Brown
Editor





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

As of Market Close - Thursday, August 26, 1999

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

DOW Industrials   10,500  11,320  11,198    Neutral   7.20
SPX S&P 500        1,320   1,420   1,362    Neutral   8.17
OEX S&P 100          675     735     715    Neutral   8.13
RUT Russell 2000     440     465     436    BEARISH   8.06
NDX NASD 100       2,250   2,468   2,417    Neutral   8.13
MSH High Tech      1,125   1,250   1,197    Neutral   8.13


XCI Hardware       1,035   1,050   1,070    BULLISH   8.24
CWX Software         725     844     801    Neutral   8.13
SOX Semiconductor    515     520     520    BULLISH   8.24
NWX Networking       555     625     586    Neutral   8.13
INX Internet         500     580     459    BEARISH   7.20


BIX Banking          690     710     647    BEARISH   7.23
XBD Brokerage        410     440     401    BEARISH   7.23
IUX Insurance        645     660     633    BEARISH   7.23


RLX Retail           915     960     863    BEARISH   7.23
DRG Drug             370     400     374    Neutral   8.24
HCX Healthcare       750     800     766    Neutral   8.24
XAL Airline          180     190     158    BEARISH   5.21
OIX Oil & Gas        285     310     302    Neutral   8.26  *



Posture Alert    
The broad market finally blew off some steam, as investors took
handsome profits off the table. The selling became contagious in the
last hour, with many people selling their winners at the same time. 
The loser board was led by Airlines (-4.05%), Oil & Gas (-2.80%), 
Banking (-2.52%), and Retail (-2.48%). With Thursday's action, we 
have downgraded Oil & Gas to Neutral.

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

/members/marketposture


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

Double Top Formation, or Breakout?

Is there anything worse than being too cautious, and then watching
the market make a big move and not participating with 100% of your
equity? These last three weeks, going into the Fed meeting, were
cautious times for Professional Money Managers and Investors
alike. Many investors decided to wait until the day after the Fed
meet, before making any purchases. This was the smart way to play,
even though the market made a big run prior to the meeting. But
is there something worse than being too cautious?
 
Yes, being too aggressive and not setting stops. Many investors
watched their accounts get chopped in half (or worse) in July,
and then watched the market come back to where they should have
set stop losses originally. To play the "wait until I get
break-even game" is probably one of the worst things you can do.
The last thing you really want to do, is make the same mistake
twice!

Obviously, no one can predict the future, or we'd all be 
gazillionaires (spell check had no clue what this word was
supposed to be). Several things that were missing with this
latest run-up ahead of the Fed, was good volume, and market
breadth (advance/decline). The volume has picked up recently,
which is good, however, there are still numerous stocks and
sectors that haven't participated (see Tuesday's letter).

When looking at some of the charts of the indexes, one technical term 
that comes to mind is a double top. Looking at the chart below of the 
Nasdaq 100 (NDX), you can see potential for a double top. If this is 
the start of a failed rally, you want to be prepared. NOW, WE ARE NOT 
SAYING THAT THIS IS GOING TO HAPPEN. The whole point of bringing up the 
double top issue is to show you both sides of the coin (both bullish 
and bearish). So if you made some mistakes back in July (not setting 
stops, not selling to soon, using too much leverage, not hedging), we 
hope to help you from avoiding the same mistakes again. When you hear 
us hammering about confirmation of the rally, what we want to see is 
higher highs and higher lows w/good volume and breadth. 


This is a fairly common pattern, and should follow a major trend. It is
formed when prices reach the same level twice, but are unable to move
higher. A move below the neckline is needed to confirm the double top
formation. 


 



Now we can talk about the potential breakout. Here at Pinnacle Capital,
we always try to use our industry sources to our benefit and yours.
What we are hearing lately is that lots of new money is starting
to flow into this market. Whether it's coming from CD's, checking
accounts, overseas, whatever, cash is building up on the sidelines for
this market. Many people missed this latest rally, and want to jump on
board. These investors might not have bought in yet, but many are
waiting for a significant pullback. This will give nice support for the 
market, and should give more confidence for everyone. If we do see a
big pullback, followed by a strong snap back up (i.e. Nasdaq down -50
in the morning, yet closing positive +40), then we should have
confirmation of the purchasing power and sentiment of investors, and
then, we should see a nice breakout to new highs. 

Another positive is that we are starting to see large moves in numerous 
high tech's (i.e. many stocks up +15 or up +20 in a day). The short 
sellers are getting "SQUEEZED", and are also getting buried by the 
growing positive sentiment. Their reluctance to hold onto any short 
position will only add fuel to the fire.

When you combine these above issues with the fact that the "FEAR 
FACTOR" of higher interest rates has subsided, and the "GREED FACTOR" 
from everyone is starting to kick-in, you have potential of a strong 
breakout. If we do get a pullback, with no significant bounce (failed 
rally), then remember the double top formation, and don't make the same 
mistakes twice.


 


 


 





BULLISH Signs: 
Investor Intelligence:
As a contrarian indicator, the amount of Bullish investors is at
a recent low, and bearish investors is at a recent high.

Interest Rates:
The yield on the 30-yr Treasury is still below the 6% benchmark,
which if held, could prove very positive to this market.

Peak Open Interest:
The contraian OEX put-call ratio clocking in at 1.9 suggesting
bearish sentiment picking up steam.


Mixed Signs: 

Volume:
The Dow broke new highs, but on very lackluster volume. To truly
break out to the upside, we need better volume to confirm the move.

BEARISH Signs:

Pinnacle Index:
The Pinnacle Index for the OEX (725-755) 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.
  

Advance/Decline Line:
The A/D line has already rolled over, and has slowed down, but
is still in negative territory.



OTM Call Analysis

As we move through the September expiration cycle, Pinnacle is
tracking the level of call buying (OTM) between 700-800 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 700-800)
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%


September Expiration Cycle
OEX OTM Call Analysis (Open Interest September 690-780)
Date                 Open Interest     Change %    Alert

Friday, August 20         41,346          -



Market Sentiment at a Glance     Friday     Tues      Thurs
Indicator                        (8/20)    (8/24)    (8/26) Alert
Pinnacle Index (OEX):

Overhead Resistance (725-755)     60.0      57.0      28.4
Underlying Support  (690-720)      1.8       1.4       1.1
Underlying Support  (630-680)      2.8       3.8       4.4
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7        .6        .5
CBOE Equity P/C Ratio               .6        .4        .4
OEX P/C Ratio                      1.1       1.7        .9


Peak Open Interest (OEX):

Puts                              650        660       660
Calls                             710        690       760
P/C Ratio                         1.60       1.62      1.91

Market Volatility Index (VIX):

CBOE VIX                         22.33



Investors Intelligence:

Bullish                         44.50%  *
Bearish                         31.10%  *


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                        (8/20)    (8/24)    (8/26)

Overhead Resistance (725-755)   60.00      56.96      28.40

OEX Close                      696.59     713.56     714.60

Underlying Support  (690-720)    1.78       1.42       1.09
Underlying Support  (630-680)    2.76       3.81       4.39
                     


Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is building at the OEX 725/755 level
while the underlying support is holding at the OEX 690/720 level.


Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (8/20)    (8/24)     (8/26)

CBOE Total P/C Ratio             .67       .56        .55
CBOE Equity P/C Ratio            .56       .38        .44
OEX P/C Ratio                   1.08      1.74        .92

OEX
Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (8/20)           (8/24)         (8/26)

Puts                 650 / 9,547      660 / 11,479    660 / 12,304
Calls                710 / 5,828      690 /  7,078    760 /  6,440
Put/Call Ratio         1.64             1.62              1.91



 


 



(VIX)
Volatility Index    Major
Date                Turning Point       VIX

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

July 16, 1999       Top                 18.13
August 05, 1999     Bottom?             32.12

August 26, 1999                         22.33 




 




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
Aug  25, 1999                         44.5        31.1 *





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

Index     Last    Mon    Tue    Wed     Thu   Week
Dow    11198.45 199.15 -16.46  42.74 -127.59  97.84
Nasdaq  2774.62  71.24  32.80  53.23  -30.98 126.29
$OEX     714.60  13.34   3.63  10.27   -9.23  18.01
$SPX    1362.01  23.61   3.28  18.29  -19.78  25.40
$RUT     436.02   2.87  -0.13   0.74   -1.84   1.64
$TRAN   3213.86  47.69  36.48  74.35  -95.39  63.13
$VIX      22.33  -0.85  -0.73  -1.62    1.66  -1.54

Calls             Mon    Tue    Wed     Thu   Week

VRSN     110.50   7.94   5.81   5.56    4.25  23.56  Going up!
AMZN     128.56   4.94   1.69  12.81   -4.31  15.13  New
EXDS      86.25   6.19   5.25  -0.44   -0.13  10.88  Momentum
BVSN     102.88   6.00  -1.88  11.06   -8.06   7.13  Entry point?
GTW       97.00   3.19   3.31   1.69   -1.69   6.50  Strong buy
PMCS      97.00   4.06   2.69   1.50   -2.69   5.56  Drifting
CSCO      68.94   1.63   0.63   2.25    0.31   4.81  Breakout
SFA       51.13   1.63   0.81   0.81    1.31   4.56  New
IDPH     129.75  11.13  -1.56  -3.56   -2.25   3.75  Accumulate
SLR       75.44   2.50   2.13   1.75   -2.63   3.75  Bounce!!
HGSI      65.63   5.81   0.81  -0.63   -2.50   3.50  Pullback
LXK       78.06   1.38  -0.69   3.69   -1.56   2.81  Profitable
ERTS      66.88   1.94   0.94  -1.50    0.00   1.38  Strength
INTC      81.06   3.00   0.19   0.56   -2.63   1.13  Promising
UIS       44.69   0.06   0.31   0.50   -0.13   0.75  Opportunity
MMCN      52.25   1.38  -1.31   3.06   -3.75  -0.63  Volatile
ATML      38.31   1.44   0.56  -2.75   -0.81  -1.56  Dropped
SNE      128.25  -3.81   0.13  -0.44   -3.88  -8.00  Reversed

Puts

TWX       62.44  -0.63  -4.56   1.13   -0.31  -4.38  Holding on
ANF       35.31  -1.31  -1.38   0.63   -0.94  -3.00  Weak sector
IP        51.50   0.06  -1.50  -1.94    0.50  -2.88  On schedule
WLP       76.13  -1.94  -0.31   0.81   -0.38  -1.81  Indecisive
NVLS      56.94   1.75   1.69  -0.06   -0.88   2.50  Rolling over
T         49.94   0.38  -0.63   2.63    0.69   3.06  Still alive
WCOM      78.31   2.69   2.38   2.25   -3.06   4.25  New





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

ATML $38.31 -0.81 (-1.56) It seemed like everyone was having
a fun, profitable day yesterday after expected news from the 
Federal Reserve.  So what happened to ATML?  Well it got hit 
by weakness in the semiconductor sector.  Many in the sector 
had similar drops yesterday.  Today however, many of those same 
stocks had significant gains and ATML did not participate as 
robustly as we would have liked.  We were up for most of the 
day until the late afternoon selling pressure took us down and 
unfortunately out.  We dropped below our support level of $39 
from the 10-dma.  This has negative technical indicator has 
forced us to look for an exit point.  We feel our money can 
be better allocated in other areas so ATML is a drop for now.




PUTS:
******

No dropped puts today.


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




******************
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**********
DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.



The Option Investor Newsletter         Thursday 8-26-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

INTC $81.06 -2.63 (+1.13) After an early sag yesterday, INTC 
managed to tack on $0.56.  Today however, INTC couldn't fight 
the market's downturn and wound up losing $2.63.  Other chip 
makers were mostly lower, except Micron, which was up $0.25 
on an upgrade and Motorola was up $0.94.  CBS MarketWatch 
quoted Montgomery Scott's head stock analyst, Jim Meyer, who 
is not concerned with today's lower stock prices for the chip 
makers.  He said business is "extraordinarily good for them" 
and that today's action was profit-taking.  Analysts are seeing 
strong demand for Intel's chips for the foreseeable future.  
That demand, coupled with an interest rate picture that tech 
investors like, should help Intel continue higher.  Wait for 
the profit-taking to end before starting new positions.  In 
the news: Intergraph, which won an injunction against Intel 
earlier this year, claims Intel is not complying with the court 
injunction, which INTC denies.  Also, Oki Electris and Intel 
KK, Intel's Japanese unit, have announced that they will work 
together in developing computer telephony products.

SNE $128.25 -3.88 (-8.00) Well we've seen this before from 
Sony but it still makes us uncomfortable every time it happens.  
What we are talking about it is SNE breaking below the 10-dma.  
You will notice this phenomenon every couple of weeks on the 
chart.  It acts like it is technically breaking below support 
and then reverses to head on to new heights.  So instead of 
abandoning ship right away, we will give it one more chance 
to repeat this pattern.  But be advised that we are very 
cautious on the stock right now.  Any firm move below $128 
is the indication that it is time to exit the play.  We have 
searched relentlessly for any sort of news to be causing this 
pullback after Friday's bullish sentiment but without any 
luck.  The Nikkei has dropped below 18,000 this week and the 
yen is holding at relatively high levels but we still feel 
these are short-term developments.  Remember the $128 level 
will be the key to keeping this play.

IDPH $129.75 -2.25 (+3.75) A Merrill Lynch rating change has 
put IDEC into a consolidation phase.  We hesitate to even use 
the term downgrade because Merrill is maintaining the long- 
term buy rating but they changed the short-term rating to an 
accumulate from a buy.  They said that their only concern is 
due to the valuation which has exceeded projections.  They 
aren't the only one either as Prudential did the same thing 
with their rating but didn't give any reason.  This is why 
we have seen IDPH pullback to the 10-dma for the past two 
days.  From here we would want to see the stock bounce off 
this key support on strong volume before opening new plays.  
There is no way to tell at this point whether or not these 
developments will change sentiment on the IDEC or just give 
us another entry point.  So watch for confirmation and use 
stops if you are in current plays.

PMCS $97.00 -2.69 (+5.56) As goes the NASDAQ, so goes our 
play of PMC-Sierra.  That sentence alone pretty much summed 
up the action of PMCS.  It moved up on Wednesday and then 
slowly drifted lower all day Thursday, picking up steam near 
the end.  This may be a blessing in disguise for investors 
looking to get in on a new play.  The stock is now very close 
to 10-dma at $95.  We all know that history is not a future 
indicator of success but PMCS has held tightly to its 10-dma 
since the start of June so it should be considered for a new 
entry point.  The big news in our play this week was on Tuesday 
when the company announced they have struck a deal to acquire 
Abrizio Inc.  On Wednesday, BancBoston Robertson Stephens 
spoke out to reiterate their Strong Buy rating on PMCS.  They 
said the deal was a good move and another step to extend 
franchise positioning at the core of the networks.  

LXK $78.06 -1.56 (+2.81) Lexmark continues to be a profitable
play for us.  Rising almost $13 since our pick, Lexmark has 
performed like a long distance mountain climber, especially
over the last two days.  Yesterday the stock forged ahead,
bouncing off support of $76 to achieve a new interval high of 
$79.75 and today seemed to establish a base camp around 78.50.  
Considering the light volume and volatility of the market 
today, LXK held up quite nicely.  Many analysts are expecting
the general market to trend higher into September, mostly 
after the Labor Day holiday.  With this being the case, any 
pullback to support could be a buying opportunity.  With 
possible skittishness prevailing until the holiday, please 
be cautious of starting new positions as a pull-back may occur.  
Wait for it and then confirm market direction.

HGSI $65.63 -2.50 (+3.50) Bloomberg stated that the market
was led lower today by healthcare and drug stocks.  It's no
wonder then that we got a pull-back on HGSI.  Actually it is 
quite nice, as it is getting us closer to another entry point 
for those who have chosen to protect their profits and exit 
plays after the recent run up in price.  But the late afternoon 
drop in the stock is something to note and watch.  We never 
like to see the losses in the market or stock start picking  
up towards the close.  Since we might continue to see light 
volume and volatility in the market until after Labor Day, 
those that have open positions need to protect those profits 
with stops.  The stock could dip down to our support of $64, 
thus offering new entry points.  Realize that the gains we 
have seen recently have be due to the general trend of the 
stock.  Any positive news should give us an additional boost 
to the momentum we have seen.

BVSN $102.88 -8.06 (+7.13) There's a fun new ride at Universal 
Studio's Islands of Adventure theme park in Florida.  It's 
called the Incredible Hulk.  It rocket's you up from 0 to 60mph  
in about 3 seconds and then drops you almost straight down on 
the other side.  Does this remind you of any stock of late?  
Just like with the Hulk, BVSN has thrown us all over the place 
but it is a fun ride, if you know what to expect.  We took off 
yesterday rising from $99 to $110 in a very quick rise before 
dropping us to back to earth from $115 to $103 today.  Did you 
have fun?  The answer could be no if you didn't set your stops 
and protect yesterdays gains.  BVSN is typical of this type 
of ride and provides great opportunities to profit if you are 
prepared.  Also worthy to note, is that there was over 2 times 
the normal volume yesterday, indicating a lot of people were 
riding this one.  With that much weight, the drops can really 
take you down as investors protect profits.  So here's the 
scoop, we are still in a very profitable play so protect your 
positions.  The outlook for the stock is also still positive 
so use the drops as opportunities once the stock and market 
confirms that we're headed up again.  We expect more volatility 
so choose your entry points wisely and hold on for the ride.  

SLR $75.44 -2.63 (+3.75) Our SLR play has seen better days 
but with the late day weakness in the broad markets, today's 
relative performance has not dashed our hopes.  SLR finished 
the day in negative territory losing $2.63 to close at $75.44.  
SLR closed just under its 10-dma today but there wasn't any 
indication of panic by investors.  The negative movement we 
witnessed today appears to be a combination of tiring market 
sentiment and possible profit-taking after the strong gains 
experienced earlier this week.  Remember, on Tuesday SLR hit 
a 52-week high of $76.31 so some profit-taking may be warranted.  
There was also one item of news today.  SLR was in the spotlight 
with an audio release.  Titled "Thriving in the High-Tec 
Shadows", SLR   gives a synopsis of the company's core operations 
and discusses the position of SLR in the industry, along with 
the extensive growth rate experienced by the entire sector. 

GTW $97.00 -1.69 (+6.50) The momentum on this split play 
extended into Wednesday as GTW gained $1.69 on exceptional 
volume of 3.89 mln.  For the third consecutive day, this 
stock reached new heights during intraday trading.  The 
newest 52-week high was set at $100.68 in the late afternoon 
rally.  Kimberely Alexy, analyst at Prudential, also helped 
spice things up.  She reiterated a "strong buy" rating for 
GTW and set a 12-month target price of $124.  Today we got 
a slight pullback more likely due to the negative market 
than anything stock specific.  Nonetheless, the pullback 
offers a variety of entry point opportunities.  Please keep 
in mind as you plan your strategy that GTW's last established 
support level is at $82, which is well above the current 
price.  So you'll still need to be prepared for some natural 
consolidation even though the excitement for 2:1 stock split 
on September 7th will likely sustain itself.

UIS $44.69 -0.13 (+0.75) The daily spread is narrow and the 
uptrend has been a bit laggard this week as UIS comes face 
to face with its overhead opposition at $46.18, the 52-week 
high set last month.  However even during today's market 
correction, the stock barely lost any ground while volume 
fell to less than 50% of normal.  Also UIS is maintaining 
its position above the venerable 30-dma at $42.  Remember 
this indicator appears to act as benchmark support.  Still 
it's best to look for a better show of upward movement before 
initiating a new play.  In the news yesterday, Unisys sealed 
a $500 mln multi-year contract with the state of Pennsylvania.  
The company will provide ongoing management and operational 
support while consolidating 20 state agencies' data centers.  
The project will start immediately and should be completed 
within a year.  Also, PulsePoint Communications confirmed 
shareholder approval of the Unisys acquisition announced back 
on June 15th.  The deal is a tax-free, stock-for-stock merger 
where PulsePoint shareholders will get .162 shares of Unisys 
for every 1 share they presently own.  About 2.2 mln common 
shares of UIS will be exchanged in the merger deal.

VRSN $110.50 +4.25 (+23.56) And the show goes on.  VRSN is 
still climbing full-speed ahead advancing an awesome 27% 
since Monday.  The very strong trading volume is backing up  
the bullish gains this momentum play has made.  Coming off 
a record high yesterday, VRSN peaked at $114 today to set 
another 52-week record.   Besides the evident dynamics 
driving VRSN to new heights, analysts' remarks pumped up 
the volume too.  SG Cowen started VRSN with a "buy" and set 
a $120 target price around noon today.  Also, SunTrust
Equitable Securities initiated a new "long-term attractive" 
rating.  Another event that helped propel VRSN upwards was  
Cisco's welcome announcement of its $6.9 bln purchase of 
privately held, Cerent Corp.  Remember the wide intraday 
swings are certainly providing a multitude of entry points 
however, the volatility can be lethal.  Stops may be very 
difficult to use yet it's known what goes up can definitely 
come down - very quick!  So if you are playing this HIGH 
RISK INTERNET play, BE CAREFUL and give it very close 
attention.

MMCN $52.25 -3.75 (-0.63) How much longer can this roller 
coaster ride continue?  After reaching a new 52-week high 
to open the trading session this morning, like the broader 
NASDAQ market, the stock decided to give up some of yesterday's 
gains and a little more.  These recent fluctuations in the 
stock have been driven by the markets as investors try to 
decide whether this tech rally is for real.  Be cautious as 
the stock approaches its new highs because MMCN does show 
some signs of resistance at this level.  Confirm the overall
direction on the tech sector before placing a trade since 
momentum is such a big influence at this time.  We decided 
to keep this play and finish the week out to see if we can 
get any spark.  If MMCN breaks below the 10-dma tomorrow, 
we will likely be removing it from the call list.

EXDS $86.25 -0.13 (-0.56) "This play is purely momentum based.  
As long as volume remains in the stock, the limited supply 
will keep the price rising."  Remember that from Tuesday?  
Well, unfortunately volume fell off substantially yesterday 
to the point where today it traded roughly 1.9 mln shares 
compared to its ADV of 2.4 mln.  So much for Breakout City.  
Surprisingly, EXDS has held up really well, giving up less 
than $1 combined loss over the last 2 days.  It's holding up 
well near its all-time closing high of $86.81.  This indicates 
that current owners aren't lining up to sell this stuff.  We 
actually have a nice base of $84 forming.  A dip to that level 
appears buyable.  On a day when the NASDAQ was down 30 points, 
EXDS's low of the day was higher than its low yesterday (a big 
day for NASDAQ).  While it didn't show any conviction today, 
a return of volume will keep EXDS on the rise.  Beware, Fridays 
are typically lighter in volume overall but EXDS has a mind 
of its own and can act positively in a weak market anyway. 
This play is not for the lily-livered, Gunslingers only.

ERTS $66.88 0.00 (+1.38) Given that ERTS didn't lose a cent 
today while the rest of NASDAQ fell 30 points is testimony to 
its strength.  But that's not the whole story.  ERTS was up 
almost $4 to $70.19 half an hour before the close, when what 
looks like a huge sell order hit the trading floor.  ERTS sank 
like a stone to finish even for the day.  The long-term 
technicals still look strong but today's big rise and fall is 
resembling an upside down "T" on the chart and is a waving, 
red-flag negative.  Normally we'd chalk it up to profit-taking 
if the volume were lower but today's return to even money 
raises a bit of sweat on our brow, as ERTS sits right at 5-day 
short-term support of $67.  While the bigger trend is looking 
strong, it could go either way.  Cautious investors will sell 
on any opening strength, not wanting to risk losing a profit, 
or worse, taking a loss.  Risk takers should wait for upward 
movement with volume to reappear as a confirmation of the 
direction.  If you still want to play this conservatively, wait 
for the breakout over $70 (it must hold, not just get there).  
Only want to paper-trade as an experiment?  This is a good one 
to practice your trading psychology but you must first form 
your own conviction, based on your own risk profile.

CSCO $68.94 +0.31 (+4.81) Now up 6 days in a row, CSCO broke 
out of its shackles to set a new closing high today of $68.94 
on volume twice that of its ADV.  This was no easy feat since 
CSCO's ADV already exceeds 17 mln shares per day.  What's 
driving the volume and thus CSCO to new highs?  Two barely 
known, yet pivotal acquisitions announced this morning.  First, 
CSCO will acquire Cerent, a closely held optical networking 
company founded in 1997, for $6.68 bln in CSCO stock.  What 
makes this deal particularly interesting is that Cerent's 
revenues were just short of $10 mln last year but expected 
to be $100 mln this year.  That is nothing short of explosive 
growth and places a giant validation stamp on the whole optical 
networking industry.  Second, they will also acquire Monterey 
Networks (an optical network capacity booster) for $501 mln 
to be paid by the issuance of 7.3 mln CSCO shares.  In short, 
that is why other optical network related issues also rose 
today.  CSCO has just deemed it the future and backed up its 
statement with 107 mln new shares of CSCO stock to be issued.  
Like Babe Ruth, CSCO has just pointed to where the next home 
run will be hit.  Tellabs, Lucent, Nortel and, to a lesser 
extent, Ciena need to take notice of the 800 lb. Gorilla that 
they hoped wouldn't show up for a while.


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

NVLS $56.94 -0.88 (+2.50) Today produced the bounce off of 
resistance that we were looking for.  The stock opened at 
the high and it was downhill for the rest of the session.  
This was purely a technical move from resistance from the 
200-dma at $58 since we saw no relative news and volume was 
only average.  If you have been following the play, you know 
that this was the signal we were looking for to open new plays.  
We now expect NVLS to retest the lows of last week at $54.  
You should use caution though as this sector is prone to move 
together based on sentiment, despite the divergence we've 
seen lately.  The moves are quick and you need to have you 
entry and exit points planned out to avoid being caught in a 
reversal.  So keep an eye on the sector and use stop losses.  

IP $51.50 +0.50 (-2.88) Wouldn't it be great if all plays 
could be as predicable as IP.  It's amazing how this stock 
has channeled so quickly to meet our expectations.  Although 
we did receive a significant amount of help yesterday from the 
news on lower forest product prices and the fact that the Fed's 
decision on rates may eventually curtail economic expansion 
in the cyclical industry, of which IP participates.  As we 
stated in our original play, we were looking to bottom between 
$50-$51.  Now that we have reached our channel target, we are 
checking for confirmation of upside direction and looking for 
entry points on calls.  Most of today afforded us with the 
opportunity to see the stock making this upside move however, 
use caution because the market will not be as predictable into
Labor Day.  Volume may remain light causing volatility until 
that time when most fund and money managers return to the 
market.  

WLP $76.13 -0.38 (-1.81) What happened to our play today?  
WLP was off and running today as it made the turn lower in 
its current channel.  This channel is highly visible on the 
chart for the past two months.  But midday the stock was able 
to halt the slide and trend up for the remainder of the day.  
This is disappointing after the profits we were ringing up 
early in the day but the trend is definitely still in tact.  
There has been no news on WLP to trade from so we expect to 
continue to drift lower.  As long as the highs and lows keep 
getting lower, this stock has lots of plays left in it.  That 
means we are playing the game of entry and exit points.  Choose 
wisely and there is money to be made in intraday moves like 
we saw today.   

T $49.94 +0.69 (+3.06) Well, it was an up day for AT&T this 
Afternoon as trading volume was on the heavy side with 12.2 
mln shares changing hands.  This morning the Public Utility 
Commission ruled that companies such as AT&T, will be allowed 
to compete with Bell Atlantic in Pennsylvania's local phone 
markets.  AT&T currently has a strategy to broadly penetrate 
the local phone service market by the beginning of next year. 
"With this decision, Pennsylvania has taken a leadership 
position in creating one of the best climates for telecomm 
competition in the nation," said Jim Ginty, President of 
AT&T-Pennsylvania.  Furthermore, one indirect benefit that is 
expected from this event today will be lower long distance 
prices.  In other news, we had an analyst report released 
yesterday on AT&T.  Kevin Roe of ABN-AMRO started coverage 
on the long-distance carrier and gave it a outperform rating.  
He set a 12-month price target for the stock at $60 a share.  
Also, there were some whispers today that T may be considering 
splitting it stock into cable and phone segments.  This revives 
talk on this topic from about seven months ago by CEO Michael 
Armstrong.  At the time, he promise investors that T would 
continue to add value for its investors regardless of whether 
it splits up the company.  Some analysts believe this action 
will make it easier for investors but much more difficult for 
AT&T to meet expectations.

ANF $35.31 -0.94 (-3.00) ANF has lost over 15% of its share 
price just this month and has continued to show weakness since 
it reported solid 2Q earnings on August 10th.  Overall the 
retail sector isn't faring too well and specifically, ANF 
investors are concerned about the reassignment of Michele 
Martin from the head of design in the women's division (which 
makes up 45% of sales) to the special product division.  What 
we also need to consider is whether or not the back-to-school 
shopping season will reverse this play.  Technically, ANF is 
below the 'safe haven' of the 200-dma but a further slip would 
provide better evidence before opening a new put position.  
Only time will tell - if you do start any plays use stops for 
protection.  

TWX $62.44 -0.31 (-4.38) What a crazy market this week, just 
when new highs are established on the Dow, profit-takers step 
in and wipe out a good percentage of those gains.  The news 
concerning Time Warner this week has been just about as crazy.  
Merrill Lynch analyst Jessica Reif Cohen lowered her 1999 
and 2000 earnings estimates on the entertainment giant sending 
the stock as low as $60.44 in Wednesday's morning trading.  
By that afternoon, a broad market rally was enough to pull 
the stock back, finishing the day on the positive side.  That 
evening after market close, a news article was released that 
two different brokers were upgrading TWX.  Going against 
Jessica Cohen's view, brokers ING Barings and SG Cowen upgraded 
TWX from a buy to a strong buy.  Even with this good news, 
Time Warner ended fractionally lower today, supporting the 
fact that TWX has little ground to support itself.  Remember 
that the trend is your friend and even though TWX's trend right 
now is definitely on the downside, protect yourself with the 
recommended stop loses.  It's a wild market with little 
direction.


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

SFA - Scientific Atlantic Inc. $51.13 +1.31 (+4.56 this wk)

Scientific-Atlanta provides satellite-based and terrestrial-
based networks to a range of customers in a variety of 
applications and provides network management and systems 
integration.  They are also a leader on top of the TV market. 
The company is one of the largest makers of set-top boxes used 
by subscribers to receive cable TV programming and interactive 
services such as movies-on-demand and e-mail.

Will this market please decide which way its wants to go?  
Despite the uncertainty of the market, our latest play, 
Scientific Atlantic has given us an unmistakably upward trend 
since the beginning of the month.  Even today's profit-taking 
in the broader markets was not enough to scare investors from 
this stock.  SFA closed at its 52-week high, adding to its 
gains that have been accumulating since August 4 when it closed 
at $33.94.  Those investors that have held the stock during 
this time frame have been rewarded handsomely and we see more 
chances to profit in the short-term.  SFA is currently trading 
well above its 50-dma and 200-dma and has a strong technical 
chart.  The only resistance in the future lies in the question 
of how high will it go.  Considering how the stock has performed 
under the current market condition, we see no reason why the 
stock couldn't reach higher highs in the near future.  This is 
mostly a momentum driven play that we are trying to catch a 
ride on.  Watch for a good entry point and place the recommended 
stop losses to be safe. 

In the news, last Friday the board of directors of Scientific 
Atlantic announced a regular quarterly cash dividend on its 
common stock of one and one-half cents ($.015) per share.  The 
dividend is payable on or about September 16, 1999, to 
shareholders of record as of September 1, 1999.  Besides the 
divided announcement, there was no recent news on the stock.

BUY CALL SEP-45 SFA-II OI=960 at $7.00 SL=5.25
BUY CALL SEP-50*SFA-IJ OI=378 at $3.63 SL=1.75
BUY CALL SEP-55 SFA-IK OI= 31 at $1.13 SL=0.50
BUY CALL OCT-50 SFA-JJ OI=117 at $4.63 SL=2.75
BUY CALL OCT-55 SFA-JK OI= 37 at $2.50 SL=1.25
 
Picked on Aug 26th at    $51.13    P/E = 38
Change since picked       +0.00    52-week high=$51.69
Analysts Ratings      7-7-2-0-0    52-week low =$11.75
Last earnings 08/12 est=   0.33    actual= 0.59
Next earnings 10/22 est=   0.28    versus= 0.38
Average Daily Volume = 1.3 mln
Chart = http://quote.yahoo.com/q?s=SFA&d=3m


AMZN - Amazon.com $128.56 -4.31 (+15.13 this wk)

Amazon.com has become the icon for e-commerce, as they have 
expanded from books to include CD's, online auctions, video's, 
etc.  They also have invested in companies offering online 
pharmacy, groceries and pet supplies.  We're talking online 
diversification here.  Sales have grown to $608 million as of 
the last quarter, up from $203.3 million.  This growth is due 
to Amazon's unique methods of retaining customers and servicing 
those customers like no other online site.  CEO Jeff Bezos 
started Amazon in 1995, they now have more than 10.7 million 
customers that they sell to.

Anyone who listens or watches the financial community is 
privy to the fact that many analysts are pointing out that 
the Internet correction has been significant and that now 
may be the time to re-enter the higher profile companies 
that show potential.  AMZN looks now to be in position to 
take advantage of this news.  Fundamentally the company is 
risky however, technically we are looking good and technical 
momentum is what drove the last bull-run with AMZN.  On Aug 11, 
the stock started a new upward trend.  It then confirmed this 
direction to us by breaking through it's moving averages one 
by one.  Yesterday AMZN broke through its last upward hurdle, 
it's 100-dma.  Even today, despite the drop in price, the 
stock managed to remain above the 100-dma at $128.87, thereby 
establishing a strong argument for support.  Also backing us 
up on this are positive breakouts in the Stochastic, and MACD.  
Given the fact that the market may be on pins and needles 
until after Labor Day, use caution and confirm the market 
direction before entering this play.  Look for support from 
the 100-dma for potential entry points.

In the news, AMZN continues to offer customers with incentives 
to visit it's site.  Free music downloads from well known 
artists in the Warner Group label.  Another reason AMZN is 
the master at customer attraction and retention.  AMZN is also 
mentioned in numerous articles as the one to compete with.  
News like this supports that Amazon is the generic name for 
success in e-commerce.

BUY CALL*SEP-125 YZZ-IE OI=1860 at $12.13 SL= 9.50
BUY CALL SEP-130 YZZ-IF OI=2506 at $ 9.63 SL= 7.25
BUY CALL SEP-135 YQN-IG OI=1732 at $ 7.50 SL= 5.75
BUY CALL OCT-135 YQN-JG OI= 667 at $14.13 SL=11.25

Picked on Aug 27th at   $128.56    PE = N/A
Change since picked       +0.00     52 week low =$ 21.16
Analysts Ratings     12-6-4-0-0     52 week high=$221.25
Last earnings 07/99   est -0.50     actual  -0.51 
Next earnings 10/28   est -0.57     versus  -0.49
Average daily volume = 9.0 mln
Chart = http://quote.yahoo.com/q?s=AMZN&d=3m




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


WCOM - MCIWorldcom $78.31 -3.06 (+4.25 this wk)(-4.63)

MCI WorldCom is a global leader in communications services 
with 1998 revenue of more than $30 billion and established 
operations in over 65 countries encompassing the Americas, 
Europe and the Asia-Pacific regions.  MCI WorldCom provides 
facilities-based and fully integrated local, long distance, 
international and Internet services.  MCI WorldCom's global 
networks, including its pan-European network and transoceanic 
cable systems, provide end-to-end high-capacity connectivity 
to more than 40,000 buildings worldwide. 

WCOM is starting to inhale canal water and appears headed 
under water for now.  WCOM bumped its head on its 200-dma 
while trying to dig its way out of the recent hole with no 
such luck.  After opening this morning at yesterday's closing 
price of $81.81, it descended $3.06 on steady and heavy volume 
into the close.  It's clear there are money managers who are 
selling.  That it couldn't get back over its 200-dma is a big 
technical negative.  Not even a coverage initiation by ABN 
AMRO with a "buy" rating and $97 price target could save it.  
The next potential support level is $73 and after that, the
mid-$60's.  Friday's aren't typically that busy and sellers 
could really take hold tomorrow, especially after the market's 
run over the last 2 weeks.  Also an indicator of investors' 
lack of faith in the future, yesterday 11,000 SEP-80 puts were 
traded and over 11,000 calls were traded - 5000 sold in 1 order. 
Do you think that seller is just speculating?  It's not likely. 
Confirm downward direction before making the play.

In the news, the FCC approved WCOM's acquisition of Skytel on 
Thursday.  That's all folks!

BUY PUT SEP-80*LDQ-UP OI=22918 at $3.75 SL=2.25
BUY PUT SEP-75 LDQ-UO OI=12517 at $1.56 SL=0.75

Picked on Aug 26 at    $78.31    PE = N/A
Change since picked     +0.00    52 week low =$39.00
Analysts Ratings   19-5-4-0-0    52 week high=$96.75
Last earnings  07/99 est 0.44    actual 0.44
Next earnings  10-28 est 0.53    versus 0.21
Average daily volume = 12.06 mln. 
Chart = http://quote.yahoo.com/q?s=WCOM&d=3m


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

The pod is AMZN, which is a new play.




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



The Option Investor Newsletter         Thursday 8-26-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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


STRADDLE RECAP - August 26, 1999

Downside breakouts resumed today as news continued to push 
our straddle stocks lower.  Amazing how even commodity prices 
can effect stocks even after blow-off moves are ending.  Lets 
look at Sunday's plays, and where they have gone for the week.  

Symbol	Title			Bid		Ask
XON	 	Exxon Corp		80.00		80.5625
XON-JP	XON Oct 80 Call 	 3.25		 3.625
XON-VP	XON Oct 80 Put 	 2.25		 2.625

No real move and options have decayed by a point this week 
from last weeks price of 7.

DOW   	Dow Chemical	117.813	118.188

DOW-LF	DOW Dec 130 Call    3.25        3.625

DOW-XF	DOW Dec 130 Put 	 14.125	 14.875

Different story here - the stock was at 130 when published.  
Now this straddle, which was trading around 15 last week, is 
now up to around 17 1/2.  Not a bad move for one week and no 
directional bias.

BPA	      BP Amoco Plc	110.00       110.75
BPA-JD	BPA Oct 120 Call 	  1.50	   1.6875
BPA-VD	BPA Oct 120 Put 	 10.375	  10.875

Here is another example of a stock that moved big in the last 
week.  Notice how much the puts are compared to the calls.  
These options were a bit higher last week trading at 10, but 
are now asking 12 1/2. 

CHV	      Chevron Corp	92.3125	92.9375
CHV-LS	CHV Dec 95 Call    4.875       5.25
CHV-XS	CHV Dec 95 Put 	 6.5		 6.875

Not too much of a move here, as this stock bobbed up and down 
like a fishing float.  Problem here is volatility has declined 
and so has the options by about 2 points.  

ARC   	Atlantic Richf	85.6875	86.875 
ARC-JS	ARC Oct 95 Call    0.9375      1.1875 
ARC-VS	ARC Oct 95 Put 	 9.375	 9.875

Trading at 8.75  last week, this straddle is being offered now at 
12 for a gain of 3.25.  

What I am showing you here is really the exception to the rule.  

Looking at just this week's trades, you can see a net change of 
4.75 for the week.  I normally don't see quick profits like this 
in less than one week.  I normally have to hang onto these 
positions for several weeks now.  Well folks, I will only gloat 
for a day or so.  The saying on the street is that you are only 
as good as your last trade.  So what has to happen to make these 
positions get better.  Well first, I would like to see the price 
of oil continue to slide.  That would put more selling pressure 
on the oil services industry.  
 

Straddle Mailbag for Today

The biggest question I got this week was concerning exit 
strategies (I wonder why???).  Questions came in to specific 
exits on trades, to a general exit strategy for straddles.  
While I cannot give specific trading advice, I can tell you 
my ideas for exiting straddles.  First, I am very flexible to 
exiting straddles and news and patterns have a lot to do with 
it.  If I were to take a totally objective form of exiting, I 
would look at two exit plays.  First, I would take a profit 
objective (I like 50% above the straddle cost).  The second 
would be a time stop such as exiting no more than 30 days after 
the entry of the straddle. 

If I have learned anything in this business, I have learned 
that people are different.  We all wear different shoes, 
clothing, hats, etc., and we all trade differently.  Your 
biggest competitor in the markets is no one else but you.  
Control yourself and you control the biggest killer of profits.  
Sell too soon folks.

Tom Gentile


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

Time For A Breather..

U.S. stocks closed lower Thursday on profit-taking, a day after
the Dow finished at a new record.

Wednesday, August 25

Stocks moved higher on Wednesday with technology stocks taking up
the slack while financial issues faltered after a profit warning
from Bank One (ONE). The Dow industrials rose 43 points to a new
record of 11,326. The Nasdaq composite rose 53 points to 2805.
Advancing issues led declines 1,611 to 1,382 on moderate volume
of 840,824,360 shares. The 30-year U.S. Treasury bond was up one
point, lowering the yield to 5.86%.

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

Coulter Pharm.  CLTR  OCT25P/SEP25P  $0.62  debit  calendar

Coulter (CLTR) traded in a very small range for most of the
day with almost no option volume. The average price observed
was $0.68. In the afternoon, the stock price fell lower and
traders moved into the September positions. The target debit
of $0.62 should have been easily achieved.

Portfolio plays:

The market endured a relatively favorable day after the Fed's
interest rate adjustment and investors are once again focusing
on earnings. The big tech issues continued to move higher with
Cisco (CSCO), Solectron (SLR), Sun Micro (SUNW) and MCI-Worldcom
(WCOM) all participating in the rally. The large-cap safety and
cyclical stocks also moved skyward with the renewed buying. Our
positions that benefited were Proctor & Gamble (PG), General
Electric (GE) and Johnson & Johnson (JNJ). 

Drugstore chain Rite Aid (RAD) rallied over $3 after announcing
it is involved in talks involving possible corporate deals. The
company said its analyst meeting scheduled for 9/2/99 has been
postponed until September 22 in light of the possible deals. Our
calendar spread on RAD moved back to profitable territory on the
news. International Paper (IP) faded almost $2 on Wednesday and
the front month option premiums fell significantly. The October
calendar spread could have been closed at a $0.62 profit during
the morning session. Pacific Gateway (PGEX) fell $2 and with the
recent volatility, it is also an early exit candidate with a two
week return of $0.56.

Oil stocks slumped and with their recent highs we expect further
consolidation. Halliburton (HAL), Diamond Offshore (DO), Noble
Drilling (NE), Baker Hughes (BHI) and Unocal (UCL) moved lower.
Our short-term calendar positions on BHI and UCL are profitable
and can be closed to limit potential losses. As the oil issues
went down, the airline stocks rose and United Airlines (UAL) was
the leader of that group, climbing almost $4.43 to recent high
near $67.

Thursday, August 26

U.S. stocks closed lower Thursday on profit-taking, a day after
the Dow finished at a new record. The industrial average fell
127 points to 11,198 and the Nasdaq fell 30 points to 2,774. In
the broad market, declines led advances 1,782 to 1,165 on volume
of 709.16 million shares on the NYSE. The 30-year U.S. Treasury
bond fell 22/32, pushing the yield up to 5.90%.

Portfolio plays:

DoubleClick (DCLK) was our big mover today, up $8 to $106 and now
in a profitable position on our combination straddle. The stock
price needs to finish above $97.50 at the October expiration for
maximum profit. 3COM Corp (COMS) was another rallying issue, up
almost $2 to recent resistance near $25. Our October $25 calendar
spread is already $1.25 ITM. Echostar (DISH) appears unfazed by
the wavering market and the move to $80 may be a signal for the
next up-leg. General Motors (GM) is also enjoying a small rebound
and that usually indicates some underlying strength in the Dow.

Coulter (CLTR) closed higher today as new investors climbed on
board the speculation train but when the (September) put options
fell, our play actually moved towards profitability, closing near
break-even. This is a good example how implied volatility changes
(and can be used in your favor) with the influx/exit of traders
in option positions. J.P. Morgan (JPM) finally relented, giving
back $4.38 to $135. The new direction (and our action) for this
issue should be determined in the next few sessions. Intel (INTC)
and EMC Corp (EMC) both back-pedaled after recent gains but our
short-term positions in each of the issues are safely ITM. One
stock that we are currently focusing on is Polaroid (PRD). It
appears to be unaffected by the market volatility and is moving
higher on a daily basis. Our LEAPS/CC's position is short at $25
and we may need to close that option early if PRD breaks through
resistance near $29.

Questions & comments on spreads/combos to ray@OptionInvestor.com
*********
NEW PLAYS 
*********
RSLC - RSL Communications  $20.81  *** On The Move! ***

RSL Communications is a rapidly growing multinational telecom
company which provides a broad array of international & domestic
telephone services to both carrier and commercial accounts. These
services include international long distance calling to countries
all over the world and calling card, private line and value-added
telecommunications services. The company focuses on providing
international long distance voice services to small & medium
businesses in key markets.

RSLC reported improving earnings in mid-July and some recent news
stories along with the rumors of a spin-off/IPO of their new
division, Deltathree.com, has boosted the share value.

Deltathree.com is expecting to capitalize on the advancement of
Internet telephony technology and now manages the world's largest
network dedicated entirely to Voice over Internet Protocol. The
company's mission is to use its network as a backbone to offer
customers a full suite of personalized, web-based communications
services. They recently announced a new agreement offering high
quality Internet telephony services through a co-branded area at
XOOM.com, a leading direct e-commerce company.

The new offering provides XOOM.com members access to PC-to-Phone
service for calls from computers to regular telephones worldwide
and its Phone-to-Phone service for calls from regular telephones.
Users can also send friends or business associates voice greeting
cards. The PC-to-Phone service allows users to 80% percent over
standard international telephone rates.

They also recently announced that its subsidiary, RSL COM Spain,
has fully interconnected with Spain's dominant local carrier. The
new interconnection will expand RSL COM Spain's services and
enable the company to significantly lower its cost of originating
and terminating telephone calls in each of the 17 countries where
RSL COM subsidiaries have achieved interconnection. The efficient
combination of extensive domestic interconnection and a global
network will allow RSL COM to keep its costs among the lowest in
the industry.

The 150 dma is near $23.50 and that should provide some short-term
resistance for the sold position in each spread. The bullish play
offers excellent risk/reward for continued upward movement while
the calendar spread has low risk with a neutral/bullish outlook.

PLAY (aggressive - bullish/diagonal spread):

BUY  CALL OCT-20.00 QRL-JD OI=439 A=$3.50
SELL CALL SEP-22.50 QRL-IX OI=40  B=$1.31
INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=25%

PLAY (conservative - bullish/horizontal spread):

BUY  CALL JAN-22.50 QRL-AX OI=583 A=$4.00
SELL CALL SEP-22.50 QRL-IX OI=40  B=$1.31
INITIAL NET DEBIT TARGET=$2.50 TARGET ROI=50% (4 months)

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

*****

COMS - 3Com Corp.  $25.31     *** Buy-Out Rumors ***

3Com has evolved from a supplier of discrete networking products
to a broad-based supplier of local area network (LAN) and wide
area network (WAN) systems for large enterprise, small business,
home, and service provider markets. Following its recent merger
with U.S. Robotics, the world's leading provider of modems and
remote access products, 3Com offers customers a broad range of
data networking solutions that include routers, hubs, remote
access systems, switches, adapters, modems, connected organizers
and telephony products.

Upcoming earnings and buyout rumors are driving COMS higher again
after today's announcement that Germany's Siemens AG and 3Com
have given up plans to form a joint venture making equipment to
handle voice calls on data and video telecoms networks. A Siemens
spokesman said cost reasons was the official cause of the split,
and that the two companies had come to the conclusion together,
opting to develop new products independently from each other.

Now the speculation is that a buy-out offer is in the works from
another European company, possibly GE England or Ericsson. With
the speculation of better-than-expected earnings, the company is
believed to be ripe for takeover and it is certainly an excellent
candidate for the right purchaser. A European company would most
certainly benefit from their established infrastructure and the
success of the Palm Pilot.

Once again, the 150 dma is near our sold strike and that should
provide some short-term resistance. The options are at a premium
and the recent volatility offers an excellent risk/reward ratio
for this low-cost speculation play.

PLAY (aggressive - bullish/horizontal spread):

BUY  JAN-27.50 THQ-AY OI=1007 A=$3.00
SELL SEP-27.50 THQ-IY OI=1710 B=$0.62
INITIAL NET DEBIT TARGET=$2.25 TARGET ROI=50% (four months)

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




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