Option Investor
Newsletter

Daily Newsletter, Tuesday, 08/31/1999

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter         Tuesday  8-31-99
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)
************************************************************
        8-31-99          High     Low     Volume   Advances Decline
DOW    10829.28 - 84.85 10982.20 10782.11  845,462k  1,304   1,667
Nasdaq  2739.35 + 26.60  2739.90  2671.67  973,402k  1,865   1,971
S&P-100  692.24 -  3.00   701.07   685.38   Totals   3,037   3,169
S&P-500 1320.41 -  3.61  1333.28  1306.91            46.6%   53.4%
$RUT     427.83 +   .47   428.13   424.22
$TRAN   3076.10 - 44.05  3130.95  3074.70
VIX       25.24 +   .27    27.57    24.16
Put/Call Ratio      .72
*************************************************************

Surprise, surprise!

The market rallied back early in the morning from three days of 
sell off on Greenspan comments. Knock, knock! Who's there? NAPM
NAPM who? National Association of Purchasing Managers with our
survey numbers. BUT...you are not scheduled until Wednesday!
Why are you here early? Greenspan sent us. (just kidding). You
know the rest of the story. The NAPM numbers were released a day
early, AGAIN, by a computer glitch and it was not a pretty picture.
(makes you wonder how they are going to handle Y2K when they can't
tell the difference between August and September?) The NAPM
numbers were much stronger than expected. The base number was
not bad with August posting 54.2 over the 53.4 for July. The
real market killer was the "Prices Paid" component. This number
jumped from 54.7 to 59.8, a whopping 5 point jump. This was the
biggest jump in the price component in five years. Unfortunately
Prices Paid is the component that shows inflation in prices at
an early stage. So much for market rally! The Dow dropped over 
-200 points to a low of 10782. 


 
 
 





The -200 point drop from the high of the day and +168 point
climb back qualified as an entry point in my mind. I wrote 
in the Sunday newsletter to watch for a 100+ point drop and 
recovery intraday and if it was below 10900 even better. We
got our wish. However by the end of the day I was becoming 
concerned. The -100 point drop just before the close was
nerve racking but understandable. The month end portfolio
adjusting was taking its toll. Most portfolio adjustments
occur at the end of the quarter but some fund managers do
cleanup at month end also. Today must have been a big month
for adjustments. Volume today on the NYSE was 845 mln and
85 mln came in the last ten minutes. Order on close orders
were very heavy and mostly sell orders. Hopefully the damage
is over. Helping fuel my optimism is a healthy inflow of cash
into mutual funds over the last two weeks. Almost $8 bln
came in and this market drop is a great opportunity for
fund managers to put it to work quickly. Since tomorrow starts
a new month and the last month of the quarter it would be a
good day for the rally to begin. 

Another reason for a September rally would be the strong 
earnings forecast by First Call for a +21% rise in profits.
Past quarters have been between +13-15% and the 3Q is not
normally a strong quarter. Things are looking very good.

The bond rally after the Fed meeting last week was dead on
arrival today after the NAPM release. Bonds dropped hard and
yields went as high as 6.10%. The good news was the drop back
to 6.06% by late day. The bond market and stock sell off was
a knee jerk reaction to the NAPM numbers. It is interesting
however to note that the Dec bond futures are now indicating
another +.25% increase is already factored into the market.
The Dec Euro/Dollar futures are showing a 6% Fed funds rate
which would be three more +.25% increases. While we do not
think this is likely, futures traders are obviously concerned.

Dow theory followers are also concerned about the falling
transportation average. Since last Wednesday the transports
have dropped -234 points or -7%. We feel this is simply the
impact of $22 oil but without a turnaround in the transports
the Dow will struggle to move much higher.

 



The bright spot in todays market was the Nasdaq. As usual the
Nasdaq is leading us out of the sell off wilderness.
Techs are the first to fall and the first to rise from the
ashes. After a drop of over -40 points after the announcement
the Nasdaq closed up +26 for a miraculous recovery. Some of the
leaders were Dell Computer +2.50, QCOM +9.19 (Monday's play
of the day recommendation), DISH +8.09 and NTOP +12.38 on
news of yet another big deal signing with AT&T which will allow
it to expand to 17 countries. Internets were mixed but mostly 
positive. Still a positive Nasdaq is a first step toward a 
positive Dow.

It did not hurt to have several big news announcements in the
tech sector. IBM and CSCO announced a $2 bln agreement to 
share technology and integration services over the next five
years. Competitors however took a pounding. MMCN dropped
over -$19 to $30.75 after saying product development by
competitors could impact revenues. IBM and CSCO were big
customers for MMCN. Separately Apple Computer (AAPL) announced
their new G4 PC. Actually, according to Steve Jobs, the PC
is a "super computer" able to complete over one billion
instructions per second. This PC is claimed to be more than
twice as fast as Intel's fastest Pentium III. Secondly Steve
said the orders for the new notebook computer had exceeded
140K and much more than expected. Intel was down fractionally
on the news but is expected to recover when it announces a
new processor this week at the technology conference now in
progress. Intel is expected to announce a 700 MHZ P3. Intel
and Microsoft also released news that Windows2000 is now
booting and running on the new 64bit Merced processor. The
Merced is the next major step up for Intel and will offer
significant processor speed jumps.  Chip makers were buoyed
by an analyst upgrade of Micron (MU) today and did well.
PC makers had a good day led by Dell. Actually three of the
top PC makers have had some good moves since mid August.
GTW +28%, DELL +15%, AAPL +15%. Oh, I forgot, CPQ -4%. Still
a Dell takeover target in my mind.

SunMicro fired another shot towards Microsoft today. They
announced they were buying Star software, a privately held
maker of office productivity software. While the market liked
the deal, SUNW +3.88, they may still have trouble getting 
users to switch from Word, Excel and Powerpoint. SUNW however
has one thing going for this effort. It will distribute the
products FREE over the Internet. After checking out the price
of Office2000, FREE may be worth a look for the millions of
home users of Microsoft products. Merrill Lynch named SUNW
its "Focus One" stock of the week.

As if we did not have enough problems with the wall of worry
being built over interest rates, we are now entering "earnings
warning season." Yes, we have to trade through the minefield
of warnings to get to earnings. The biggest company to drop
a stink bomb today was Office Depot. They warned that earnings
would be about -.24% less than expected. Scratch them off the
earnings run list along with the "guilty by association" list
of Staples (SPLS) and OfficeMax (OMX).  

With the Labor Day holiday only hours away, depending on how
early this week you quit working and leave the office, it 
might be good to focus on several key points. The DOW rally
from 10550 on August 10th to 11353 on August 24th was +803
points in ten trading days. The retracement from 11353 to 
10829 was -524 points in only five trading days. We have now
given back -65% of those gains. The average retracement is
between 50-75%. We are there. The market is tremendously oversold
and is due for a technical rebound even if there is no follow
through. I am looking for the bargain hunting to begin tomorrow
assuming the end of month sellers are done. Today could have
been a great entry point. With the market already down -500
points the downside from here is very limited. News after the
market closed that the IMF had made a deal with Ecuador could
have a positive impact on the market tomorrow as well. The
Ecuadorian Mafia is not nearly as well organized as the Russians
and the Ecuadorian people may actually see some of the money.
(just kidding) The next major market hurdle is the Non-Farm
Payroll Report on Friday. This could rock the market either
way and would be one reason we may not see much upside movement
before next week. Minor upside is ok. We just want to see a 
bottom here to provide a launch point for next week.

As always, please pick your entry points carefully.

Good Luck, Sell too soon.

Jim Brown
Editor

Be sure to check out the new "interactive charting" on our
website. It is in the left margin under "traders tools"
Customize your own charts using the indicators you like.




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

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

DOW Industrials   10,500  11,320  10,829    Neutral   7.20
SPX S&P 500        1,320   1,420   1,320    Neutral   8.17
OEX S&P 100          675     735     692    Neutral   8.13
RUT Russell 2000     440     465     428    BEARISH   8.06
NDX NASD 100       2,250   2,468   2,397    Neutral   8.13
MSH High Tech      1,125   1,250   1,194    Neutral   8.13

XCI Hardware       1,035   1,050   1,074    BULLISH   8.24
CWX Software         725     844     813    Neutral   8.13
SOX Semiconductor    515     520     522    BULLISH   8.24
NWX Networking       555     625     574    Neutral   8.13
INX Internet         500     580     442    BEARISH   7.20

BIX Banking          690     710     623    BEARISH   7.23
XBD Brokerage        410     440     376    BEARISH   7.23
IUX Insurance        645     660     594    BEARISH   7.23

RLX Retail           915     960     817    BEARISH   7.23
DRG Drug             360     390     364    Neutral   8.24
HCX Healthcare       740     785     744    Neutral   8.24
XAL Airline          180     190     152    BEARISH   5.21
OIX Oil & Gas        285     310     304    Neutral   8.26



Posture Alert    
Another volatile day ended with the Nasdaq taking charge and closing 
positive on decent volume. We will be closely watching for any Hammer 
reversals, which the Nasdaq may be showing, but the divergence on the 
major indexes is giving a mixed signal.  Sectors showing good strength 
were Software (+2.60%), Internet (+2.61%),  Morgan Stanley High Tech 
(+1.51%), and Hardware (+1.47%). No change to the posture board.

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

/members/marketposture
 


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

A day at the Beach?

A large part of sentiment analysis is figuring out what people expect 
and applying those outcomes to good use. Sentiment analysis is quite 
easy, when bullish or bearish feelings dominate. However, when 
sentiment is stuck in the middle, you need to be more careful, because 
anything can happen. Currently, everyone is at a loss, in terms of 
where interest rates are going. One week ago, after the Fed meeting, it 
was pretty unanimous that interest-rate hikes were done for the rest of 
this decade. Not so anymore. 

I would equate this to a day at the beach (or golf course). You have 
the day planned out, wake up that morning to see a beautiful sunny day, 
and once you arrive at the beach (or golf course), the sky turns gray. 
You can't tell if you should take cover because it's about to rain all 
over you, or if it will blow over very shortly. Right now, this market 
is in the same situation. People's perceptions change rapidly, 
especially on Wall Street.

Since the market is stuck in the middle right now, we need to 
concentrate on what will bring us sun or rain....INTEREST RATES! A higher 
rate brings rain, lower or stable rates bring sunshine. This week, we 
have seen the yield on the 30yr bond break the 6% benchmark. We have 
also seen the Volatility Index break over the 25 benchmark; however, it 
did close below this number. With the long bond, 6% was minor 
resistance, with 6.272% being major. If the latter level were to break, 
significant damage could be done to this market. If we hold, then bring 
on the sun. 

For sentiment readings on the OEX, we have stated for the last several 
weeks, that this market would be trading range bound. It has done like 
we thought. With the OEX currently at 692, we are seeing large volume 
of put buying just below this level. Based on the sentiment reading, 
and taking a contrarian standpoint, major support for the OEX is 685-
690, and to see a bounce here would be very likely. Excessive bullish 
sentiment doesn't begin until 720, so there is plenty of potential for 
the upside in the next couple of weeks.    
 

 


 


 



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.

Peak Open Interest:  
The contraian OEX put-call ratio on peak open interest is clocking in 
at 1.5, suggesting bearish sentiment picking up steam.


Mixed Signs: 

Interest Rates:
The yield on the 30-yr Treasury is now above the 6% benchmark, but 
still below the 6.272% high. Any break below 6% would be positive, 
while any break into new highs would be extremely negative and take 
this market significantly lower.

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:

Volatility Index:
The VIX broke above the 25 benchmark, before retracing back to 24.73. 
If the VIX moves above this mark, and holds, further market weakness 
should be expected.

Pinnacle Index:
The Pinnacle Index for the OEX (735-780) is now reaching levels of 
extreme optimism.  From a contrarian standpoint, resistance is building 
in this area, and should the market advance further, this was mark the 
beginning of overhead resistance.

Market Posture:
Many indexes have not participated in the rally, and very few have 
broken new highs as of late.

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, we are 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          -
Friday, August 27         78,026         +88.7%



Market Sentiment at a Glance     Friday     Tues  
Indicator                        (8/27)    (8/31)


Pinnacle Index (OEX):         
                    
Overhead Resistance (735-780)    134.1     148.0
Underlying Support  (710-730)      1.6       1.9
Underlying Support  (630-690)      3.2       3.4
                    

Put/Call Ratios:

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


Peak Open Interest (OEX):

Market Volatility Index (VIX):

CBOE VIX                         24.73

Puts                              660
Calls                             720
P/C Ratio                         1.55



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
Benchmark                       (8/27)     (8/31)


Overhead Resistance (735-780)   134.09     148.0
Overhead Resistance (710-730)     1.59       1.92

OEX Close                       707.97     692.24

Underlying Support  (630-690)     3.21       3.36
                     

 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is huge at the OEX 735/780 level 
but very light at the 710-730 range.



Put/Call Ratio                  Friday     Tues
Strike/Contracts                (8/27)    (8/31)


CBOE Total P/C Ratio             .65       .64
CBOE Equity P/C Ratio            .46       .51
OEX P/C Ratio                   1.10      1.47


(OEX)
Peak Open Interest      Friday           Tues
Strike/Contracts        (8/27)          (8/31)


Puts                 660 / 12,400      660 / 12,350
Calls                760 /  7,379      720 /  7,982
Put/Call Ratio         1.68              1.55



 




VIX)
Market 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 31, 1999                         24.73





 




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    Week
Dow     10829.28 -176.04 -84.85 -260.89
Nasdaq   2739.35  -46.21  26.66  -19.55
$OEX      692.24  -12.73  -3.00  -15.73
$SPX     1320.41  -24.25  -3.61  -27.86
$RUT      427.83   -5.09   0.47   -4.62
$TRAN    3076.10  -51.20 -44.05  -95.25
$VIX       25.24    1.76   0.27    2.03

Calls               Mon    Tue    Week

QCOM      192.19   -0.75   9.19    8.44  Another 50-week high
VRSN      108.31    3.00   2.94    5.94  A Strong Buy rating
SLR        78.25    0.25   4.25    4.50  Definitely a favorite
SUNW       79.50   -0.56   3.88    3.31  Buying Star Division
TXN        82.06    0.88   1.69    2.56  New, leading the techs
GTW        96.94   -0.81   1.56    0.75  Price target raised!
ERTS       68.63   -1.00   1.69    0.69  Starting to wane a bit
HGSI       68.06    0.56   0.13    0.69  The race is heating up
ADI        51.50   -1.50   1.69    0.19  New digital converter
SFA        51.25    0.88  -1.06   -0.19  Eight straight highs
CSCO       67.81   -1.75   1.06   -0.69  Announced $2 bln deal
MSFT       92.56   -1.00   0.31   -0.69  New, looking to rally
INTC       82.19   -0.75  -0.06   -0.81  New chip released soon
SNE       127.31   -0.94  -0.31   -1.25  Dropped, Yen to strong
LGTO       43.06   -1.78   0.41   -1.38  Possible entry point
LXK        78.75   -2.56   1.13   -1.44  It's leaner and meaner
UIS        43.00   -0.88  -0.75   -1.63  Advising caution here
EXDS       80.38   -6.63   4.25   -2.38  Price target at $138!
PMCS       93.00   -1.31  -1.50   -2.81  Dippping below 10-dma
IDPH      127.06   -2.50  -0.69   -3.19  Dropped, turned around
DCLK       99.88   -8.38   5.13   -3.25  Its a favorable outlook
AMZN      124.38   -9.25   5.13   -4.13  The split is coming
JDSU      106.06   -4.47   0.34   -4.13  Upgraded to Strong Buy
BVSN       99.56   -6.75   2.19   -4.56  Looking for a trend


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

IDPH $127.06 -0.69 (-3.19) Despite an upgrade and a strong 
market rebound this afternoon, IDPH still closed lower and 
broke key support from the 10-dma.  Today Lehman Brothers 
raised their rating to a Buy and increased both the earnings 
estimates and price target.  The earnings projections were 
revised to $3.54, up from $3.33, for fiscal 2001 and the 
price target was raised to $155, up from $103.  Unfortunately 
this wasn't enough to overcome comments on Monday from the 
analysts at Morgan Stanley who said the stock is looking 
tired after the run from $40 this Spring.  This caused IDPH 
to break the 10-dma which now paints a weakening technical 
picture.  IDPH did rebound with the market after painting 
the tape with a day-low of $120 but a downtrend may be 
forming and the risk is weighing too high versus the return 
so we are dropping IDEC as a play.

SNE $127.31 -0.31 (-1.25) The dollar is back in the spotlight 
this week and for good reason.  We normally hear about currency 
fluctuations with the markets are lacking for news but we all 
now that there is plenty of market news and action today.  So 
why the dollar?  Well it is under the 110 level against the 
yen which is considered bearish for foreign stocks who import 
to the U.S.  This is what is holding SNE down recently.  Some 
analysts think that the yen may remain strong for awhile thanks 
to a recovering Japanese economy.  So while a strong yen would 
be ok as long as domestic investors in Japan begin buying local 
stock with the improving economy, it will hamper our play for 
the short-term.  Therefore, we are dropping Sony until we see 
more signs of strength from the stock.

IP $47.06 -2.81 (-4.00) How quickly things change!  Well it  
is said that the only constant is change, so change we will.  
Just last week, we were stating how predictable IP was with 
it's channel.  We'll no more!  Monday precipitated the slide 
that did us in.  We continued Tuesday breaking below our 200-dma.  
Be grateful for stops!  Due to this downward break, we must 
drop IP for obvious reasons.  

PUTS:
******

No dropped puts today.


***** 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         Tuesday  8-31-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

***************
Traders Corner
***************

Sometimes you're the bat, sometimes you're the ball. 

And the difference is planning. Yesterday, I watched the close at a
little family owned (since 1937) diner overlooking the Golden Gate
and I was horrified. I had taken big positions midday when the
averages went down and appeared to bounce back... but, not so fast,
they dropped hard. Today, I was paying attention between moving stuff
from my Silicon Valley grad student apartment to my new apartment in
San Francisco. Today, at the close, I am finishing a root beer float,
at the same diner, watching a much, much better close. 

Jim Brown asked whether I was interested in writing a column for
the newsletter. So, I guess my best contribution would be some
general thoughts on the emotional aspects of trading, and my
approach to planning my trades. I've been trading options since
January of 1999, and I have subscribed to the newsletter since a
friend recommended it. I've had ups and downs in the January and
April earnings season, and really improved my trading this summer
by following the newsletter closely. I've also become involved with
a local investor group organized by the newsletter, and have picked
up some techniques from the armchair pros, some of whom have done
very well, to the tune of $1,000,000, in one case. 

Anyway, I plan my trades pretty exhaustively. I make plans, revise
plans, load them into my qcharts program, and share them with the
investor group through a Email discussion list. I used to be a
Marine platoon commander and we used a simple framework to make
plans -- SMEAC. Situation, Mission, Execution, Admin & Logistics,
and Command & Control. This is a pretty good way of thinking about
getting ready to trade options, I think. Come to think of it, alot
of what we did in the Marines, on a planning/ staff level, was to
create options for different courses of action. In battle, those
options become your leverage. 

Situation. I try to think through where the market is and where
it might be headed. Jim has been saying we are looking at a post
labor day rally for a few weeks. This is a good entry week. I
looked at charts for the averages and individual stocks like
MSFT last Sept, and the Sept before that, and it does seem to be a
trend. Traders come back, volume picks up, American companies
continue to do very well. I think we are looking at a post Labor
Day Rally. 

Mission. What are my investment goals? Well, on a general portfolio
level, my options trading pool is about 45% of my financial assets.
The rest is in a TIAA-CREF mutual fund (I used to teach high school),
and a portfolio of about 20 stocks (now currently 15, since I sold 5
to raise cash and make room for end of the year Y2K buying; a finace
professor said that 20 stocks gives you 95% of the diversification
value of 8000 stocks). So, I don't ever risk my entire financial
position on option trading. But, that said, I trade to maximize
my gains. I want to increase my option trading portfolio in Sept/Oct
by 100%. Generally, I think I can make 100% gains in each of the
next 4 earnings season. Next summer, I graduate from law school,
and I would like to have a big financial cushion so I never feel
like I have to accept any particular job because of the money. 

Execution. I read the newsletter, and I take each of the call plays
and enter them into a qcharts quote sheet, one for stocks, one for
options. I have the left side of my qcharts set up with SP100,
Nasdaq, DOW, NYSE AD, NASDAQ AD, 30 YR Bond, VIX, and SP Futures
charts. Down the middle I have quote sheets for my plays (or
targets of opportunity). On the right side, I have charts for my
stocks. I have a broker that allows me to jump right from the
qcharts quote sheet with the option symbols to the trading program.
On Sunday mornings, after the newsletter comes out, I print it out,
read it, highlight it, scribble in the margins, and set up my
qcharts program for the following week. This past week, Jim said
to look for 100 point drops followed by bounce backs to signal a
possible bottom. He also put a list of targets and prices in his
play section. I had those plays noted, with the amounts that I
wanted to put into each on my quote sheet. Unfortunately, I pulled
the trigger early yesterday when the DOW was down 100 and started
to bounce back. Fortunately, the stocks I played were solid, and
weathered todays downturn well. By the end of the day, I was in
positive territory for the week, particularly on the strength of
QCOM and GTW. I am heavy in GTW (50 contracts) because of the
upcoming split, but intend to take profits by the end of the week
and to reinforce winning positions going into next week. Since
the end of June, I have followed a more systematic approach to
making a WEEKLY plan for option trading. In every week since then,
I have made profits, including in the ugly mid July reversal. 

Admin & Logistics. I am sitting in a cafe. Trading options. I have
a wireless modem equipped IBM 600 Thinkpad (with 128 megs of RAM);
I have qcharts; QCOM Eudora; Netscape (AOL) Navigator on the lap
top. I have a NOK cell phone with QCOM CDMA technology inside. I am
a mobile, hostile, agile option trading fool. When I start classes
again next week, I won't be taking notes. I will be making money.
I am going to put a DSL line into my apartment, so I can watch Maria
Bartiromo hype MU at the open and get streaming quotes and pull
down Jim Cramer's latest at huge bandwidth. I have had my greatest
success option trading in AOL, NOK, IBM, SUNW, QCOM because, like
Peter Lynch says, I trade the stock I know (though he agrees with
Buffet that options should be outlawed). 

Command & Control. As I said above, I trade through my laptop. I
also have the NOK cell phone as a back up. I've gone through 2
brokers this year, and now I am where I am comfortable. I Email
the local option group frequently. I Email Jim, or my high school
buddies, including the guy who got me into option trading, and
another buddy who is a broker, and can't trade his own account
aggressively (has to hold for some minimum period). I like being a
non-professional. I like getting the lower rate for qcarts. I like
not being restricted (yet) by my employment in the types of crazy
trades I can make. 

So. Today. 

QCOM. Got into the Sept 175s yesterday. Glad I bought deep ITM.
Big move today back above 190. Pure in the money move. Very nice.
EXDS. I bought out of the money Sept 80s yesterday. Now, they are
ITM, and ready to run into next week and a rally, I hope. Despite
the weakness yesterday and today, this one, like its fellow Red Hot
QCOM has advanced nicely. SUNW. I bought out of the money Sept 80s
yesterday. Now they too are ITM, and I got em cheap. Those suckers
will move nicely when SUNW gets decisively ITM later this week and
next. Big news today: SUNW is going head to head with MSFT office.
Good for me. GTW. Split 9/7. My biggest position. Started to move
today. With an improving mkt, should run nicely to Friday. JDSU.
Sept 110 Call. Hit my target yesterday. Got into my positions.
Stock treading water around 105. CSCO. Sept 70s. Out of the money.
With a general tech move, I think this breaks 70 easy. OEX Sept 710.
Got killed on these. Were looking better with a half hour to go,
then the DOW died. 

Overall, up for the week, and my entry was bad. Should have waited
until this morning. That would have been beautiful. But then it is
always easy to second guess yourself. If I waited until this
morning, I would have missed moves in QCOM, GTW, SUNW. Bottom
line is the only safe investment is money markets, and that isn't
safe because all the other people bidding for houses own stocks
that have appreciated tremendously. If your gonna play this game,
you have to be comfortable with risk. In my system, I minimize risk
by reading the newsletter, and studying my plays. As Sun Tzu, the
ancient Chinese military philosopher would say, the possibility of
victory lies in the offense. Or as my buddies in the Corps would say,
if you want to run with the big dog, you gotta get out from under
the porch!

Janar Wasito
janar@OptionInvestor.com



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

GTW $96.94 +1.56 (+0.75) GTW eeked out a couple more dollars 
of profit today as it moves towards its split date this week.  
The stock will split 2:1 on September 7th and it's advisable 
to have your positions closed out by then.  Generally speaking, 
7 out of 10 stocks will depress after a stock split and there's 
no need to take that added risk.  AG Edwards downgraded GTW 
from a Buy to an Accumulate yesterday based solely on price 
appreciation and at the same time raised the target price to 
$110-120 from $85.  Today Solomon Smith & Barney's analyst 
report boosted the stock's price.  Analyst Richard Gardner 
cited back-to-school sales should support the 3Q estimated 
revenues of $2.2 bln and added that Gateway's pursuit of other 
avenues of revenue such as related computer products found 
in its showrooms and targeting larger corporate accounts will 
keep the company in the forefront of the industry.  He also 
reiterated his Buy rating and upped the target price to $120 
from $85. 

UIS 43.00 -0.75 (-1.63) The fractional losses suffered the 
past two days have edged UIS closer to its support level at 
$42 (the 30-dma).  Last time the stock slipped below this 
mark it declined for about a week before launching upwards 
again.  So if you haven't already moved on, at least keep 
stops in place to take you out of the play in case it doesn't 
rebound tomorrow.  We're advocating CAUTION.  In the news, 
Unisys announced the Aquanta ES5000 server specifically 
designed to enhance the dependability and performance for 
those clients using PeopleSoft solutions.  Also the company 
has created the Natural Language Understanding (NLU) Services 
organization.  It's designed for consultation and application 
development for Call Center solutions relating to customer 
service channels via the telephone, e-mail and Web arenas. 

VRSN $108.31 +2.94 (+5.94)  You've got to love it.  VRSN has 
already advanced another 6% this week and importantly on 
strong volume.  The stock got a boost on Monday when Sands 
Brothers & Co reiterated a Strong Buy rating.  In other news 
that day, MindSpring Enterprises (MSPG) announced VeriSign 
will be the preferred on-line security provider for their 
Web hosting division.  Today VeriSign announced an expanded 
strategic relationship with Security Dynamics Technology 
(SDTI).  Together they will provide simple way for enterprises 
to establish an open security foundation in combination with 
SDTI's Keon security application services with VRSN's managed 
services.  This alliance allows the broad range of clients 
more choice and control regarding their security requirements.  
Now back to the play.  Overhead resistance is still at $114, 
the most recent 52-week high set on Thursday.  And as you've 
seen over the past couple weeks, this momentum play is volatile 
during intraday trading providing lots of room for profit (and 
loss).  So if you're preparing to jump into this play, please 
have a solid trading plan in place prior to opening any new 
positions.  It's also important to be prepared for inevitable 
pullbacks.  This is a HIGH RISK PLAY and not for the faint-
hearted.  To the diehard Internet players - hang onto your 
hat and enjoy the ride.

LGTO $43.06 +0.41 (-1.38) The trading volume over the past 
two days remained strong while LGTO consolidated just below 
its overhead opposition.  The resistance is the 52-week high 
of $46.13 set on Friday.  Since August 16th when it split 2:1, 
LGTO has been consistently trading above its 10-dma.  This 
pullback places it precariously close to this mark providing 
a solid entry point.  A more conservative player will practice 
patience and wait for a bounce before beginning any new plays.  
Look for upward momentum to pick up again when we see a more 
positive broad market and bear in mind stock cycling is part 
of the natural pattern.  This week may be hard to play with 
inflation fears rearing its ugly head again and the upcoming 
holiday weekend.

PMCS $93.50 -1.50 (-2.81) Today was an interesting day for 
the markets as they were back and forth all day.  This was 
the same for PMCS too as traders seemed unsure when to buy 
and when to sell as the NAPM report slipped out a day earlier 
than expected.  In what seems to be a reoccurring event, the 
an important economic report was released by accident one day 
early.  There have been other reports from federal agencies, 
etc accidentally posted early in recent months as well.  As 
for PMCS, we are definitely discouraged by the dip below the 
10-dma today at $94.  This is normally a bearish indicator 
for the short-term but we are keeping it as a play thanks to 
the strong NASDAQ rally late in the day.  We expect a rebound 
from this level and it could certainly be conducive to call 
buying in the technology sector.  Of course, we still need 
good entry points and a confirmation of direction from the 
markets tomorrow so be careful.  Any rollover from here would 
be the signal to let your stops pull you from the play.

SLR $78.25 +4.25 (+4.50) There was no current news today that 
should have propelled or supported SLR but we will take it.  
When you look at its performance over the last couple of days, 
it's unbelievable.  The stock defied market trends, interest 
rate fears and some would say logic to post gains both days 
this week.  Volume was better than average especially as the 
market recovered late in the day, showing signs of buying 
interest.  Investors over the next several weeks (maybe until 
the October Fed meeting) will need to be selective in picking 
their stocks and SLR has been a recent favorite.  With a new 
$300 mln agreement with IBM to manufacture printer control 
boards in Scotland and the purchase of a 55K sq-ft production 
facility from Trimble Navigation to produce global positioning 
system (GPC) hardware, SLR is positioning itself as a major 
player in hardware manufacturing.  SLR has shown its ability 
to stand in the face of bearish market momentum and that says 
a lot but always be on guard for a changing tide.

INTC $82.19 -0.06 (-0.81) Many stocks were down yesterday and 
Intel was no exception.  Today however much of the tech sector, 
including many chip stocks, was up while Intel slipped $0.06. 
INTC is now resting on its 10-dma once again.  We are looking 
to several positive things to help pull INTC out of its sideways 
trading trend.  First, it now plans to release its "Coppermine" 
Pentium III processor in October and to bring it out at 700 MHz 
or better.  Analysts had expected the chip to come out at only 
600+ MHz in November (a delayed date) so a 700 MHz October 
release is good news in the race against AMD.  The smaller, 
faster chip will also have 256 Kilobytes integrated with the 
chip.  Second, Intel has just shipped prototypes of its next 
generation processor, the Merced chip.  Third, INTC will lay 
out its plans for entering the lucrative communication chip 
market at the Intel Developer's Forum this week in California, 
beginning with a new networking chip.  Fourth, the resolution 
to the server format standard dispute, which we wrote about 
last week, was finalized over the weekend.  And finally, 
another analyst joined the Intel bandwagon, as Credit Suisse 
First Boston's Charlie Glavin upped his INTC price target from 
$75 to $100.

ADI $51.50 +1.69 (-0.25) Are you dizzy from watching the market 
on Tuesday?  Well, you wouldn't be if you had your eyes on ADI 
all day.  That's because the stock held its bullish position 
right up until the close of the trading session.  ADI gained 
$1.69 Tuesday to close the day at $51.50.  Trading was on the 
high side with 1.4 mln shares changing hands.  There were some 
new developments to report on ADI over the last couple of days.  
First, ADI announced Tuesday that it will launch a state-of-
the-art third generation analog to digital converter.  The new 
16-bit-AD7707 model (which is the company's first thin-film 
on CMOS method) has be fitted with a complete analog front end.  
This system has been designed for low-power, low-voltage and 
low frequency measurements.  Second, on Monday Arithmos Inc 
announced a partnership with ADI to produce its new Digital/
Analog Dual Input DVI flat panel monitor.  ADI will supply 
Arithmos with its AD9884A high-speed digital converter along 
with its low jitter PLL.  The results of this partnership are 
to provide customers with a cost effective monitor, of the 
highest image resolution.  Furthermore, the new markets are 
expected on the market soon.  Look for an entry point intraday 
if the market continues on Tuesday's bullish finale or watch 
the 10-dma at $49 on any pullback.

SUNW $79.50 +3.88 (+3.31) Although they deny they are going
after Microsoft, Sun Microsystems took a giant step forward
today after it was announced they were buying Star Division,
a German supplication software provider.  Sun announced they 
were launching the StarPortal, which will provide word processing,
presentation graphics, spreadsheet and other office software 
tools.  This sounds similar to the "Microsoft Office Suite" 
products if you ask us.  SUNW has pulled some heavy hitters 
in to help in the effort too.  Names like AT&T, America Online 
and Bell South will be involved.  In the news, Reuters reported 
this morning that Merrill Lynch added SUNW to its Focus One 
list.  If you entered a position in Sun yesterday you may 
have gotten stopped out late in the day after SUNW dropped 
to a low of $75, which was the support level mentioned in the 
Sunday update.  But Sun gave us another opportunity to join 
in this morning on the announcement of the Star Purchase, as 
volume today expanded to over 17.6 mln shares.  If you have 
not entered a play in SUNW, we believe there is more room 
for the computer maker to advance, market willing, as it made 
a new 52-week high today at $80.63, closing in the high end 
of its range for today at $79.50.  Pick your points carefully 
and assess your risk profile before enter a new play in SUNW.

QCOM $192.19 +9.19 (+8.44) QCOM gave us the consolidation we
mentioned yesterday and today it gave us a chance to jump in 
with both feet.  Just after 2 P.M. EST buyers emerged, driving 
shares of Qualcomm higher to finish the day up over 5% for the 
session.  Again we will remind you that we will take a positive 
move anytime, however volume was very light on the advance at 
only 3.98 mln shares.  The move may be for real as QCOM is 
closing in on its 52-week high of $198.63, however it may also 
be end of the month "window dressing".  If QCOM can sustain 
the strength from the last hour of trading, we would look for 
it to make a run at the previous high made last Thursday.  
Initial support is in the $186 area.  Qualcomm did receive 
good news yesterday in its ongoing litigation against Motorola.  
A District Court Judge in San Diego ruled that Qualcomm's "Q"
phone does not infringe two Motorola patents on the appearance 
of Motorola's StarTAC phone.  The Judge basically said that 
the "Q" phone is an original design and Motorola does not own 
exclusive rights to the clamshell form for wireless phones.
There is still pending litigation between the two communications
giants which we will have more on later.  Until then keep your 
stops close on QCOM and have patience as the lack of liquidity 
could provide us with a volatile rest of the week. 

DCLK $99.88 +5.13 (-3.25) As we suggested Sunday, patience
would be required this week.  Yesterday shares of DCLK fell 
through intraday support levels dropping $8.38 to $94.75 on 
light volume of just over 2.0 mln shares.  DCLK regained its 
composure somewhat today picking up $5.13 in the final two 
hours of trading.  The Internet index had softened in the 
past three sessions, however we believe with the strength in 
the broader markets the last hour of trading today, that DCLK 
will provide us with an opportunity to buy calls.  DCLK was 
up over 20% last week so some profit-taking is to be expected.  
The fundamentals concerning DCLK have not changed.  It is 
still adding new clients daily, the Lycos deal is still in the 
works and DCLK still maintains a 33% market share in its 
industry.  As volatile as the Internet sector is, patience is 
always a virtue.  We encourage waiting for the right time to 
enter a play on DCLK.  If we get an advance in the major indices 
going into the weekend, chances are the Internet sector will 
join in. 

EXDS $80.38 +4.25 (-2.38) Let's see. . .trading range between 
$75 and $83 in 2 days. . .yep, it's volatile.  BancBoston 
Robertson Stevens reiterated their Buy rating on Exodus and 
updated their twelve-month price target to $138, based on 25 
times fiscal year 2000 revenues.  They cited increasing demand 
for outsourced business to business access, and application 
services.  The total of which they expect to grow to $36 billion 
by fiscal year 2001.  While the coverage was nice, it appeared 
to have no effect on the stock.  The real cause for EXDS's 
movement has been directly related to the schizophrenic bond 
rate, derived of last week's "Greenspooking" and Tuesday's 
accidental pre-release of NAPM figures.  EXDS broke south 
through previous support of $81 quite easily, which should 
have stopped you out if you were already in the play.  Over 
the last 2 days, the lower range support has moved up a bit 
from $73 to roughly $75.  Volume has come into the stock on 
both those occasions.  Resistance is still way up $86.  With 
the high volatility associated with this play, we suggest target 
shooting at a level which suits your personal risk profile.  
After gaining back $5 this afternoon from its low, don't just 
blindly buy this at the open tomorrow.  Wait for a pullback to 
get in.  We still have to get through Friday's employment report 
before the real fun begins.

ERTS $68.63 +1.69 (+0.69) Losing only $1 yesterday on just two 
thirds its ADV, ERTS traded right at its ADV today, returning 
$1 worth of cake plus $0.69 in frosting, to eke out (by $0.31) 
a new closing high.  We'd like to see the volume increase if 
were going to hold and exceed these levels.  Technicals, though 
still positive, are starting to wane a bit.  With 95% of the 
stock under institutional ownership, support near this level 
is pretty good.  Feel free to add to or get into position with 
any market strength - ERTS has a strong selling season coming 
up.  Just protect the downside with a stop loss order in case 
the market heads south, or (gulp!) money managers sell to capture 
profits.  Remember, Friday is employment figures day, which 
may cause jitters until then, or real damage if the news isn't 
well received.  Conservative types should wait for a clean 
breakout over $70 with volume.

CSCO $67.81 +1.06 (-0.69) "CSCO will still move with the market 
on a short-term basis.  "Greenspooking" could put the brakes 
on even this play."  No sooner had we said that on Sunday, when 
on Monday, CSCO began a descent with the rest of the market in 
response to investors' belief that another rate hike was indeed 
on the way.  That $68 support level gave way quickly, as CSCO 
descended to $66, where it again found a measure of support.  
But there is nothing like strong positive news to help a company 
gain support in down market.  That's just what we got this 
morning, as CSCO announced a $2 bln deal with IBM over the 
next 5 years, wherein CSCO will buy network hub and router 
technology, chip technology, 200 patents and computer services 
from the Big Blue Behemoth.  After rising up to $68.63 on the 
news this morning, CSCO took another nosedive to $66, where it 
again found support for the second time in as many days.  With 
jitters plainly visible on the street until after the employment 
figures release, our suggestion is to target shoot CSCO on any 
weakness and don't look for any huge profit this week.  With 
what we think will mark the return of buyers next week, CSCO 
should rally with newfound volume.  If you do get in, just be 
sure to set a stop loss in case the market does its best 
imitation of Chernobyl Nuclear Power Plant (meltdown).

JDSU $106.06 +0.34 (-4.13) OK. . .yesterday was ugly and today 
didn't give us too much of a recovery.  Volume was well below 
its ADV on both days.  With inherent volatility, we still 
continue to caution those with weak stomachs to pass up this 
play, though we still love this company.  Apparently, others 
do too.  Gruntal & Company upgraded JDSU to a Strong buy from 
a Buy and readjusted its price target from $120 to $185, citing 
strong sector dynamics and expected earnings.  Not only that, 
SG Cowan initiated coverage with a Strong buy and $130 price 
target.  No matter, support came today at $103, from which it 
recovered well.  Resistance is way up at $120.  Interest rate 
sensitivity may keep JDSU wobbly until Friday's employment 
figures announcement.  Like CSCO, target shooting according to 
your own risk tolerance will make for the best entry.  Unless 
we get some positive news to break the interest rate stranglehold, 
the return of buyers from vacation next week will likely yield 
the profits we'll be looking for.  Of course, protect your 
downside with a stop loss until then.  We've seen too many 
examples lately of what can happen when you say "everything's 
fine - I'll just be gone a short while".

SFA $51.25 -1.06 (-0.19) The eight day run of SFA finally came 
to an end today as inflation fears were just too strong.  We 
guess you could say that today's slight pullback in the stock 
was not only expected but healthy.  SFA had managed to fight 
off the broader market moves earlier in the week and set a new 
high for the eighth straight day.  There are few stocks that 
could make this claim during the same time period.  As a 
momentum play, SFA has worked out beautifully.  We expect this 
run to continue as the market adjusts for inflation fears and 
investors buy back into the market.  Continue to look for more 
volatile trading sessions in the near future, if history is any 
indication of the future, SFA should be able to hold its ground.  
Wait and see if Scientific Atlantic can bounce back from this 
slight stall and continue its path to new highs.  For those 
looking to open new plays, today's pullback may be the entry 
point you're looking for.  Confirm the direction of the stock 
before placing a trade and use the recommended stops to protect 
yourself from profit-taking.

LXK $78.75 +1.13 (-1.44) Scared you today, didn't we?  From 
Mondays open at $80.94, to today's low of $75.13 we got a near 
six point scare.  Hopefully you hung in there, as we closed 
above our support of $77.  If you got stopped out, you should 
have made a nice profit also.  So are we at a buying opportunity, 
or starting a new downward trend?  Remember that these swings 
are expected.  The volume is anemic and we'll stay in this 
mode until around next Tuesday.  If you can manage the swings, 
patience may prove profitable.  The close above support today 
is a good sign and we're hoping that it continues tomorrow.  
Of course, you want to be cautious in choppy water.  Don't over 
do it and confirm the conditions before hurting yourself.  LXK 
is striving to be leaner and meaner.  They announced Monday the 
installation of Digital Market's, Digital Buyer software to help 
LXK cut costs and better manage their production facilities.  
Just in time, as the companies demand for their popular color 
inkjet printers explodes.  So much so that they are breaking 
ground for a new plant in Chihuahua, Mexico.  Keep it up LXK!

HGSI $68.06 +0.13 (+0.69) We have potential!  Yesterday we
temporarily broke out of the low momentum range and touched a 
high of $71, so we know we can do it.  We couldn't hold it
though as the uncommitted, interest worried, inflation jumpy 
market beat us down.  Oh well, we don't recommend ever fighting 
the momentum!  We'll simply use this as an opportunity.  Because 
of the low volume, HGSI has dipped very close to our support 
of $66.  An opportunity for the speculative at heart!  Recent
news articles point out that the race is heating up between 
the four companies in the Human Genome project.  They are Celera, 
Incyte, Millenium and Human Genome.  Within two years, the 
industry expects some remarkable break through from these
companies, of which HGSI is a part.  Investor interest is also
picking up as a result of this news.  Now let's look for market
cooperation.  Some volume and positive direction would be nice.
Confirm both of these before starting any new plays!


***** Play updates continued in section three *****

*****************************
SEE DISCLAIMER IN SECTION ONE
*****************************
The Option Investor Newsletter         Tuesday  8-31-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


***************
Calls Continued
***************

BVSN $99.56 +2.19 (-4.56) Yesterday the markets chart looked
like at least an intermediate downhill ski slope.  Unfortunately
this run was enough to take BVSN down with it.  With a stock
like BVSN, one that has a high standard deviation in price 
movement, it necessitates stops to protect your profits.  Only 
you can determine the best location for these, based on your 
risk profile; however, make sure you have them.  Hopefully most 
of you were able to protect the profits at the high level.  Use 
extreme caution at this point, since we have broken out to the
downside of our triangle, trend, support and 10-dma.  Only re-
enter on positive market and stock confirmation.  It's always 
nice when you're the power behind success.  BVSN announced that 
Hewlett Packard's hpshipping.com site was rated #1 in terms of 
retail revenue, helped in part by BVSN's technology.  Interpath 
also launched their eCommerce suite package that uses the BVSN 
platform.  Anyway, you get the idea.  Today's news was packed 
with customers using the success of BVSN.  

AMZN $124.38 +5.13 (-4.13) Like a bear walking on thin ice, 
we are treading lightly, hoping to get some stability and 
momentum now from this week's stock split.  Due to market
weakness, AMZN dropped below our 100-dma of $127.  The 100-dma 
support is one of the reasons we entered this play, so the 
caution light is on.  But we are holding this play now for it's 
possible split run merits.  So, here's the question of the day 
class... What do we do before a split?  That's right, we surely 
won't hold over it so close your position ahead of it.  Don't 
hold over the split!  Historically AMZN is not as predictable 
as most stocks.  On the June 1998 split, the stock showed a 
post split depression and then climbed on the infamous Internet 
rally.  On January 1999 we got a post split depression, a 
rebound and then the Internet sell-off.  So what's in store?  
Common denominator is definitely a post split depression.  After 
that AMZN could look pretty bearish.  Mostly due to current 
business struggles and increased operating costs. A recent 
article by Herb Greenburg titled "Has Anybody Taken a Really 
Close Look at Amazons Latest Quarter?" sheds some light on why 
we should be very cautious in the future.  For now, be cautious 
into the split.  Let the market and the stock work together 
in a positive direction before playing.


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

WLP $72.88 +0.00 (-2.38) Right on schedule, WLP broke through 
their short-term support at $75 on Monday.  This opened the 
door for a new wave of selling which brought WLP to a low of 
$72.63.  Once again, there was no news to report which means 
we will probably stay in this trend for awhile.  It would not 
be surprising to see WLP jump back to the top of the range 
before finding resistance from the 10-dma.  This should then 
be considered for a new entry point.  Our target for stronger 
support will be at $70 where the stock has bottomed out four 
times in the Spring of 1999.

T $45.00 -1.00 (-2.50) If you haven't heard by now, the big 
news affecting T's stock price is not only market sentiment 
but its latest 7 cents a minute long-distance plan.  T dropped 
the price of long-distance calls to compete with rivals Sprint 
and Worldcom in acquiring new long-distance customers and to 
stifle the exodus of current customers seeking cheaper rates.  
T's new plan will allow customers to place a 7 cents a minute 
any time of the day, or night, seven days a week.  A monthly 
fee of $4.95 will be charged for the plan if the customer 
currently use T for his or her residential services and a 
$5.95 charge for customers who do not.  AT&T plans to market 
the new long-distance service, by emphasizing its straight 
forwardness and simplicity.  However, many traders perceived 
this price cut as a green light for further pricing declines 
within the industry and to be the catalyst for a price war.  
There are serious concerns whether or not the new pricing 
structure will cut into T's bottom line, thus hampering the 
growth of the stock.  Furthermore, current market sentiment 
initiated by more worries over interest rate hikes by the Fed 
is working to propel T's stock to further weakness.  Right 
now T is experience trading resistance at its 10-dma of $44.79, 
and is still below its 50-dma of $45.19.  Tighten your stops 
to protect your profits.

ANF $35.25 +2.31 (+1.88) We're holding onto this put play 
but are expressing some caution.  Recent analyst comments 
slightly affected the stock's share price this week.  On 
Monday, Parker Hunter started a new Buy and issued a target 
price of $46.  Then today Robinson & Humphrey initiated a 
short-term and long-term Buy with a target price of $47; 
followed by Raymond James Financials citing back-to-school 
sales and solid company fundamentals for their justification 
of upgrading ANF to a Buy from Accumulate.   Nonetheless the 
rising interest rates and inflation fears are still concerns 
amongst investors and the retail sector is weak overall.  So 
if ANF is still on your play list, put as many odds in your 
favor.  Wait for ANF to drift back towards its near-term lows 
of $33 for better proof of the stock's direction and look for
a negative market sentiment to boot.

WCOM $75.75 -0.31 (-0.75) Time to exercise a bit of caution.  
WCOM is nearing that support area around $73-$74 where it has 
bounced firmly in the past.  Now's a good time to start taking 
some profit.  Technically, if we want to make another WCOM play, 
it will be a bit safer to wait for a descent below $73 to take a 
new position.  The last 2 days have provided us only small drops 
of profit, still not a bad thing.  But yesterday's minimal loss 
of $0.44 in the wake of an otherwise ugly day should have raised 
an eyebrow.  In fact, today WCOM announced they would be the 
preferred data, local calling, voice and Internet services 
carrier for Xerox in 20 states.  "This is a huge vote of 
confidence for our local service capabilities," said Ed Franklin, 
vice president of Global Accounts, MCI WorldCom.  No kidding, 
especially after their frame relay woes of 2 weeks ago.  Set 
your trailing stops so you don't give any profits back to the 
grim profit reaper.  Again, enter only on a clean break below $73.

TWX $59.44 -0.88 (-2.13) Going down?  Ask this question about 
individual stocks these first two sessions and in most cases 
the answer is Yes.  The real question on every investor's 
mind is how long this downward trend will continue.  For our 
play on TWX, current market conditions couldn't be better.  
Today's early release of the NAPM Index numbers, coming in 
higher than expected, increased fears that the Fed may hit us 
with another rate hike.  These fears, along with the overall 
weakness of the stock makes the short-term outlook on our play 
that much stronger.  Today, TWX broke through the $60 mark, 
bringing the stock closer to its next support level around $57. 
With the help of inflationary fears in the air, see if we have 
enough momentum to break this level as well.  Today, there was 
a news wire released that you would want to be aware of.  
Barrington Research Associates Inc. mentioned that analyst James 
Goss had upgraded Time Warner Inc. to Strong Buy from long-term 
Buy, based on the stock's decline over the past several months.  
Take this information for what its worth, and use of the 
recommended stop loss orders to be safe.

JCP $36.25 -2.44 (-3.38) This play only knows one direction, 
and that direction is down.  With investors worried about the 
possibility of future interest rate hikes, many are heading 
for the exits once again.  The latest economic report to fuel 
the fire was today's early release of the NAPM Index figures 
that came in above expectations.  As inflation fears increase 
and slower than normal summer sales for retailers continue, the 
outlook for our play on JCP is very good.  Just this afternoon 
an article was released stating that analysts expected retailers 
to report sales below expectations for the four weeks ended 
August 28.  Upon release of the article, shares of JCP tumbled, 
closing the day just above its 52-week low at $35.38.  Now the 
question is whether we have enough momentum to break through 
this next support.  Even though the cards are in our favor, 
take precautions and keep your stops tight, just incase the 
stock decides to bounce.   


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

TXN - Texas Instruments Inc. $82.06 +1.69 (+2.56)

Texas Instruments is a global semiconductor company and a 
leading designer and supplier of digital signal processing 
solutions.  TXN has a 45% share of the market for digital 
signal processors.  DSPs convert signals such as sound and 
light into digital form and are used in cellular phones, 
VCRs, camcorders, cars and modems.  The company also makes 
analog chips, logic chips, microprocessors and micro-
controllers.  It's pioneering digital light processor uses 
tiny mirrors to create an ultrasharp display for TVs, PCs 
and movie theaters. 

Once again TXN has caught our eye as a call play.  With all 
the volatility in the market lately sending most technology 
stocks lower, our new play has held its ground and actually 
managed to reach new highs.  Closing today at a new 52-week 
high, we feel TXN is poised to extend these gains.  With the 
NASDAQ bouncing at the end of the day, many investors are 
feeling that the sector may be oversold.  With technology 
stocks making up a good portion of the market sell off, if 
they come back, look for Texas Instruments to lead the way. 
Technically speaking, the stock has established a base for 
the past week trading within a range of $80-$80.25.  Today 
the stock broke through this base leaving the question of 
how high will it go.  Because of the fact TXN reached a new 
high and market conditions remain volatile, confirm the market 
direction before placing a trade.  As a reminder, for your 
protection use the recommended stop losses. 

There has been a lot of news on TXN lately, the latest being 
today.  This afternoon, TXN said it completed its previously
announced $435 million stock swap acquisition of Telogy Networks 
Inc., a closely held provider of embedded communication systems. 
The company said the acquisition will strengthen its presence 
in the Internet telephony market, which uses Internet technology 
to send voice and data communication over the Internet.  Monday, 
an article was released that TXN announced the addition of 
MystiCom's MystiPHY110 digital Ethernet physical interface to 
its digital signal processor (DSP)-based TImeBuilder(TM) ASIC 
portfolio.  Combined with Texas Instrument's world-leading 
DSPs, the PHY will enable TI networking customers the ability 
to integrate multiple Ethernet PHYs onto a digital MAC, making 
it ideal for applications such as network interface cards (NICs), 
hubs, routers, switches and systems capable of sending voice-
over-the-Internet (VOIP).

BUY CALL SEP-80*TXN-IP OI=3200 at $4.25 SL=2.75
BUY CALL SEP-85 TXN-IQ OI=3074 at $1.88 SL=0.75
BUY CALL OCT-80 TXN-JP OI=2739 at $6.88 SL=5.25
BUY CALL OCT-85 TXN-JQ OI= 229 at $4.25 SL=2.75

Picked on Aug 31st at    $82.06    P/E = 71
Change since picked       +0.00    52 week high=$82.06
Analysts Ratings     13-8-5-1-0    52 week low =$22.69
Last earnings 06/99   est= 0.80    actual= 0.92
Next earnings 10-19   est= 0.43    versus= 0.41
Average daily volume = 3.40 mln
Chart = http://quote.yahoo.com/q?s=TXN&d=3m

******

MSFT - Microsoft Corp. $92.56 +0.31 (-0.69)

Like the monolith in 2001 A Space Odyssey, Microsoft Corp. 
seems to be the guardian and overseer of the ever expanding 
computer industry.  Initially providing us with state of the 
art operating systems, MSFT has also expanded to provide 
applications and software to service operating systems, 
software development, business, server and Internet. The 
company is ever vigilant in finding new and expanding niches 
and appears to be leading the way in "enhanced services" as 
the computer and Internet markets grow.  With a year to date 
growth of 26% and revenues topping thirteen billion, Microsoft 
is positioned to continue as guardian of the high tech universe.

Lately the market has been low volume, doom and gloom.  But 
some analysts are increasingly stating that a tech rally is 
looming in the wings.  MSFT is fundamentally and technically 
ready to participate in this rally.  The market weakness has 
provided us with a possible entry point close to support at $90.  
A convergence of our 10 and 50-dma's could very well be our 
spring board into the post Labor Day rally.  The catalyst for 
the rally which brought MSFT out of consolidation was a court 
decision that sided with MSFT in Sun Micro's case against them.  
This was followed by positive analyst comments and MSFT was off 
and running.  In addition to this, MSFT is ranking high in 
combination of momentum, value and safety.  A slight breakout 
in the MACD is indicating that when the market rallies, MSFT 
should participate nicely in the tech recovery.  Because we 
are still late in the summer doldrums, use caution.  Wait for 
the market and MSFT to confirm positive direction before 
trading MSFT.  

With MSFT always reporting more news than we can print, we'll 
give you the exciting tid bits.  Well MSFT and SAP are working
on solutions to get you more mobile than ever.  As our fast 
paced world necessitates the ability to have our desktop 
conveniences on the road, these two companies are allowing 
the Windows CE 3.0 and Biz talk to access SAP applications 
using any mobile device.  Another great breakthrough is MSFT's 
Microsoft Reader.  A software application to help us get rid 
of those red computer eyes.  The goal is to transform the screen 
to a more readable medium similar to paper.  This will expand 
the opportunity to read books and detailed documents over the 
Internet in a much more user friendly way.

BUY CALL SEP-85 MSQ-IQ OI=20321 at $8.25 SL=6.38
BUY CALL SEP-90*MSQ-IR OI=24419 at $4.13 SL=2.50
BUY CALL SEP-95 MSQ-IS OI=22745 at $1.56 SL=0.50
BUY CALL OCT-90 MSQ-JR OI=15289 at $6.38 SL=4.38
BUY CALL OCT-95 MSQ-JS OI=17825 at $3.75 SL=1.75

Picked on Aug. 15th at    $92.56    P/E = 65
Change since picked        +0.00    52 week high=$100.75
Analysts Ratings     14-17-1-0-0    52 week low =$ 43.88
Last earnings 06/99    est= 0.36    actual= 0.40 
Next earnings 10-19    est= 0.34    versus= 0.28
Average daily volume = 25.81 mln
Chart = http://quote.yahoo.com/q?s=MSFT&d=3m





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

PVN - Providian Financial $77.63 -3.38 (-6.19 this wk)

Providian Financial provides secured credit cards to customers
with bad credit history.  By using a blend of technology and
engineering, Providian can customize a range of lending products
that offer financial solutions to customers.  These products
can help clients get borrow money from savings accounts for 
fees or interest.  Providian has full service support centers
around the country that provide support for the VISA, Mastercard,
home equity loans and high-yield deposit accounts.  They have
nearly 10 million customers nationwide.

If you watched the fall of Bank One last week and have seen 
what the news has done to the sector, then you already know 
why we are adding PVN as a put play.  The Bank One stock price 
collapse after warning of an earnings shortfall last Wednesday 
put a damper over the sector.  The warning pointed to declining 
receivables and net interest margins in its cards unit.  This 
instantly brought downgrades from analysts for all companies 
in the sector.  US Bancorp and Piper Jaffray both cut their 
rating on PVN.  This triggered the latest wave of selling 
which is taking all major credit card issuers to their short-
term lows.  Today's close puts PVN in a dangerous technical 
position.  We are well below all major moving averages and 
only have one target for support at $70.  Cautious investors 
may want to wait until we are below that price.  We do want 
to warn that the charts are pointing to an oversold position 
which is similar to the broad markets.  We will want to watch 
PVN close tomorrow to see if it shows signs of a relief rally.  
On the flip side, PVN didn't rally in the final hour like 
most stocks.  Look for further possible downgrades or profit 
warnings to scare out more investors and make an already weak 
sentiment worse.

BUY PUT SEP-80*PVN-UP OI=436 at $5.63 SL=3.75
BUY PUT SEP-75 PVN-UO OI=294 at $2.94 SL=1.50

Average Daily Volume = 1.50 mln
Chart = http://quote.yahoo.com/q?s=PVN&d=3m
******

DOW - Dow Chemical Co  $113.63 -4.19 (-6.19)

Second only to DuPont, Dow Chemical is a world leader in the 
production of plastics, chemicals, herbicides and pesticides.
They are the number one maker of caustic soda, chlorine, 
ethylene, polyethylene and polystyrene.  Now focusing on its 
chemical line and biotechnology market, Dow has sold its non-
core pharmaceutical, consumer and engineering operations.  
Dow recently agreed to buy Union Carbide.

One warning is all it took to let the air out of Dow Stock.
Last Wednesday Lyondell a Houston, Texas based chemical company
warned it would miss third quarter earnings, due to rising 
commodity prices and the cost of raw materials.  Shares of 
Dow fell $6.00 on the news and have continued the decline 
closing today down another $4.19 at $113.63.  The only levels 
of support for Dow are at its 200-dma at $109.64 and then down 
near the $100.00 level.  Today's decline was on strong volume 
of 1.7 mln shares, or more than twice its norm.  Analysts have 
not been kind to Dow either with Theodore Semegran of Brown 
Brothers Harriman cutting his near term rating on Dow from a 
Strong Buy to Neutral.  The Union Carbide deal seemed to impress 
investors earlier in August as both Dow and Union Carbide rose 
on the news.  Shares of both companies are now trading lower 
than when news of the merger was announced.  In the overall 
scope of things, we are looking for possible strength to return 
to the broader markets, after suffering 4 days down. If we get 
a bounce, the tech stocks should rally first and put further 
pressure on the cyclicals, hence further declines for Dow and
the chemical industry.  We would view any further weakness in 
the chemicals as an opportunity to by puts.  At this point 
there is really nothing holding Dow or the industry up, so we 
do expect further declines.

BUY PUT SEP-115 DOW-UC OI=114 at $ 3.50 SL=$1.75
BUY PUT SEP-120 DOW-UD OI=278 at $ 6.88 SL=$5.00

Average daily volume = 940 K
Chart = http://quote.yahoo.com/q?s=DOW&d=3m


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

SUNW - Sun Microsystems Inc, $79.50 +3.88 (+3.31 for week)

Sun Microsystems is the largest computer maker that uses its 
own chips.  Probably their most talked about product is "JAVA", 
a programming language which is intended to create software 
that can run unchanged on any kind of computer.  SUNW is also 
a leading maker of UNIX-based workstation computers, storage 
devices and servers.  They compete with the biggest on the 
block in Microsoft, IBM and Compaq.  SUNW markets its hardware 
and software products to primarily in the telecommunications 
and financial industries.  General Electric is on of their 
better customers and accounts for approximately 14% of their 
sales.

Sunday's Write Up

SUNW ranks fourth in sales of the high-powered servers that 
run computer networks.  This past Monday SUNW took another big
step in its push to become a one-stop shop for e-commerce
software and computers when they agreed to buy Forte Software,
in a deal worth about $540 million in stock.  Like many of 
the tech sector, SUNW peaked in mid-July following their 
earnings report.  They announced earnings of $0.48 per share 
on July 22, only beating the street by a penny and have been 
basically consolidating and edging higher since.  The profit-
taking in the broader markets hasn't seemed to show up in the 
price of SUNW.  Their recent strength in revenues has reflected 
the continued strong demand for low end desktop products and 
workgroup servers.  Sun has also been able to keep selling and 
administrative costs down which are showing up in the bottom 
line.  Earlier this month SUNW announced they will introduce 
a new group of processor chips that will enable complex graphics, 
voice and video, in an attempt to challenge Intel.  Last month 
Basically investors seem to like what they see going on inside 
of Sun Microsystems and they have been reward with gains in 
the stock, even while the major indices have shown some profit-
taking.  In considering a new play in SUNW, be patient since 
this week could be slow with many investors and traders on 
vacation.  Technically there is support for SUNW around $75.50 
and $74.50.  If the broader markets do make an attempt at a 
new leg up next week, we would expect SUNW to join in.  Assess 
your risk profile and again be patient picking your entry 
point.

In other news, SUNW received word last Monday that software
giant Microsoft won an appeal and a reversal of a preliminary
injunction that had prevented MSFT from shipping products 
using a modified version of SUNW's Java programs.  This was a 
temporary negative for SUNW but didn't move the stock much 
as investors know the battle is far from over.

Tuesday's Update

Although they deny they are going after Microsoft, Sun 
Microsystems took a giant step forward today after it was 
announced they were buying Star Division, a German supplication 
software provider.  Sun announced they were launching the 
StarPortal, which will provide word processing, presentation 
graphics, spreadsheet and other office software tools.  This 
sounds similar to the "Microsoft Office Suite" products if you 
ask us.  SUNW has pulled some heavy hitters in to help in the 
effort too.  Names like AT&T, America Online and Bell South 
will be involved.  In the news, Reuters reported this morning 
that Merrill Lynch added SUNW to its Focus One list.  If you 
entered a position in Sun yesterday you may have gotten stopped 
out late in the day after SUNW dropped to a low of $75, which 
was the support level mentioned in the Sunday update.  But Sun 
gave us another opportunity to join in this morning on the 
announcement of the Star Purchase, as volume today expanded to 
over 17.6 mln shares.  If you have not entered a play in SUNW, 
we believe there is more room for the computer maker to advance, 
market willing, as it made a new 52-week high today at $80.63, 
closing in the high end of its range for today at $79.50.  
Pick your points carefully and assess your risk profile before 
enter a new play in SUNW.

BUY CALL SEP-75 SUQ-IO OI= 7982 at $5.75 SL=$4.00
BUY CALL SEP-80 SUQ-IP OI= 6647 at $2.63 SL=$1.50 
BUY CALL OCT-75 SUQ-JO OI= 3298 at $7.88 SL=$6.25
BUY CALL OCT-80 SUQ-JP OI=10841 at $5.00 SL=$3.25

Picked on Aug 28th at  $76.19     PE = 58
Change since picked     +3.31     52 week high=$79.50 
Analysts' ratings   9-9-4-0-0     52 week low =$19.19
Last earnings 7/99   est=0.47     actual=0.48 surprise=+2.13%
Next earnings 10-14  est=0.31     versus=0.25 
Average daily volume = 7.74 mln




**** Combos and Straddles are in section four *******

*****************************
SEE DISCLAIMER IN SECTION ONE
*****************************
The Option Investor Newsletter         Tuesday  8-31-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

Straddles are used to take advantage of a breakout of the
stock, either to the upside or the downside.  Buying a call
and a put at the same strike price with the same expiration
date creates a straddle.  An example of creating a straddle
would be as follows:

Winn Dixie - Stock Price = 39, so the closest straddle would
be using the 40 calls and 40 puts, so:

	Buy 1 WIN Oct 40 call @ 2.00 (This is the Winn Dixie
October 40 call for 2 points)
	Buy 1 WIN Oct 40 put @ 2.50 (This is the Winn Dixie
October 40 put for 2.50 points)

This straddle has a combined call and put price of 4.50 points
to purchase.

The cost and maximum risk of a straddle is the amount paid
for combined position.  Although it could happen, it is highly
unlikely that a trader would sustain maximum risk on a straddle.
The straddle becomes profitable if the stock moves away from
the strike price.  In the case above, Winn Dixie has dropped
this week, causing the price of the calls to decrease and the
price of the puts to increase.  The current position is as
follows.

	WIN Oct 40 call price - .25 bid, .375 offer
	WIN Oct 40 put price -  5 7/8 bid,  6 3/8 offer

As you can see, the calls dropped in price, from 2 points
originally, to .25 to sell them now.  But look at the puts.
They rose from 2.5 last week, to 5 7/8 to sell the bid.  The
combination straddle went from 4.50 to 6.375, or nearly a 50%
increase in the price.  All this and no directional bias.  Now
I am sure someone out there is saying, "yeah, but why not just
by the put?"  You can do that, but I don't have a crystal ball,
so I will trade both sides instead.

Here is the rest of the positions that were published on Sunday:

Symbol Title Bid Ask Last
MOB Mobil Corp 105 Straddle
MOBJA MOB Oct 105 Call 2.375 2.6875 2.125
MOBVA MOB Oct 105 Put 4.25 4.625 4.125

Not much of a move here yet.  Like I have said before, I like
to be in these positions for 30 days, because it sometimes
takes that long to get a move.

Symbol Title Bid Ask Last
AAPL Apple Computer 65 Straddle
AAQJM AAPL Oct 65 Call  5.125 5.375 5.25
AAQVM AAPL Oct 65 Put  4.5 4.875 4.75

This one went up in premium today, thanks to comments from
Steve Jobs about a faster processor in Apples G4 machines.
Sometimes straddles will rise in price even when the stock
doesn't move much.  Its future perception that drives option
volatility up.

Symbol Title Bid Ask Last
DELL Dell Computer 45 Straddle
DLQJI DELL Oct 45 Call 5.375 5.625 5.5
DLQVI DELL Oct 45 Put 1.4375 1.5625 1.5

Dell looks like it wants to move higher.  Let's hope so as we
bailed out of our last position early.

Symbol Title Bid Ask Last
BAX Baxter International 70 Straddle
BAXJN BAX Oct 70 Call 1.375 1.625 1.375
BAXVN BAX Oct 70 Put 4.125 4.5

Baxter is trading lower today even though they have filed
patent lawsuits against rival Spectranics.  Technically, the
stock has broken and closed below its support and next support
looks like the 65 area.

Symbol Title Bid Ask Last
UAL UAL Corp 65 Straddle
UALJM UAL Oct 65 Call 3.25 3.625 3.75
UALVM UAL Oct 65 Put 3.125 3.5 2.875

Heres another cheap straddle, that so far, hasn't done anything.
I am not worried about the airline industry.  There is always
something that makes this sector move one way or another.


Positions that met profit exits today include:

Symbol Title Bid Ask Last
WIN Winn-Dixie Stores 33.875 34.1875 34
WINJH WIN Oct 40 Call 0.25 0.375 1
WINVH WIN Oct 40 Put 5.875 6.375 5

I mentioned this one in the example above.  It has broken down
quite a bit for a 40 stock to go to 34, and soon CNBC will be
talking about it.  That's the time to get out, when the public
starts rejecting the stock.

Symbol Title Bid Ask Last
DOW Dow Chemical 113.438 113.875 113.625
DOWLF DOW Dec 130 Call 2 2.375 3.75
DOWXF DOW Dec 130 Put 17.25 18 11.25

Heres another one that is very imbalanced, with the stock falling
from 130 to a close today of 113.625.  Straddle is now worth
almost 20 points, from 14 just 9 days ago.

Everything else is a hold for now.  Straddle Mailbag on
Thursday.

Buy before the rumor, and sell before the news

Tom Gentile






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

Title: Markets Lack Direction As The End Of Summer Approaches..

Stocks ended mixed Tuesday as the blue chips fell on a surprise
early release of the NAPM manufacturing survey while a rally in
tech stocks boosted the Nasdaq.


************
MARKET RECAP
************

Monday, August 30

U.S. stocks fell lower Monday after an unfavorable report from
the Commerce Department on sales of new homes. The Dow was down
176 points at 10,914 and the tech-driven Nasdaq index fell 46
points to 2,712. The 30-year U.S. Treasury bond's price swayed
investors, falling 1-1/8 while its yield climbed to 6.06%, well
above the psychological 6% level.

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

Advanced Micro   AMD   JAN15C/SEP20C  $0.00  debit  diagonal
Qualcomm         QCOM  JAN140C/150C   $7.25  debit  bull-call
Conexant         CNXT  OCT60C/SEP70C  $9.00  debit  diagonal
Elect. Imaging   EFII  OCT45C/OCT55C  $8.12  debit  bull-call
Intuit           INTU  OCT70C/OCT80C  $8.50  debit  bull-call

Most of our new "readers write" plays were off to a good start.
All of the positions were available at-or-below the suggested
target prices with the exception of AMD. Advanced Micro Devices
was a bullish diagonal spread based on the premium disparity in
the JAN-$15 call but the market-makers were quick to adjust the
position on Monday morning. The best available debit ($6.25)
was well above our target price of $4.50 and also more than the
spread (between the strikes), which means the play would have
no upside defense for the first month. The overall position can
still be profitable and occasionally, we will we open that type
of spread on the long-term plays. In this instance, it was just
too far above our recommended entry position and the disparity
was clearly gone.

Portfolio plays:

Coulter Pharmaceutical (CLTR) was our "play of the day" as the
stock dropped more than 30% Monday amid fears that approval of
its lead product, an experimental drug for treating lymphoma,
could be delayed. In a statement, the company said the FDA had
requested modifications to the marketing application filed two
months ago for the drug, known as Bexxar. Investors feared the
news might be a sign that marketing approval could be delayed
and they starting selling even before the official open. The 
stock was down $10 when options started trading and our (OTM)
calendar spread closed easily for a 100% profit; $1.38 credit.

Most of the portfolio held up well under the selling onslaught
but there are some current positions that need to be watched
closely based on new technical indications. Dupont (DD) has
moved to recent lows near $65 and a close below that price may
signal another down-leg. Our January calendar spread at $70 is
profitable now and can be closed for a $3.75 credit. National
Semiconductor (NSM) and Novell (NOVL) have fallen back from 
recent highs and also appear headed for lower territory. NOVL
is slightly below break-even while NSM is almost $6 ITM and
they are both November positions. We have plenty of time to
recover any losses but it may be prudent to use any rallies
to exit early and move on to the next play. IMC Global (IGL)
and Rite-Aid (RAD) are also in the "early exit" category and
we are considering the sale of the long options in each of
these positions. International Paper (IP) is treading water
near recent lows and with the stock poised for a trip to $45,
we suggest that you consider closing early. Our position was
closed last week (8/25/99 - Portfolio Plays) when the option
volatility fell significantly.

There were some positive movers in the spreads section but
they were few and far between. Johnson and Johnson (JNJ) and
Proctor & Gamble (PG) managed to move higher (as safety issues
usually do during market sell-offs). Microchip (MCHP) continued
to lead the chip sector, climbing $0.75 to $55 and two of our
long-term positions, Solectron (SLR) & Medtronics (MDT), also
achieved minor gains.

Tuesday, August 31

Stocks ended mixed Tuesday as the blue chips fell on a surprise
early release of the NAPM manufacturing survey while a rally in
tech stocks boosted the Nasdaq. The Dow Jones industrial average
fell another 84 points to 10,829. The Nasdaq gained 26 points to
2,739 while the S&P 500 stock index slipped 3 points to 1,320.
The price of the 30-year U.S. Treasury bond fell 1/8, pushing
its yield up to 6.07%.
 
Portfolio plays:

We had some major movers today and Echostar (DISH) was one of
the leaders, moving $8 higher to a new trading range above $80.
QualComm was one of our new stars, climbing almost $10 to $192.
Many of our high-tech and Internet issues also rallied including
BroadCom (BRCM), Doubleclick (DCLK), Solectron (SLR) & Sun Micro
(SUNW). A few smaller stocks issues rebounded as well; National
Semiconductor (NSM) and Novell (NOVL) moved higher (those rallies
we spoke of?) while Pacific Gateway (PGEX) held its ground at $20.

Oil stocks made nice recoveries across the board and Baker Hughes
(BHI) was a leader in that group, up $1.38 to $34. The short-term
calendar position can now be closed for a $0.75 profit. Our plays
on Chevron (CHV), Diamond Offshore (DO), Halliburton (HAL), Noble
(NE), Exxon (XON) and Unocal (UCL) all benefited from the rally.

J.P. Morgan (JPM) tested $130 a few times before finally closing
near $129. There may yet be hope for this bearish play and we are
monitoring the position daily. Our break-even is near $132.

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


**********
NEW PLAYS 
**********

CS - Cabletron Systems  $16.80  *** A New Trend? ***

Cabletron Systems develops, manufactures, markets, installs and
supports a wide range of standards-based local area network and
wide area network connectivity hardware and software products
including intelligent switches and hubs, remote access devices,
and sophisticated management software. CS delivers products to
address the full range of networking technologies, including
Ethernet, Fast Ethernet, Gigabit Ethernet, token ring, fiber
distributed data interface, asynchronous transfer mode (ATM),
integrated services digital network and frame relay.

It appears that Cabletron is finally on the road to recovery as
the stock broke-out to a new 52-week high today on heavy volume.
Some say the new trend is based on the rumors that Nortel is in
talks to buy the company. Other potential suitors mentioned in
recent months include Ericsson and Nokia. These telecom firms
have yet to invest in a data company and could benefit from CS's
products.

CS has been the focus of mergers many times in the past and the
company CEO says he is open to any favorable partnerships. He
plans to focus on the hot service provider market; technology
for high-speed Internet access and will continue selling their
network equipment to corporate offices. Cabletron also expects
to spin-off its Spectrum software unit in order to concentrate
on the remaining parts of the business; hardware like routers
and switches. In time, the company plans to gear its services
toward the connection between local area and wide area networks.
The company is also looking at Web outsourcing, which includes
renting software over the Internet or hosting Web content.

Traders have been very active in this issue and that has left
us with some attractive positions in the options market.

PLAY (aggressive - bullish/diagonal spread):

BUY  CALL OCT-15.00 CS-JC OI=5938 A=$2.93
SELL CALL SEP-17.50 CS-IW OI=1325 B=$0.75
INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=20%

PLAY (LEAPS/Covered-Calls):

BUY  CALL JAN01-15.00 ZCJ-AC OI=1602 A=$6.12
SELL CALL SEP99-17.50 CS-IW  OI=1325 B=$0.75
INITIAL NET DEBIT TARGET=$5.12 TARGET ROI=120% (18 months)

Chart = http://quote.yahoo.com/q?s=CS&d=3m
******************************************************************
OXY - Occidental Petroleum   $21.69     *** Speculation! ***

Occidental Petroleum develops, produces and markets crude oil
and natural gas; engages in interstate and intrastate natural
gas transmission and marketing; and manufactures and markets a
variety of basic chemicals, petrochemicals, polymers & plastics
and specialty chemicals. OXY conducts its principal operations
through three subsidiaries: Occidental Oil and Gas Corporation,
MidCon and Occidental Chemical Corporation.

The most current rumor in this issue is that Chevron (CHV) will
resolve a legal battle with Occidental by purchasing the company.
The Wall Street Journal recently reported that a legal dispute,
which involved past acquisitions by the two companies, has cost
Chevron nearly $1 billion and they are running out of appeals.
The companies would not comment but the WSJ said analysts said
Chevron could pay a premium of 30% to 50% over OXY's stock price
and still come out ahead by getting rid of the legal judgment.
The purchase would give Chevron "substantial chemical assets
and add huge reserves in a California field where the company
already is active.

One the down side, a unit of Occidental Petroleum has recently
agreed to pay $7.3 million to resolve claims that it underpaid
royalties owing to the government for oil produced on federal
and Indian lands. The settlement will resolve allegations that
OXY systematically under-reported the value of oil it produced
and thereby paid less in royalties than it owed.

This position is based on the current premium disparity in the
front-month options and the expectation that any agreement with
Chevron will not be made this month. The short-term resistance
near $22 should hold the stock price in-check for three weeks
and we expect to move the position to a diagonal spread at the
September expiration.
 
PLAY (speculative - bullish/calendar spread):

BUY  CALL JAN-22.50 OXY-AX OI=2065 A=$1.50
SELL CALL SEP-22.50 OXY-IX OI=149  B=$0.31
INITIAL NET DEBIT TARGET=$1.00 TARGET ROI=50%

Chart = http://quote.yahoo.com/q?s=OXY&d=3m
******************************************************************
MNTR - Mentor Corp.  $23.37     *** Technicals Only ***

Mentor develops, manufactures & markets a wide range of products
for the medical specialties of plastic & reconstructive surgery,
urology and ophthalmology. Plastic surgery products include
surgically implantable prostheses for cosmetic and reconstructive
surgery, principally breast implants and tissue expanders.
Urologic products include disposable products for the management
of urinary incontinence and surgically implantable prostheses,
principally penile implants for the treatment of chronic male
sexual impotence.

Last week, Mentor agreed to sell the majority of its ophthalmic
equipment business to Xomed Surgical for about $21 million in
cash. Sales of products included in the deal were $20 million;
roughly 10% of the company's total sales of $202 million during
this year. Following the announcement, Medtronic (MDT) agreed to
acquire Xomed Surgical Products for about $800 million in stock,
creating one of the largest maker's of surgical products.

This most recent news could be seen as beneficial or detrimental,
depending on how you view the future of the company; increasing
industry competition or potential merger candidate. Regardless,
the current technicals are favorable and a reasonable amount of
resistance exists at the sold strike. We are going to open this
spread only if it becomes available at a $0.75 debit, to limit
risk.

PLAY (aggressive - neutral/calendar spread):

BUY  CALL OCT-25 MNQ-JE OI=26 A=$1.25
SELL CALL SEP-25 MNQ-IE OI=46 B=$0.37
INITIAL NET DEBIT=$0.75 TARGET ROI=25%

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


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

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