Option Investor
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Daily Newsletter, Thursday, 09/02/1999

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The Option Investor Newsletter         Thursday  9-2-99
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)
************************************************************
        9-02-99          High     Low     Volume   Advances Decline
DOW    10843.20 - 94.70 10934.10 10732.70  687,703k    834   2,077
Nasdaq  2734.24 - 16.56  2750.82  2698.18  833,036k  1,420   2,354 
S&P-100  693.71 -  4.50   696.77   684.82   Totals   2,254   4,431
S&P-500 1319.11 - 11.96  1328.48  1304.80            33.4%   65.6%
$RUT     427.42 -  3.57   430.99   425.48
$TRAN   3077.78 - 26.66  3103.59  3050.85
VIX       25.44 +  1.70    28.11    25.02
Put/Call Ratio      .69   
*************************************************************

Recipe for disaster.

Would everyone who would like all the Fed heads to stay off the
airways and keep quiet, please call 1-900-NO-SPEAK and we will
use the $1.00 contribution to pay the Fed heads to be seen and
NOT heard. In case you live under a rock and did not hear, the
market tanked again today after Fed member Edward Kelly said
"it would be premature to assume the Fed is done raising rates
for this year. The Fed remains intensely vigilant in seeking out
inflation and monitoring U.S. asset price bubbles." That coupled
with earnings warnings from several high profile name knocked
over -200 points off the Dow in the first hour of trading.

 




The good news was the rebound off 10740 not once but twice
and the appearance of strong support at this level. The 
Nasdaq also dropped over -50 points but came roaring right
back to finish only -16 for the day.

Besides the verbal thrashing the market got from Mr. Kelly,
the minefield of earnings warnings took its toll as well.
Starting off the morning was Dow component Sears with a
strong warning that they would miss estimates substantially
due to slow sales and increased competition. Sears promptly
dropped more than -10% to a new multiyear low. Rumors began
circulating that Sears was in danger of being dropped from
the Dow. OOPS! Right behind Sears was Martin Marietta Materials
with a warning of their own. Citing lower construction demand
and the impact of hurricane Dennis on coastal quarries they
said the drop could be as much as -.19 per share. Rounding out
the trio of market bombs today was JC Penny who announced
their version of the "poor business blues" after the close.
Batten down the hatches people, we are just getting started
and this earnings warning season and storm clouds are in the
forecast.

Yes, the market cratered on news events today but the volume
was lousy and nobody still trading this week wanted to place 
any big bets the night before the August non-farm payrolls.
Take equal parts of sharply rising wages in July, production
slowing, earnings warnings and negative Fed speak. Mix together
and simmer overnight. Tune in at 8:30 ET tomorrow and see if
your recipe turned into a breakfast, fit for a king, or a
serving of rotten eggs. With labor costs last month up
+4.5%, the highest in five years, investors are hoping it
was a statistical abnormality. If so then costs should drop
in tomorrows report and average out safely. Back to back 
spikes in the labor costs would guarantee another rate increase
and a retest of recent market lows. Reports out today showed
that productivity for 2Q had dropped to only +.6% instead of 
the +3.6% previously. Productivity was the focal point for no
rate hikes for months as higher productivity and low wage
increases provided Mr. Greenspan with a puzzling picture of
inflation growth. With the numbers turning negative on this
recent trend the Fed is likely to react strongly and maybe
one more increase in October is not enough. Numbers very far
away from the estimates in either direction tomorrow may have
you reaching for the Rolaids to help this meal go down better.

Other major market events include the continuing dollar/yen
battle. Cheaper dollars make goods imported into the U.S.
more expensive. This is another thorn in the bulls hoof.
After the close today a high ranking Japanese official
with the nickname of Mr Yen, because of his influence on
the Yen, came out against a stronger Yen at this time and
raised the possibility of government intervention to prop
up the dollar and ease the building concern.

IBM declared war on Intel again today. IBM announced a new
chip for networking which is programmable even after it is
installed. IBM claims it's chip is superior to the Intel
chip announced earlier this week but what else would you
expect? IBM claimed it was dedicating 350 scientists and
engineers to this chip project. IBM does not want a repeat
of the microprocessor saga. One company, Intel, captured
almost the entire market and everyone else was captive to 
their architecture for a decade.  

Micron (MU) was upgraded by Gruntal today and they said it
was possible for MU to double again in the next 12 months, 
even after the great run they have already had this year. The 
reason for the upgrade was the rise in memory chip prices.
The price for a 64 megabit chip is now around $10 and up
from lows of around $4. This represents the demand placed
on memory by Internet and networking applications.

If you liked Qualcom at $193 on Tuesday, you have to love
it at $157. After an almost $40 haircut on negative comments
by one analyst, the stock tanked big time on profit taking
from it's recent record run. It is amazing since the analyst
is still expecting great things from QCOM and his estimates 
are +.01 over the street average. He just said that cheaper
cell phones may put pressure on margins and QCOM simply may
not be able to beat estimates by as wide a margin as in the
past. We spent a lot of time researching QCOM to decide if
we should drop it tonight and could find no valid reason. 
If you look at the volume in the sell off and the very heavy
volume today on the dip which was met by heavy buying then
we feel you will agree. This COULD be an incredible buying 
opportunity BUT sentiment is the key. The business did not
change, just the view of one analyst. BUT, if it does continue
down, DO NOT HOLD IT! Never fight the trend.

The key for tomorrow and next week is simply the non-farm
payroll report tomorrow morning. That will be the signpost.
The next mile markers will be the PPI due out next Friday.
Cautious investors should wait until next Tuesday before 
starting any new positions. Traders should be back from
end of summer vacations and the market should start returning
to some semblance of normal. "Normal markets", now there is 
an oxymoron.    


Pick your entry points carefully, sell too soon.

Jim Brown
Editor





***************
Market Posture
***************
As of Market Close - Thursday, September 02, 1999 

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

DOW Industrials   10,500  11,320  10,843    Neutral   7.20    
SPX S&P 500        1,320   1,420   1,319    Neutral   8.17     
OEX S&P 100          675     735     694    Neutral   8.13     
RUT Russell 2000     440     465     427    BEARISH   8.06    
NDX NASD 100       2,250   2,468   2,393    Neutral   8.13 
MSH High Tech      1,125   1,250   1,192    Neutral   8.13 

XCI Hardware       1,035   1,050   1,081    BULLISH   8.24    
CWX Software         725     844     811    Neutral   8.13       
SOX Semiconductor    515     520     533    BULLISH   8.24      
NWX Networking       555     625     576    Neutral   8.13      
INX Internet         500     580     428    BEARISH   7.20    

BIX Banking          690     710     611    BEARISH   7.23    
XBD Brokerage        410     440     382    BEARISH   7.23    
IUX Insurance        645     660     592    BEARISH   7.23         

RLX Retail           915     960     815    BEARISH   7.23     
DRG Drug             360     390     365    Neutral   8.24    
HCX Healthcare       740     785     748    Neutral   8.24    
XAL Airline          180     190     149    BEARISH   5.21      
OIX Oil & Gas        285     310     302    Neutral   8.26   



Posture Alert    
The market continues to be locked in a narrow trading range, 
as the posture board's closings were almost identical to Tuesday's. 
Sectors that closed in the green (even though marginally) were 
Hardware, Semiconductors, Brokerage, and the Morgan Stanley High 
Tech. Losers were led by Banking (-2.10%), Oil & Gas (-1.40%), 
and Retail (-1.29%). No changes to the posture board. 

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

/members/marketposture


****************
Market Sentiment 
****************
Thursday, September 02, 1999

Who, What, and Where?

Waking up this morning and trying to figure out why S&P Futures were 
down so heavily was the mystery of the morning. Several news and media 
sources blamed it on weak overseas markets. Others pointed the finger 
at the dollar vs. yen situation, yet others blamed it on negative pre-
announcements by several companies including Sears. 

Who was to blame? What was said, and where was it stated? 

The answer for this latest market overreaction was an interview with 
Fed Gov. Edward Kelley by Market News' Steven Beckner. Kelley made the 
unremarkable comments that the Fed will "have to watch (inflation) very 
closely" and that "of course" it's premature to assume that the Fed is 
done for the year. Well, isn't that special! Is Kelleyspan trying to 
take over his bosses position, or is he running for political office in 
the future and needs more name recognition? What about Beckner, the 
author of "Back from the Brink: the Greenspan Years."  Are book sales 
sluggish? Amazon not pushing your books? This market already took it on 
the chin from Greenspan this last Friday; there was no new news here. 
Anyway, you obviously know our feelings on today's sell-off and are 
probably tired of our sarcasm, so now back to sentiment!

The latest Investors Intelligence Survey showed that pessimism is still 
alive and kicking, and actually increasing. Bullishness decreased 1.6%, 
and bearishness increased .8%. This is something that we hoped for. The 
CBOE Put/Call Ratio for equities, indexes, and the OEX are all in 
bearish territory. From a contrarian standpoint, these statistics are 
really making a bullish case for the market. 

However, the interest rate situation still holds the deck of cards. 
This week, we have seen the 30yr Treasury break the 6% benchmark and 
are now getting close to the danger zone. The Volatility Index has also 
broken the key 25 number, and hit a high of 27.81 today. Inflation (and 
higher rates) hang over this market like a thunderstorm cloud. Combine 
this with the fact that we are getting close to pre-release season, and 
you have much uncertainty, so set your stops, and continue to watch the 
bond.  


 



 


 


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 1.4, 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, hitting a high of 27.81. 
If the VIX continues to hold above this mark, 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, Pinnacle is 
tracking the level of call buying (OTM) between 700-800 among 
option speculators. As we have been documenting, excessive 
out-of-the-money (OTM) call may serve as overhead resistance.


July Expiration Cycle
OEX OTM Call Analysis (Open Interest July 680-750)
Date                 Open Interest     Change %    Alert
Friday, June 19           35,225        -
Friday, June 25           63,342        +79.8%
Friday, July 02           87,833       +149.3%
Friday, July 09           99,855       +183.5%



August Expiration Cycle
OEX OTM Call Analysis (Open Interest August 700-800)
Date                 Open Interest     Change %    Alert
Friday, July 16           32,285          -
Friday, July 23           62,455        +93.4%
Friday, July 30           74,895        +131.9%
Friday, Aug. 06          113,258        +250.8% 
Friday, Aug. 13          117,620        +264.3%        


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

Friday, August 20         41,346          -
Friday, August 27         78,026         +88.7%               


Market Sentiment at a Glance     Friday     Tues      Thurs  
Indicator                        (8/27)    (8/31)    (9/02) Alert

Pinnacle Index (OEX):          

                    
Overhead Resistance (735-780)    134.1     148.0    154.0
Underlying Support  (710-730)      1.6       1.9      2.5
Underlying Support  (630-690)      3.2       3.4      3.7
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .6       .6       1.0
CBOE Equity P/C Ratio               .5       .5        .9
OEX P/C Ratio                      1.1      1.5       1.4


Peak Open Interest (OEX):

Puts                              640
Calls                             720
P/C Ratio                         1.24

Market Volatility Index (VIX):	

CBOE VIX                         25.44



Investors Intelligence:

Bullish                         42.90%  *
Bearish                         31.90%  *


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.

 
Pinnacle Index
OEX                             Friday      Tues      Thurs
Benchmark                       (8/27)     (8/31)    (9/02)

Overhead Resistance (735-780)   134.09     148.00    154.00
Overhead Resistance (710-730)     1.59       1.92      2.53

OEX Close                       707.97     692.24    693.71

Underlying Support  (630-690)     3.21       3.36      3.71
                     

 
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       Thurs
Strike/Contracts                (8/27)    (8/31)     (9/02)

CBOE Total P/C Ratio             .65       .64        .98
CBOE Equity P/C Ratio            .46       .51        .89
OEX P/C Ratio                   1.10      1.47       1.36


OEX
Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (8/27)           (8/31)         (9/02)

Puts                 660 / 12,400     660 / 12,350   640 / 11,596
Calls                760 /  7,379     720 /  7,982   720 /  9,329
Put/Call Ratio         1.68             1.55           1.24



 




VIX
Volatility Index  Major
Date                Turning Point       VIX

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

July 16, 1999       Top                 18.13 
August 05, 1999     Bottom?             32.12 
  
September 02, 1999                      25.44 


 





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

Index     Last     Mon    Tue    Wed   Thu    Week
Dow     10843.2 -176.04 -84.85 108.60-94.67 -246.96
Nasdaq  2734.24  -46.21  26.66  11.45-16.56  -24.66
$OEX     693.71  -12.73  -3.00   5.97 -4.50  -14.26
$SPX    1319.11  -24.25  -3.61  10.66-11.96  -29.16
$RUT     427.42   -5.09   0.47   3.16 -3.57   -5.03
$TRAN   3077.78  -51.20 -44.05  28.34-26.66  -93.57
$VIX      25.44    1.76   0.27  -1.50  1.70    2.23

Calls              Mon    Tue    Wed   Thu    Week

MU        75.25    0.38   5.63  -2.25  2.63    6.38  New
TXN       84.75    0.88   1.69  -0.31  3.00    5.25  Breakout
HGSI      71.63    0.56   0.13   3.31  0.25    4.25  Opportunity
SUNW      79.94   -0.56   3.88   0.25  0.19    3.75  Battle mode
ERTS      70.88   -1.00   1.69   0.50  1.75    2.94  True winner
INTC      85.31   -0.75  -0.06   1.25  1.88    2.31  New plans
ADI       52.75   -1.50   1.69   2.25 -1.00    1.44  Its crawling
VRSN     103.44    3.00   2.94  -0.38 -4.50    1.06  Strong buy
GTW       96.75   -0.81   1.56  -1.06  0.88    0.56  Splitting
SLR       73.88    0.25   4.25  -3.00 -1.38    0.13  Dropped
SFA       51.44    0.88  -1.06   1.06 -0.88    0.00  New highs?
CSCO      68.25   -1.75   1.06   1.13 -0.69   -0.25  Entry point
UIS       44.13   -0.88  -0.75  -0.50  1.63   -0.50  Bounced
MSFT      91.81   -1.00   0.31  -0.19 -0.56   -1.44  Tech rally?
LGTO      42.88   -1.78   0.41   1.56 -1.75   -1.56  Gearing up
LXK       77.38   -2.56   1.13   0.94 -2.31   -2.81  Waiting
JDSU     107.06   -4.47   0.34   3.94 -2.94   -3.13  Holding on
PMCS      92.38   -1.31  -1.50   2.25 -2.88   -3.44  Dropped
BVSN      99.31   -6.75   2.19   1.94 -2.19   -4.81  Target rise
AMZN      60.19   -9.25   5.13  -5.31  0.66   -8.78  Dropped
EXDS      73.63   -6.63   4.25  -4.47 -2.28   -9.13  Dropped
DCLK      93.50   -8.38   5.13  -6.00 -0.38   -9.63  Dropped
QCOM     167.25   -0.75   9.19 -23.50 -1.44  -16.50  Sinking

Puts

HRB       45.94   -0.94   0.63  -4.63 -5.06  -10.00  New
DOW      115.25   -2.00  -4.19   0.38  1.25   -4.56  Consolidate
WCOM      74.69   -2.44  -0.31   0.25 -1.31   -3.81  Plagued
ONE       38.56   -1.00  -0.88  -0.19 -1.38   -3.44  New
JCP       36.44   -0.94  -2.44   1.88 -1.69   -3.19  Gloomy
PVN       81.25   -2.81  -3.38   3.75 -0.13   -2.56  Bottomed?
WLP       72.75   -2.38   0.00   0.06 -0.19   -2.50  Its sideways
TWX       60.00   -1.25  -0.88   2.50 -1.81   -1.44  Extinguished
T         47.00   -1.50  -1.00   2.38 -0.38   -0.50  Looks bad
ANF       37.63   -0.44   2.31   2.19  0.19    4.25  Dropped

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

INTC - Intel Corp $85.31 (+2.31)(+3.06)(+0.19)(+8.19)(+2.56) 

see details online

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


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

PMCS $92.38 -2.88 (-3.44) We have been getting mixed signals 
from both the market and PMCS lately.  As you can imagine, we 
were discouraged by the breaking of the 10-dma to start the 
week off but this market is mostly to blame.  PMCS didn't fall 
far either which we take as a positive since it didn't look to 
have support on the charts until $80.  We did have good news 
on Wednesday to help support the stock when Banc of America 
started coverage of PMCS with a Strong Buy rating.  This pushed 
the stock back above the 10-dma but its stay there was brief.  
We are now back below the 10-dma and with a jittery market it 
is better to say goodbye to our play while we still can.  So 
look for an exit point during an intraday rally. 

AMZN $60.19 +0.66 (-8.78) It's been a tough few days for Amazon.  
With the market pounding us from the wrong direction, we really 
didn't get the run into the split that we would have expected. 
Needless to say, we are dropping AMZN.  Hopefully everyone read 
the Tuesday update and sold positions before the split.  If you 
didn't and your stops survived this mornings gap down, you may 
have had some relief with today's slight gain.  However, we are 
dropping AMZN as indicated due to the historical precedence of 
a post-split depression.  That along with the fact that the 
market is on pins and needles, trying to sort through all the 
economic information and interest rates.  So for now we are 
following Monty Pythons recommendation to "run away".  We'll
look for more profitable plays.

EXDS $73.63 -2.28 (-9.13) Exodus is heading for the exit.  The 
last 2 days have been torturous for EXDS traders, yesterday 
from general volatility and today from a lack of it within a 
lower trading range limited to $3.75.  Given today's particularly 
nasty A.D line, low volume and negative market tone in front 
of the employment figures tomorrow, we were not surprised to 
see the $75 support fall back to $72.50, from which EXDS bounced 
on 2 occasions today.  However, it wasn't very convincing.  
While we fully expect interest rates to rule the market in the 
short-term, we also expect a new wave of cash and thus buying 
to show up next week as traders return after the holiday weekend.  
But with today's drop in volume and lack of recovery at the close, 
this risky play just isn't exhibiting enough strength to justify 
the risk.  We're dropping EXDS tonight but may pick it up later 
if it again shows strength.

DCLK $93.50 -0.38 (-9.63) Well we are still waiting.  For the 
last two days shares of DCLK have traded for the most part in 
a narrow $5-$6 range.  What we have seen is a softening in the 
Internet index but not a real down-turn or a blow out.  The 
internet indexes were down again today less than 1%.  DCLK and 
many of the Internet stocks seem to act like they want to move 
higher and continue the strength they were showing late last 
week.  Just when they look like they may begin to move, someone 
sneezes concerning inflation or a member of the FED makes a 
comment letting the investing public know they are still going
to be vigilant in their efforts to squash it.  We chose DCLK 
based on the strength in the Internet index as well as the 
strength it showed at the end of last week.  The index is not 
showing a whole lot of promise as of the close today and neither 
is DCLK.  We believe the long-term potential for DCLK is still 
good but is somewhat cloudy for the short-term.  We will let 
DCLK go for now. 

SLR $73.88 -1.38 (+0.13) It appears SLR is beginning to show 
technical signs of weakness over the last couple of days.  The 
stock closed just below its 10-dma and we now feel that future 
potential profits do not warrant the risks.  So we feel its time 
to drop SLR from our recommended play list.  This stock has 
performed well for us over the last couple of weeks and has 
shown great resilience in the ability to out perform the market, 
even under volatile conditions.  As of right now SLR is a drop 
but we'll keep an eye out for any future profit opportunities 
this stock can provide.


PUTS:
******

ANF $37.63 +0.19 (+4.25)  Despite the overall weakness in the 
retail sector, ANF moved to higher levels over the past two days.  
The recent analyst comments at the beginning of the week plus 
another Strong Buy from Prudential yesterday gave ANF the boost 
that killed this play.  There's no question.  With all the hype 
about promising back-to-school sales and ANF's recent trading 
performance, the chance of ANF moving back towards its near-term 
lows around $33 is not likely in the cards so ANF is officially 
dropped.



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

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








The Option Investor Newsletter         Thursday 9-2-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

INTC $85.31 +1.88 (+2.31) We told you in Tuesday's letter that 
INTC would unveil its plans for a new networking chip at the 
Intel Developers Forum this week.  The new chip was introduced 
the next day and shares of INTC gained $1.25 on Wednesday. 
Today INTC rose another $1.88, making the 2-day gain about 5%. 
Investors like the news that INTC is diversifying into the 
lucrative communications chip market, which is expected to grow 
about 25% per year.  A giant like Intel has the muscle to compete 
fiercely in this market and some of the existing makers of 
networking chips sold off on the news.  MMC Networks, for 
instance, fell 13% on Wednesday to add it's 40% dip on Monday 
and dropped further today.  Reportedly, Cisco, Newbridge Networks 
and Cabletron Systems have lined up to buy Intel's new 
programmable chip, which will replace the more expensive 
microprocessors that currently make up the backbone of the 
Internet.  The networking chip will also make networks "faster 
and smarter".  This chip, along with the coming 700+MHz 
Coppermine Pentium III chip and the Merced chip due out next 
year, reveal INTC's resolve to push the performance envelope 
in its battle against AMD and, at the same time, to expand into 
new growth markets.  INTC has established a $200 mln fund, 
which will provide seed money to small companies working on 
products compatible with its new networking technology.  It 
also just bought NetBoost, adding to a string of acquisitions 
(including Level One) that will help the company move into the 
rapidly growing networking market.  INTC will have serious 
competition, however, since IBM has now also entered the market 
in a big way with its own programmable network chip.  In other 
news, INTC's decision to slow down its switch to Rambus memory 
caused Rambus shares to plummet.

SFA $51.44 -0.88 (+0.00) Following the broader markets, SFA 
decided to give back yesterday's gains closing the day in 
the red.  These losses can be attributed to Federal Governor 
Ed Kelley's statement saying investors should not prematurely 
determine there will be no further rate hikes.  This news along 
with the fact the stock is coming off new highs warranted 
investors to take some profits.  However, considering recent 
market conditions SFA has held up quite well, remaining 
unchanged for the week.  If the market turns to the upside, 
look for the stock to make a move as well, possibly reaching 
new highs which are at $52.94.  Some important economic news 
is being released tomorrow that may influence our play.  Before 
the markets open, the jobs report for August will be released, 
so look for another volatile day of trading.  For those opening 
new positions, you should confirm the market direction before 
placing a trade.    

TXN $84.75 +3.00 (+5.25) Once again this morning the markets 
were spooked, this time it was do to comments made by Fed. 
Governor Kelley.  Kelley stated that investors should not 
presume there would not be additional rate hikes for the rest 
of the year.  This comment sent most stocks lower however, 
TXN, the resilient stock that it is, dipped briefly then 
streaked forward ending the day with a new 52-week high.  
Helping the stock today was the latest semiconductor sales 
report for July.  Sales increased by 19 percent from last 
year's July sales, brightening investors views towards 
the sector.  Both fundamentally and technically speaking, TXN 
looks very strong.  The stock continues to trade above all 
its moving averages and is poised to set additional highs.  
However, because important employment numbers are being 
released tomorrow morning, choose your entry points 
selectively, its looking like another volatile day for the 
markets.  Just as a side note, in the news Texas Instruments 
has been identified by Working Mother magazine as one of the 
100 Best Companies for Working Mothers for the fourth straight 
year. 

LXK $77.38 -2.31 (-2.81) Like a seal trapped beneath the ice, 
LXK has not been able to break through the markets icy 
bearishness this week.  The caution light is most definitely 
on now as we closed below our support of $78.  In addition to 
the support break, we also turned negative on our MACD.  It's
always good to remember after hours, when the emotions of the 
market do not play with our decision making, why we are playing 
this stock.  It is because it was added to the S&P 500 and we 
think that fund manager and institutional interest will propel 
the stock higher.  Well, the fund managers weren't buying today. 
There's too much uncertainty and lack of volume in the market.  
Will they buy?  Most certainly if they have index funds that 
need to mirror the S&P 500 but it will be after things calm 
down and the market chooses a direction.  With this in mind, 
we will take a wait and see approach to LXK, making sure that 
our profits are protected.  Don't start any positions until
the market and stock are confirmed.

HGSI $71.63 +0.25 (+4.25) HGSI was a stock of opportunity today!
It provided us another entry point as it approached our support 
of $68 early this morning and then gave us over a $3 gain within 
three hours.  The interest (volume), support (confirmation) and 
direction (profit) were manifest today.  So what gave us this 
resistance to turmoil today?  As we've stated in the past, news 
moves HGSI.  Wednesday the Biotech's got an upgrade in price 
targets and Credit Suisse First Boston upgraded HGSI's price 
target from $70 to $90.  Wa-hoo!  Aren't you glad you're along
for the ride?  But it's still a speculation play so all check 
your risk tolerance before jumping in.  Just keep in mind, the 
news helped us today but it may not tomorrow.  So use stops and 
use caution!  HGSI has been bouncing off support well, so don't 
start anything new until we return to support and get positive 
market confirmation.

BVSN $99.31 -2.19 (-4.81) Gap up!  Gap Down!  It's enough to make
the most savvy of investors uneasy.  That pretty much describes
BVSN's movement over the last few days.  Wednesday we gapped up
over support and  slid back to support.  Thursday we gapped below
support and rose back to it. The problem is we closed just below
that support of $101 and turned negative on our MACD.  So what's
our outlook?  We still think that the tech's will rally if we 
get positive job numbers tomorrow and get through the Labor Day 
weekend.  We also have some great news with today's announcement 
from Bank of American, raising Broadvision's price target up 
to $123.  Even though our reasons are justified for staying in 
BVSN, use caution here.  The market is very unpredictable as 
of late.  Protect the profits from that uncertainty with stops 
and confirm market direction before entering any new plays.

MSFT $91.81 -0.56 (-1.44) Hey everyone, we're sitting smack dab
on support.  In fact we couldn't get much closer!  Sitting right
between our 10-dma at $91.50 and our 50-dma at $92.  Let's hope
that these two indicators will provide us the safety and
support we need in these trying market times.  MSFT stayed 
pretty range bound today between $91.50 and $92.50.  It appears 
to be preparing itself for a post-Labor Day tech rally (at 
least we hope).  We do need to tread lightly, as we do have 
a negative emergence on our stochastic and, of course, lots 
of uncertainty in the market.  It appears that reasons are 
accumulating for another rate hike in October however, it may 
take more evidence than what's been given us so far.  Friday's 
job report should prove critical, as well as the market outlook 
after Labor Day.  In a move to counter Sun Microsystem's 
announcement of Star Office, MSFT today announced the appointment 
of Steve Ballmer to head up the online consumer and e-commerce 
group.  All part of their Internet strategy.  They are planning 
to offer Microsoft Office online as part of their Web based 
productivity suite.  They also announced the release of Money 
2000, the money management software that will integrate with 
MSN's online money central, providing one of the most powerful 
interactive systems available.  Be careful and confirm an upward 
trend in the stock and market before playing.

ERTS $70.88 +1.75 (+2.94) ERTS is behaving like a true winner.  
Technically, this electronics game maker and distributor looks 
great on the chart, sporting positive MACD, RSI, momentum and 
stochastic.  To boot, ERTS set another all-time closing high on 
volume 40% greater than normal, while everything around it was 
going to the dogs.  No news to spark the price, but remember that 
ERTS is 95% institutionally owned, meaning that it's pretty hard 
for another institution to get a piece of it without paying up.  
As goes volume, so goes price when there aren't that many shares 
available.  We look for ERTS to continue its ride, since it is 
just now beginning to sell many Nintendo, Sega and Playstation 
games for the holidays.  Well, now we've seen that clean breakout 
over $70.  If the market cooperates and investors start a buying 
spree next week, feel free to take a dip.  The water looks nice.

CSCO $68.25 -0.69 (-0.25) Yesterday, it was hard for any stock 
to look bad, as volume and prices picked up.  CSCO, still riding 
high on its pact with IBM and recent purchase of Cerant, joined 
the crowd.  Fortunately, it didn't give back much today and is 
only down slightly this week.  The volume is just below its ADV, 
but with the return of money mangers and traders next week, we 
expect volumes to rise, giving rise to the stock price too.  
Trading wise, CSCO nose dived to $66.75 then bounced after the 
rush hour yesterday, which made a nice entry for the risk takers, 
especially those who can stomach the negative tone and low volume 
volatility in front of the employment figures tomorrow.  Call it 
a contrarian entry, where market sentiment is so negative, your 
experience tells you it won't stay there forever.  Tomorrow could 
be a rocky day though if the employment news isn't well received.  
You'll want to keep a stop in place, as even CSCO won't be immune 
to marketwide repricing of equities.  However, if CSCO can break 
through $68.93 with volume, that would make a good entry for the 
conservative player.  Wait for market direction, then make your 
move.

JDSU $107.06 -2.94 (-3.13) The market didn't seem to care much 
about those price target upgrades to $130 and $185 earlier this 
week.  Technically, though still in the positive, this chart is 
starting to weaken.  Yet, if history is any indicator, JDSU has 
had a perfect saw-tooth ascent, with this recent 5-day flattening 
giving us the groove on another tooth.  It could be getting ready 
for another move up.  If this were any other company, weakness 
here would be an issue.  However, JDSU has been branded the Intel 
of the next century, thanks to the photonic-age's dependence on 
its products.  That's a market that will continue to grow.  So 
as long as traders return next week, bringing volume back into 
the market and we clear tomorrow's employment figures hurdle, 
JDSU should bounce nicely off 30-day support of $105.  We 
consider this buyable, so long as there is a bounce and the 
market cooperates.  Still JDSU can be volatile; thus you'll 
need to protect yourself on the downside with stops if it goes 
much lower.  Better to preserve the capital sitting on the beach 
than to ride the wave under water.

QCOM $167.25 -1.44 (-16.50) Plummeted, dropped like a rock, the
bottom fell out.  That pretty well describes that action for
shares of Qualcomm stock on Wednesday.  Everen Securities analyst
Mark Roberts, met with QCOM management Tuesday and his comments
started the ball rolling.  Roberts wrote, "Although the company
has substantially beat estimates the last couple of quarters, 
we doubt the company has the ability to exceed fourth-quarter 
expectations to the same extent."  He added "falling prices 
and a parts shortage may prevent Qualcomm from repeating its 
performance of the past three quarters, when it topped per-share 
forecasts by an average of 28 percent.  A drop in cell-phone 
prices has accelerated to as much as 30 percent from 15%-20% 
during the past few quarters, cutting into QCOM's profit." 
(Bloomberg)  Well that's it in a nutshell, with those comments 
shares of QCOM opened $4.69 lower and the selling didn't stop 
until after making a low of $165.13 and closing down $23.50 
for the session at $168.69.  The selling continued this morning, 
opening another $7.13 lower and fell to a low of $157.25 in 
the first 15 minutes of trading.  The bargain hunters then stepped 
in and helped QCOM regain its footing, driving QCOM back up to 
a high of $172.78 before closing at $167.25 down only $1.44 
for the session.  We did mention Tuesday that the rest of week 
might be volatile but we didn't expect this.  One bright spot 
today, analyst Pete Peterson of Volpe, Brown Whealan & Co. 
reiterated his buy rating of QCOM, with a 12-month price target 
of $200.  After recovering the way QCOM did today we believe 
this may be a good time to buy calls.  Shares of Qualcomm have 
declined over 18% in two days.  QCOM will still have impressive 
earnings and is still a great stock.  So we are looking for a 
bounce however, only enter on a positive move in the stock, 
combined with solid volume and please keep your stops CLOSE.

SUNW $79.94 +0.19 (+3.75) Let the battle begin.  Sun plans
to give their software away and now MSFT is intensifying
their efforts to "rent" software over the Internet.  Earlier
this week SUNW said it would acquire Star Division Corp. to
obtain StarOffice, which produces word-processing and other 
spreadsheet software similar to Microsoft Office.  But many 
analysts feel there is very little risk and it poses almost 
no threat to Bill Gates and company. After making a new 52-week 
high yesterday at $81.50, SUNW held up fairly well today, 
especially considering the negative tone in the broader markets 
by closing up $0.19 for the day on a little better than average 
volume of 8.9 mln shares.  SUNW opened about a $1 lower and 
fell to support in the $78 area, when the investors stepped in 
to help make SUNW a bright spot in an otherwise gloomy session. 
Yesterday SUNW agreed to use Linuxcare Inc.'s software support 
services for their StarOffice products.  If we can get through 
the employment and wage reports tomorrow without any damage to 
current positions, Sun Microsystems should find new strength 
when investors and traders return from vacation next week.  If 
you are not currently in a play on SUNW, we would again suggest 
patience be exercised until next week.  Only consider a new play 
when you see a positive move in the stock as well as the major 
indices. 

GTW $96.75 +0.88 (+0.56)  GTW continues to trade sideways and 
consolidate this week.  At times volume has been strong but
has also dipped to levels as low as 50% of the norm, mainly 
due to slow trading ahead of Labor Day.  Support remains firm 
at $95 and resistance is in the fractional proximity of today's 
high at $97.50.  There's only a maximum of 2 days left in this 
play.  GTW splits 2:1 after the bell on September 7th and it's 
not recommended to hold open positions over that date.  If you 
are still inclined to buy GTW before the holiday definitely 
play with stops.

LGTO $42.88 -1.75 (-1.56)  Amidst a tough market, this momentum 
play continues to consolidate after reaching a new 52-week high 
at $46.13 last Friday.  The 10-dma at $42 is proving to be 
solid support and an entry into the play.  But any obvious 
movement below this point should raise red flags.  Remember 
LGTO's run-up has consistently stayed above the 10-dma indicator.  
In all fairness, a more conservative player will wait for a 
bounce coupled with bullish market sentiment before initiating 
a position.  If you're in the play, it's advisable to set stops. 

UIS $44.13 +1.63 (-0.50) Today's performance saved this 
momentum play from our drop list.  UIS bounced on moderate 
volume off support at its 30-dma at $42 and proceeded to 
bullishly climb for the rest of the day.  Another good sign 
was UIS closed just a fraction away from its daily high.  
This hints that the stock may have the gumption to flirt with 
overhead resistance at $46.18 tomorrow.  Of course, keep in 
mind the Employment numbers are expected and this piece of 
economic date could shake things up.  So keep on guard and 
consider tightening your stop losses to protect against a 
reversal.  In the news, Unisys's ActiveLINC software has 
enabled Nature's Sunshine, a vitamin and health business, to 
connect its mainframe order and distribution processing to
the Web.  Also Premio Computers announced they will now 
cover their Puerto Rico and North American customers with 
Unisys acclaimed global on-site warranty maintenance 
service.

ADI $52.75 -1.00 (+1.44) On Thursday, ADI was weaker along with 
the broad markets and gave back some of the gains it compiled 
throughout the week.  However, even though ADI had a relatively 
soft performance on Thursday, it still closed above its 10-dma 
of $50.  So technically, the stock still looks like a strong 
play.  ADI has hit three 52-week highs in just over a week and 
as a whole, sentiment on the stock seems bullish.  For example, 
on Wednesday ADI was up $2.25 to end the day at $53.75.  Volume 
on Wednesday was 120% of average, with 2.35 mln shares changing 
hands.  It is probable that this activity was instigated by the 
announcement of the new ADP3421 and ADP3410 converter chips.  
These are the industries first DC/DC converter chips set to 
incorporate Intel's Mobile Voltage Positioning technology.  
These chips can lower the power consumption of an Intel mobile 
processor.  This announcement was made at the Intel Developer 
Forum being held in Palm Springs, California.  As a precaution, 
pay attention to your risk tolerances during this time of 
market uncertainty.  If you are uneasy with the volatility, 
you should wait until after the Labor Day weekend to open 
new plays.

VRSN $103.44 -4.50 (+1.06)  The momentum in this Internet 
play is still intact despite the slight downdraft today.  
Dain Rauscher Wessels concurs and upgraded VRSN today with 
a Strong Buy Aggressive rating.  The analyst firm cited the 
company's business momentum is accelerating, thus providing 
upside potential for investors.  Technically VRSN is now 
perched on its 10-dma, a point it has recently used as a 
springboard and the Momentum indicator shows a green arrow. 
Assuming of course VRSN doesn't tank unexpectedly, this is 
an excellent entry into this HIGH RISK INTERNET PLAY.  For 
the new readers, VRSN is very VOLATILE during intraday 
trading and requires your undivided attention.  In the news, 
VeriSign and Ideal Technology Solutions will provide Internet 
trust services for the Automotive Network Exchange (ANX) 
enabling auto manufactures like Ford and GM to conduct 
business-to-business transactions with suppliers.


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

TWX $60.00 -1.81 (-1.44) Want to take a ride on the wild side?  
That was the picture today, painted by our friend, Fed. 
Governor Kelley.  His statements sent the markets plummeting 
from the very open and sending investors for the exits.  
Fortunately, this negative market news was good for our play.  
On Monday, Time Warner made a technical bounce at $60 but 
Kelley's words were enough to extinguish any possibilities 
of a continuing run.  Even though we pulled the rabbit out 
of our hats this time, its questionable of what will happen 
next.  The stock continues to show support at this level so 
wait until it breaks trough before placing new trades.  For 
those with existing trades, keep your stops tight just in 
case it decides to bounce.  Last of all, there is more 
important economic news that will be released tomorrow morning.  
The latest job report numbers for August are expected and will 
most likely add fuel to the volatile markets, so be careful.

JCP $36.44 -1.69 (-3.19) Once again JCP performs in a manner 
which we have come to expect.  Yesterday's gains by JCP were 
relinquished today as the No.4 U.S. retailer announced its  
same-store sales (open at least one year) fell 3.2 percent 
in August.  Decreases in sales were attributed to soft sales 
of national brand jeanswear in back-to-school categories.  
Also helping our play, competitor Sears, stated there third-
quarter profits would fall 15 cents to 19 cents below the 
82-cent consensus estimate of analysts surveyed by First Call 
Corp.  This news sent a message to investors indicating how 
bad the situation is for retailers.  Like the sales numbers 
confirm, JCP is hurting and it is showing in the stock price.  
We remain bearish with the stock however, JCP does show some 
support at the $35 level so use caution and make use of your 
stops.  Let's see if we can break through this support and 
fall to new lows.

WLP $72.75 -0.19 (-2.50) Here we are again on WLP.  The stock 
has been trading sideways since Tuesday as it consolidates 
after the most recent downturn.  This is the pattern we've 
been talking about all along.  There is still a lack of news 
or volume to break WLP out of this trend which is fine by us.  
We do think we may be getting near the end though as we are 
quickly approaching the $70 support.  We are expecting to get 
a bounce from this area and we will then reassess the position 
by the strength of the bounce.  So you may want to plan your 
exit points to avoid being caught by the rebound.  

PVN $81.25 -0.13 (-2.56) PVN is at a crucial point in our play 
as it sits on support at $80.  There is support here because 
PVN bottomed out at $80 after June's decline.  We are obviously 
seeing some buyers here since PVN is holding on in a rough 
market on Thursday.  We don't have any more fallout to report 
from the Bank one disaster but sentiment for major credit card 
issuers is still negative.  There is a good chance the 10-dma, 
which is rapidly catching up to the stock, will provide us 
with the resistance for the stock.  PVN has not traded above 
this point since the Bank One announcement of an earnings 
shortfall.  

WCOM $74.69 -1.31 (-3.81) Yesterday, even WCOM, plagued with 
a PR problem stemming from service outages 2 weeks ago, managed 
to reach a high of $77, which would have likely stopped you out 
of the play.  We noted Tuesday that it was nearing support of 
$73-$74.  Following today's negative market, the same is true 
and we may yet see another bounce north if tomorrow's employment 
figures are well greeted.  With regard to declining long distance 
rates of the big 3 providers, WCOM's data transmission revenue 
comprises the biggest portion of total revenues than either AT&T 
or Sprint (and data revenues are growing like a weed).  We think 
it may only be a matter of time until we see the reversal north.  
It's still time to exercise a bit of caution.  Don't lose your 
profits.  If you still think WCOM is a loser (for now), wait for
a descent below $73 with volume before taking a new position.

DOW $115.25 +1.25 (-4.56) We are not giving up on DOW.  The 
chemical manufacturer has basically consolidated the past two 
days.  Keep in mind this is a stock that that has dropped over
12% in the last eight trading sessions.  Do we think DOW is 
turning around?  NO.  Consolidating with a possible bounce?  
PROBABLY.  All of the fundamental information about the industry 
and the company remains intact. Commodity prices are still rising 
along with the cost of raw materials, chances of missing 
quarterly estimates are growing and no analyst upgrades, only 
downgrades. Yes the mega-marriage between DOW and Union Carbide 
is still on but the true benefits are yet to be seen.  To us 
this is the sign of a stock that will probably continue its 
downward slide but we may be due for more of a bounce first.  
Initial resistance is in the $117-$118 area followed by the 
10-dma at $120.  Again keep in my mind stocks rarely go straight 
down or up.  Today's bounce came on volume of only 694K, not 
exactly stellar volume.  The real sign may come next week when 
investors return from vacation.  Until then, we remind you that 
patience is a virtue.  We will wait for our opportunity to buy 
puts on DOW.

T $47.00 -0.38 (-0.50) This stock is still incapable of showing 
us why we should discontinue our put play.  T had a pretty big
bounce on Wednesday, and it briefly appeared that the stock may 
have reached bottom, but today the stock return to its negative 
trend.  The 10-day moving average is continuing to show signs 
of downward pressure on the price and T's stock appears to be 
too weak to breakout.  Technically, T may not have enough 
support to make any significant upward movement.  Furthermore, 
the entire telecommunications sector is showing continuous 
bearish indications.  Worldcom (WCOM) was down $1.31 on Thursday 
to end the day at $74.69 and rival Sprint (FON) was also down 
$0.25 to close at $43.69.  The current trading environment 
still looks bleak for T and the rest of the Telecommunications 
sector.  In recent news released on Thursday, AT&T and British 
Telecommunications (BTY) have just completed the purchase of 
a $1.9 billion stake in Japan Telecom Co.  This is a another 
step in the consolidation of the international telephone 
industry.  

**********

SEE DISCLAIMER IN SECTION ONE

**********




The Option Investor Newsletter         Thursday 9-2-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

MU - Micron Technology Inc $75.25 +2.63 (+6.38 this wk)

Micron is the world's #2 maker of semi-conductor memory 
components, only behind Samsung.  They design, develop,
manufacture and market complex circuit boards, memory modules, 
system level assemblies and PCs.  However, the dynamic random-
access memory (DRAM) components and other chips account for 
almost half of the company's revenues.  Texas Instruments 
and Intel both have interests Micron.

MU got off on the right foot this week as it presented 
industry samples of 133MHz 128Meg DRAM components.  These 
new components offer cost-effective solutions for a wide 
variety of current applications using high-bandwidth.  
Following Micron's product announcement, the stock was 
popped out of its support level at $68 amid bullish comments 
from analysts.  Tomorrow may present solid entry points to 
get into this momentum play.  Overhead resistance about 5 
points away at its 52-week high of $80.56 so there's still 
room for profit.  If we get a rally after the holiday, this 
resistance could easily be broken and then there'll be 
nothing to hold MU back.

The analyst comments were abundant this week.  On Tuesday, 
Gruntal & Co reiterated a Strong Buy rating and issued a 
$150 target price citing the continued rise in spot market 
DRAM prices as its leading factor.  Banc of America also put 
in their two-cents and raised its earnings estimates for 
Micron.  Yesterday Soundview upgraded MU to a Strong Buy 
from a Buy and ABN Amro also reiterated a Buy rating and 
upped the stock's target price to $90.  Plus sector wide, 
the semiconductors are tooting a 19.3% rise in World 
Semiconductor Sales for July.

BUY CALL SEP-70*MU-IN OI=5037 at $7.25 SL=5.50
BUY CALL SEP-75 MU-IO OI=3541 at $4.13 SL=2.50
BUY CALL SEP-80 MU-IP OI=2676 at $2.06 SL=1.00
BUY CALL OCT-75 MU-JO OI=2272 at $7.63 SL=6.00
BUY CALL OCT-80 MU-JP OI=2373 at $5.50 SL=3.75

Picked on Sep 2nd at     $75.25    P/E = N/A
Change since picked       +0.00    52-week high=$80.56
Analysts Ratings      7-8-5-2-1    52-week low =$20.25
Last earnings 05/99  est= -0.01    actual= -0.10
Next earnings 09-20  est= -0.18    versus= -0.42
Average Daily Volume = 5.14 mln
Chart = http://quote.yahoo.com/q?s=MU&d=3m




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


HRB - H&R Block $45.94 -5.06 (-10.00 for wk)

Nobody loves April 15 more than our latest play, H&R Block, 
North America's leading tax preparer.  The company also has 
tax operations in Canada, Australia and the UK.  H&R Block 
operates from about 10,400 locations and nearly half are 
franchised.  About 75% of its clients are return visitors. 
In addition to its tax preparation service, the company also 
provides mortgage services and operates H&R Block Financial 
Centers, which provide tax preparation, financial planning, 
investment advice and home mortgages.

Our latest play is a stock that is falling and falling fast.  
If the current stock price is any indication of what is to 
follow, H&R Block may want to reconsider some recent decisions.  
The company announced Wednesday it will buy discount stock 
brokerage Olde Financial Corp. for $850 million.  With this 
acquisition, HRB is seeking to expand its operation by 
offering one-stop shopping for a range of financial services 
and at same time broaden its customer base.  While the 
acquisition fits into Block's plan of financial services, it 
is the company's largest ever, leaving legitimate concerns in 
the minds of both investors and analysts.  These concerns 
have shown there ugly faces in the recent price of the stock.  
Since Wednesday when the announcement was made, shares of HRB 
have fallen just under $10 or 18 percent.  We expect the 
downward trend to continue as investors not wanting to be left 
holding the bag decide to get out.  If this wasn't enough, on 
Monday Barrington Research downgraded HRB from a Buy to a 
long-term buy.  With all this questionable coverage lately, 
look for a very vulnerable stock.  Because HRB has fallen so 
far so fast, use caution with this play and choose your entry 
points intraday.  This should be considered a short-term 
momentum play that could change at any time so use stops.  
  
BUY PUT SEP-50*HRB-UJ OI= 10 at $4.63 SL=2.75
BUY PUT OCT-45 HRB-VI OI=523 at $2.06 SL=1.00

Average daily volume = 350 K
Chart = http://quote.yahoo.com/q?s=HRB&d=3m

*****

ONE - Bank One $38.56 -1.38 (-3.44 this wk)

Bank One Corporation is a bank holding company and its 
subsidiaries operate a network of offices across the U.S. as 
well as 13 foreign countries.  Bank One's purchase of First 
Chicago NBD, catapulted the company's industry ranking among 
the top five banks in terms of assets.  Bank One is also the 
largest issuer of credit cards, surpassing Citigroup.  Its 
other activities include corporate and individual banking, 
loans, bill-paying services, insurance, brokerage and 
investment services.

ONE has had a tough couple of weeks so it wasn't a tough 
decision for us to add it as a put play.  The stock has ended 
in negative territory for seven consecutive days and is 
indicating no signs of strengthening any time soon.  The 
interest rate environment is not favorable for ONE either or 
the financial sector in general as the 30-year bond has crept 
up to 6.14%.  The remarks made on Thursday by Fed Governor 
Edward Kelly sent the bond markets and stock markets sinking.  
Governor Kelly was quoted as saying the central bank remains 
"intensely vigilant" and it would be premature to assume policy 
makers will wait until next year to raise interest rates.  It 
didn't help that these remarks were on the heels of the ever 
important employment report scheduled to be released on Friday. 
Furthermore, technically ONE appears to be extremely bearish 
as well.  The stock is now down $6.75 below its 10-dma at $45.38. 
The company's earnings warning last week (which is mentioned 
in detail below) coupled by the financial sector weakness as 
a whole indicates that it may be time to start searching for 
an entry point for new put plays on ONE.

The big news regarding ONE came on Aug 24.  The company warned 
that its 1999 earnings were likely to be as much as 8 percent 
below street expectations.  This was due to slower than expected 
growth in its credit-card division.  ONE said its operating 
earnings per share probably would be between $3.60 and $3.65. 
The Street had expected 1999 profits of about $3.92 a share.  
These estimates were based on analysts polled from First Call. 
In more current news, Banc One Capital Markets Inc., (a division 
of ONE) has offered to pay $500K to settle an investigation of 
bond deals the company underwrote for an Illinois park district. 
In a recent report, Banc One proposed the settlement in return 
for releasing it from any claims regarding the bond issues.

BUY PUT SEP-40*ONE-UH OI=4309 at $2.38 SL=1.25 
BUY PUT SEP-45 ONE-UI OI=1641 at $7.00 SL=5.25

Average daily volume = 3.28 mln
Chart = http://quote.yahoo.com/q?s=ONE&d=3m


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

Straddle Recap for Thursday

Most open positions for the Straddle plays continue to move 
higher in price, as the market seesawed its way back down 
from yesterday's gains.  OEX option volatility (VIX) hopped 
up to 25.44, telling me that we have more breakout room to 
the downside to go.  Fundamental reasons include comments 
made from the Fed Governor pertaining to another possible 
rate hike.  2/3rds of the open straddle positions have moved 
away from their original entry by more than 10%.  Most of the 
ones that haven't were newer straddles published earlier this 
week.  Our Oil, Gas, and Chemical stock straddles are working 
out the best, as they continue to drop thanks to the stabilized 
price in oil, as well as a continued drop in the transportation 
sector.  Appliance stocks continue to help us, as Maytag 
continues its down drop.  Even ZION and CNTO have moved more 
than 10%, increasing the straddles in value.  Dell and Apple 
straddles were mixed as Dell moved lower, causing straddles in 
that stock to decrease, while Apple stock moved higher, causing 
these straddles to increase in value.  Although I like to hang 
on to straddles for about 30 days, I do get concerned when the 
entire country is focusing on the employment report due out 
tomorrow.  

****************
Straddle Mailbag
****************

What's your favorite indicator for low risk trades?

It's funny how many people each use a different system, 
indicator, news event, or crystal ball to determine what the 
future will hold in the stock market.  Once again, as a 
directional trader, it's important to remember the past to 
help predict future movement.  As we head into the Labor Day 
Weekend, many traders are ready for a holiday rally.   Traders 
who watch money flow are ready for gains based on the influx 
of money from institutional traders and money managers.  Some 
traders look at the briefcase indicator held by Alan Greenspan.  
Still, others are looking at the stars and waiting for Jupiter 
to do something.  Some of these are easier to understand and 
interpret into market movement than others.  No insults to the 
star watchers, but I failed astrology, so that's one indicator 
I won't be looking at.  One indicator that I do look at, is the 
The VIX stands for Volatility Index.  This is the volatility 
index of the S&P 100, or OEX options.  Smart volatility traders 
will tell you that when the VIX is high, its time to BUY, and 
when the VIX is low, its time to go (SELL).  I look at the VIX, 
not only on a day by day basis, but looking back at time 
segments to determine a time to buy options and a time to sell 
them.  Below is a current chart of the VIX, going back 2 years.

 

One thing that sticks out like a sore thumb is the spikes up 
that occur between the months of September and October.  If 
you were to look at a chart of the OEX, you will see a mirror 
image of the chart above.  What I am trying to state here is 
that if there is ever a time to be a buyer of options, this 
is it.  With the 3rd quarter earnings period coming up, coupled 
with the nervousness of another interest rate hike, it's a 
good bet to play one or even both sides of the markets.  I 
haven't even mentioned that the October Crash Crew will be in 
full force, talking about the next crash to occur.  Now I 
don't care where the market goes, but this pattern is what 
straddle traders live for.  Also the bottom of this chart is 
at 18.  If the VIX hits the low 20's again, it becomes a safe 
bet to play 90-day options for the next 30-45 days.  

Sell too soon folks.

Tom Gentile


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

Markets Fall As Inflation Fears Rise..

Stocks closed lower Thursday as investor anxiety increased over
the possibility of another interest rate hike later this year.

Wednesday, September 1

Blue chip issues rebounded Wednesday in a session of light volume
as traders fought back fears of higher inflation and increasing
interest rates. The Dow Jones average closed 108 points higher
at 10937 while the Nasdaq composite index rose 11 points to 2750.
Market strength was broad, with 1686 advancers outnumbering 1085
decliners on 320 million shares traded on the NYSE. U.S. Treasury
Bonds fell lower, with the benchmark 30-year issue down 9/32, to
yield 6.086%.

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

Cabletron    CS    OCT15C/SEP17C  $2.06  debit  diagonal
Cabletron    CS    LJAN15/SEP17C  $5.12  debit  LEAPS/CC's
Occ. Petro.  OXY   JAN22C/SEP22C  $1.12  debit  calendar
Mentor       MNTR  OCT25C/SEP25C  $0.81  debit  calendar

All three of the new positions traded in a small range for much
of the morning and only one of the target prices was eventually
achieved. Cabletron the first candidate and both of the plays
remained slightly out of reach until the stock price fell near
10:45 AM. At that point the LEAPS/CC's position was observed at
the target price and the short-term diagonal spread was a mere
1/16 away. Occidental Petroleum was much the same, moving less
than a dollar in the first hour and the spread debit remained
slightly above our suggested price for most of the day. Mentor
was by far the most docile, moving in a $0.25 range the entire
session. The initial target should have been available but we
will record the opening debit at $0.81 (a five contract trade
at that price was observed during the first hour of the day).

Portfolio plays:

The market recovered today but analysts are now expressing new
concerns about the employment report due on Friday. Some say it
may reflect increased inflationary pressure, which would raise
the probability of another interest rate hike in October. That
could certainly curtail any pre-holiday rally ahead of the long
week-end and most investors are remaining on the sidelines in
the interim.

One of the big issues that made news today was Intel (INTC). The
stock climbed almost $3 at midday to a new high at $85 after the
company confirmed it formed a $200 million equity fund to invest
in voice and data communications technology. The hi-tech giant
is also expected to unveil a new design blueprint for developing
networking chips. Other technology issues moved higher including
Cisco, (CSCO) up $1.12; Conexant (CNXT) which climbed $4.56 to
$76 and EMC Corporation (EMC), up $1.50 to $63. Sepracor (SPR)
and Schering Plough (SGP) also participated in the small drug
sector rally with favorable moves.

One of the Dow's top gainers was International Paper (IP), up $2
in early trading after being upgraded by brokerage Paine-Webber.
The new rally should offer a second chance to exit the calendar
spread with a positive return. A few of our smaller issues were
in today's recovery; Polaroid (PRD) moved up $1.25 to a previous
resistance area near $28 and RSL Comm. (RSLC), a tracking-only
play, climbed almost $2 to our sold strike at $22.50. The big
relief was Hambrecht and Quist (HQ) as it rebounded $1.93 to $40,
with a few of the other active brokerages. Lehman Brothers (LEH)
was also included in that group, up $1.62 to a previous trading
range near $55.

The big loser today was Qualcomm (QCOM), falling $23 on concerns
over future profits in what is now considered a very competitive
industry. Our current "readers request" position is still deep
ITM but that kind of drop won't be recovered any time soon. One
of the other slumping tech issues is Excite@home (ATHM) and with
our (bullish) speculation play fading, we have decided to unload
the long option (OCT-$52.50) and hope for a soft market in this
issue over the next two weeks. Our current position is trading
at a small loss ($0.12) and this may be the last opportunity we
have to preserve capital.

Thursday, September 2

Stocks closed lower Thursday as investor anxiety increased over
the possibility of another interest rate hike later this year.
The Fed, which raised short-term interest rates in June and
again in August, has another policy meeting in October. The Dow
Jones industrial average fell 94 points to end at 10,843. The
Nasdaq composite index fell 16 points to 2,734. In the broader
market, declines led advances by 2,077 to 834 on volume of 684
million shares on the New York Stock Exchange. The 30-year U.S.
Treasury bond fell 23/32 pushing the yield higher to 6.13%.

Portfolio plays:

3COM Corporation (COMS) was one of the portfolio movers today,
up $2.25 to our sold strike at $27.50, as rumors resurfaced that
the company is a takeover target. Volume and volatility surged
again in the options as traders moved into speculative positions.
Intel (INTC) continued its winning ways, climbing $2 to a recent
closing high near $85 and International Paper (IP) also managed
another positive day, up over a point to $50. Hambrecht and Quist
(HQ) powered ahead for a second session, gaining $2.62 to the top
of a previous range near $43.

Most of the other issues in the portfolio simply floundered with
the broad market and red was certainly the dominant color of our
quote spreadsheet. In only a few cases is that favorable and one
of those positions is J.P. Morgan (JPM). The stock fell $3.68 to
$125 on news that Schroeder cut its recommended rating on the
company to neutral from outperform. The (bearish) debit spread is
now safely ITM and can be closed for a small profit. We suspect
there is little chance of a short-term recovery to $132 and plan
to hold the position for a few more days. Medtronics (MDT), Sun
Micro (SUNW) and Cisco (CSCO) all moved lower and with each one
of these positions trading above our current short options, we
will watch for any favorable opportunity to close early and roll
forward into October.

Good Luck!

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


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

USWB - USWeb/CKS  $23.31     *** On The Rebound? ***

USWeb/CKS is a professional services firm that was formed by the
merger of USWeb Corporation and CKS Group. They work with leading
edge companies to define strategies and implement innovative ways
to build their businesses by combining the expertise of strategy,
Internet technology and marketing communications. USWeb/CKS helps
clients differentiate their products and services, strengthen
customer relationships, leverage human capital, and their improve
business efficiency in the new electronic age.

USWB climbed for the second consecutive day on rumors of a buyout
and a positive reaction to the recent article in Forbes magazine.
The stock price climbed $2.38 and closed near the high on bullish
short-term technicals. MACD, volume, and momentum are all moving
towards a favorable "buy" position and the stock has moved above
the 50 dma on solid buying pressure. Most believe the volume and
price movement associated with a potential buyout situation would
be much greater but the stock is still poised for a run to $25.

Another reason for the renewed interest may be the recent article
identifying USWB as one of IBM's Alliance Business Partners. Mike 
Colleary, director of worldwide partner development of IBM's
Software Group says, "Only companies that Big Blue sees as market
leaders become partners. We enable these partners with technology,
joint marketing and public relations. With USWeb, we are looking
at penetrating the e-business marketplace. We consider USWeb to
be a market leader." He noted that his company has only three
other strategic partnerships, with Cisco Systems, Microsoft and
Intel.

This is an excellent short term technical position with a very
favorable risk/reward outlook.

PLAY (conservative - bullish/debit spread):

BUY  CALL SEP-17.50 QWB-IW OI=425  A=$5.87
SELL CALL SEP-22.50 QWB-IX OI=1126 B=$1.62
INITIAL NET DEBIT TARGET=$4.00 ROI(max)=25% B/E=$21.50

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

*****

COMS - 3Com Corp.  $27.06     *** More Buy-Out Rumors! ***

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

Upcoming earnings and buyout rumors are driving COMS higher again
and the stock rose almost 10% today amid speculation that Lucent
(LU) would be the takeover company. One analyst said Lucent would
be interested in 3Com's enterprise data networking equipment, and
particularly its Ethernet or local area network switches, along
with the routers and core builder line products.

3Com Corporation recently announced that it had terminated plans
with Germany's Siemens AG to form a venture making equipment to
handle voice calls on data and video telecoms networks. A Siemens
spokesman said that economic reasons was the official cause of
the split, and that the two companies had come to the conclusion 
together, opting to develop new products independently from each
other. That's about the time when all the merger rumors started.

Other traders are speculating that COMS may be planning to spin
off its palm-computing division in a move to boost shareholder
value. Regardless of the nature of the new interest, implied
volatility and volume vaulted higher and the overpriced October
option premiums have presented us with a low-cost, bullish debit
position. The OCT17C/OCT22C would be my #1 play but the ROI is
a bit low for most traders. We will blend in some OCT-$25 calls
to boost the return potential and still retain a fair amount of
downside protection.

PLAY (very conservative - bullish/debit spread):

BUY  (10) CALLS  OCT-17.50 THQ-JS OI=167  A=$9.75
SELL (5)  CALLS  OCT-22.50 THQ-JX OI=2497 B=$5.12
SELL (5)  CALLS  OCT-25.00 THQ-JE OI=7420 B=$3.37
INITIAL NET DEBIT TARGET=$5.38 ROI(max)=39% B/E=$22.88

Chart = http://quote.yahoo.com/q?s=COMS&d=3m
********************
INDEX OPTION SPREADS
********************
As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time. The buyer has the rights and the seller
the obligations. With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
market industry or on the market as a whole. Spread strategies can
be made with index options similar to those made with individual
stock options. Many professional traders employ index spreads as a
hedge strategy. We favor debit positions on the SPX for momentum
and hedging or longer-term plays and OTM credit spreads on the OEX
when the risk/reward is favorable. Low ROI disparity spreads will
be listed (when available) for the conservative index trader.
*******************************************************************
OEX - S&P 100 Index  $693.71     OTM Credit-Spreads

The Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries. The component
stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding. 

OBSERVATIONS:

For OTM credit spread trades, we like to use the actively-traded
S&P 100 Index options because they contain much more premium than
options on individual stocks and provide an underlying instrument
less prone to huge, gapping moves. Review the 'Market Sentiment'
section for specific technical information on the S&P 100 Index.
 
Aggressive...

PLAY (Bearish):
BUY  CALL SEP-725 OEZ-IE OI=9329 A=$1.31
SELL CALL SEP-720 OEZ-ID OI=3312 B=$2.12
NET CREDIT TARGET=$0.81 ROI=19%

PLAY (Bullish):
BUY  PUT SEP-660 OEY-UL OI=11538 A=$3.75
SELL PUT SEP-665 OEY-UM OI=1796  B=$4.50
NET CREDIT TARGET=$0.75 ROI=18%

Very Conservative...

PLAY (bullish - disparity/low ROI):
BUY  PUT SEP-645 OEY-UI OI=1785  A=$2.38
SELL PUT SEP-650 OEY-UJ OI=10133 B=$2.75
NET CREDIT TARGET=$0.38 ROI=8% (2 weeks)

CHART= http://quote.yahoo.com/q?s=^oex&d=b





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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
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