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

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The Option Investor Newsletter         Tuesday  9-9-99
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)
************************************************************
        9-09-99          High     Low     Volume  Advances Decline
DOW    11079.40 + 43.06 11095.86 10981.89  771,746k  1,446   1,463
Nasdaq  2852.02 + 43.28  2852.04  2807.95 1029,974k  1,978   1,860
S&P-100  709.81 +  2.15   710.02   701.99   Totals   3,424   3,323
S&P-500 1347.66 +  3.51  1347.66  1333.91            50.7%   49.3%
$RUT     437.77 +  1.87   437.77   435.78
$TRAN   3113.27 +  8.83  3118.74  3031.21
VIX       23.40 -  0.78    24.98    23.31
Put/Call Ratio      .52
*************************************************************

Late day rally sets tone for PPI tomorrow...

Volatility is the one thing in the market that investors can 
confidently bet on lately. Most were expecting today to be fairly 
quiet ahead of Friday's PPI numbers, but we did see a somewhat 
surprising rally in stocks toward the end of the day. The Dow 
again had a range of over 100 points and even if you spend your 
days with your eyes glued to a quote terminal, you might miss 
major moves if you turn to sneeze. But was Thursday a 
foreshadowing of things to come or one last gasp before things 
get worse? Right now it is hard to say. Until we see either a 
breakout to new highs or a breakdown of key support, we should 
characterize the current market as range-bound. 

Several aspects of today's market activity seem to defy common 
economic sense, although one should not read too much into the 
activity of any one individual day. With persistent interest rate 
fears, a weakening dollar, skyrocketing fuel prices, and some 
indications of inflation on the horizon, one would not normally 
predict a rally for stocks. A rally, however, is exactly what we 
had toward the end of the trading day. Particularly strong were 
the technology stocks, which are the undisputed leaders of the 
markets. 

Over the past week or so the Nasdaq has looked stronger than 
the other indices and is now very close to a new record high. 
We are currently just under 23 points below the record, and up 
over 30% year-to-date, while the Dow is up about 20% and the S&P 
is up about 10%. We may be seeing the beginning of an autumn 
rally in techs, which we have seen the past three years, 
although the autumn rally usually begins later in the year. 

 


Looking closely at the situation we can come up with a few 
possible explanations for today's rally. First, tomorrow at 
8:30 AM we will get PPI figures for August. The consensus calls 
for a .3% increase with an unchanged core rate, which excludes 
food and energy prices. The Fed looks closely at both these 
figures and CPI data to assess levels of inflation. It is 
possible that some money managers and traders are betting on a 
lower figure (or a non-inflationary number), which could cause the 
market to take off tomorrow and next week.  Thus, today's late
day rally is merely investors trying to get the jump on the rest
of the crowd. It is definitely impressive to have a rally going 
into such an important number and at a time when there is so much 
uncertainty about interest rates and inflation. 

Another possibility is that the ship of the world's largest 
economy (a.k.a. Abby Cohen's supertanker theory) has built enough 
momentum to propel it through the relatively minor waves we have 
seen so far. It may be too difficult for a market this large, 
with over ten years of momentum building, to stop on a dime 
(we have had only two down years since 1987). Even if inflation 
is on the horizon, it might take some time before it has a major 
affect on stocks. Some analysts are attributing the recent tech 
move to a lack of selling pressure than a sign of major strength. 
Many of the same analysts look at charts and see a dangerous head 
and shoulders formation in process, which if correct would indicate 
at east a short-term top. They are, however, in the minority. If 
this assessment is correct, we will have increasing upside 
resistance and more and more bad economic news as the ship turns 
around. 
 
The Fed has not given us much meat to chew on this week, 
although several Fed members, including Mr. Greenspan, gave 
public speeches this week. Fed governor Edward Gramlich made 
some positive comments about inflation and productivity late 
today and warned against reading too much into comments by FOMC 
members, which may have been part of the reason the markets 
rallied. While the Fed has been tight-lipped, most everyone 
assumes the Fed to be fairly hawkish, ready to raise rates 
if much of the upcoming economic data smells of inflation.

Several things kept the morning fairly light and uneventful. 
Oil prices are nearing 2 year highs with many analysts 
predicting $25 a barrel of oil. The dollar dropped to a three-
year low against the yen today, and a weak dollar means more 
expensive imports. The CRB index is high and it was another down 
day for bonds. These factors kept stock prices moderately lower, 
but the afternoon attracted much more volume and pushed the major 
indices up. Some of the downtrodden sectors, financial stocks - 
worried about interest rates and the weakening dollar, transports - 
worried about oil prices, and healthcare stocks - worried about 
being under investigation, weighed on the markets, although 
rebounds at day's end could indicate some bargain hunters are 
jumping into the market, believing these sectors are now at 
attractive levels. 

The Nasdaq, on the other hand, enjoyed a relatively good day 
all day, rallying strongly and with good volume toward the 
close. Speaking of volume, we are seeing a seasonal post-Labor 
Day rise in volume that could be seen as a positive for the 
market. The Nasdaq traded over a billion shares today and NYSE 
volume was up about 83 million shares from last Thursday. For 
several weeks both the Nasdaq and the NYSE languished with 
below average volume. The increased volume could help push 
the averages enough to get to new highs.  Money managers have 
to put that money to work sooner or later.

Among individual sectors, Internet and computer stocks were 
strong with positive comments by analysts and forecasts of 
strong computer demand both domestically and worldwide. The 
Interactive Week Internet Index was up 2.36% and AMEX Computer 
Index was up 1.8%.  IBM was up 4 points on the news and HWP
gained 4.13 by the end of the day.

As mentioned earlier, the energy sectors were strong, with the 
Oil & Gas Index up 2.41%, while banking and pharmaceuticals 
were weak. The PHLX KBW Bank Index was down 1.4% on worries 
over the weak dollar and rising interest rates. The AMEX 
Pharmaceutical Index was down .4%, with American Home Products 
under investigation by the government.
 
In perhaps the most surprising development of the day, the 
airline stocks made a strong rebound near the close. After a 
miserable stretch with higher oil prices falling stock prices, 
most airline stocks were up strongly today, even as oil prices 
rose. The AMEX Airline index rose 4.7%. At least part of the jump 
can be attributed to an internal report by PaineWebber which 
pointed out that airline stocks were down about 34%, the third 
largest non-recessionary decline in decades, making the sector 
a value play. It may, however, take awhile before airlines can 
get anywhere close to new highs. 

 


The 30-year Treasury bond fell more than 1/4 point, closing 
with a yield of 6.09%. As the yield inches higher it will put
increasing pressure on stock prices as bonds become a more 
attractive investment. 

It goes without saying that tomorrow's PPI figures are very 
important to the market. Because it is the Producer Price Index,
any inflationary pressures here are likely to show up later in
the CPI or Consumer Price Index.  An unexpected result on either 
side could push the market strongly one way or the other. Overseas 
markets, interest rate uncertainty and possible inflation make 
current market conditions somewhat muddled. The best advice for 
now would be to keep your stops fairly tight and stick with the 
winners. It might be wise to wait until the market chooses a 
direction before adding new money to the market. Although a lot
of traders are hoping for the PPI tomorrow to point that new
direction skyward.  One thing we can probably be sure of is a
triple digit move in the Dow.  We've been trading in a very 
narrow range (almost 100 points) all week long.  Investors 
are ready and they want to focus on 3rd quarter earnings, not
another Fed rate hike in October.  Overhead resistance for the
Dow is likely to be at 11,300 and support down near 10,800.
Of course, if the PPI is favorable we could easily see a new
high on the NASDAQ tomorrow.  Remember, trying to pick a top or 
a bottom is risky and listening too closely to analysts can make 
one dizzy, so choose carefully and sell too soon.

Chad
Research Analyst





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

As of Market Close – Thursday, September 9, 1999 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since

DOW Industrials   10,500  11,320  11,078    Neutral   7.20
SPX S&P 500        1,320   1,420   1,348    Neutral   8.17
OEX S&P 100          675     735     710    Neutral   8.13
RUT Russell 2000     440     465     438    BEARISH   8.06
NDX NASD 100       2,320   2,400   2,506    BULLISH   9.03
MSH High Tech      1,120   1,200   1,262    BULLISH   9.03

XCI Hardware       1,035   1,050   1,129    BULLISH   8.24
CWX Software         750     800     867    BULLISH   9.03
SOX Semiconductor    515     520     559    BULLISH   8.24
NWX Networking       555     625     602    Neutral   8.13
INX Internet         500     580     463    BEARISH   7.20

BIX Banking          690     710     607    BEARISH   7.23
XBD Brokerage        410     440     384    BEARISH   7.23
IUX Insurance        645     660     593    BEARISH   7.23

RLX Retail           915     960     830    BEARISH   7.23
DRG Drug             360     390     368    Neutral   8.24
HCX Healthcare       740     785     750    Neutral   8.24
XAL Airline          180     190     149    BEARISH   5.21
OIX Oil & Gas        285     310     316    BULLISH   9.09  *


 
Posture Alert    
Thursday's action brought back some of the losses from the 
previous two trading days. Oil & Gas was up solid, as the 
price of crude broke $23 a barrel. That sector was up 2.35%, 
and as such, was upgraded to BULLISH from Neutral. Friday's 
PPI can definitely add some fuel to the fire, or put out the 
flames.  



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

Things Can Change!

Last Friday's rally was great for everyone involved, expect short 
sellers. The sentiment seemed to really change after this day, 
however, the follow-through to this rally was less than desirable. 
Most people expected Monday or Tuesday to continue the rally, 
especially with everyone back from vacation. This didn't happen.  
Don't forget, Wall Street can turn on a dime and right now there 
are a lot of people on the fence! To see this market explode in 
either direction is still a strong possibility. Friday brings us 
the Producer Price Index, and then on Wednesday we have the Consumer 
Price Index. If either of these indicators point to inflation, we 
could be in trouble. Continue to watch the long bond as your guidance 
counselor, and let the force be with you.

Here at Pinnacle Capital, we get many Emails on sentiment, and 
how/why bearish sentiment can actually be bullish. As of yesterday, 
the Investors Intelligence Survey showed an uptick in bullishness 
for the first time in many weeks. This may be a one-week thing, 
but it may have also signaled a bottom. With sentiment being so 
bearish, this market can easily rock to new highs, should the 
inflation picture become clear. 

Take a look at Apple Computer (AAPL). Apple is actually one stock 
where bearishness has dominated for a long time. The open interest 
on Puts is greater than Calls, which is very rare. There are only 
a small handful of stocks where puts outnumber calls, and usually, 
there is a very good reason (i.e. bankruptcy, horrible earnings, 
cyclical sectors, etc.).  In the case of Apple, you have seen them 
turn the company around, to where earnings are increasing, revenues 
increasing, and where they are beating analyst expectations. The 
company has performed solidly. This put buying that we have mentioned, 
has actually given support to the stock, and has helped fuel its 
uptrend. If you look at the chart, it is up 60+% in the last two 
months alone, even though the bears dominated the stock. Imagine 
what the broad market can do in the next several months if the 
inflation picture remains clear?

As a side note, two other fundamentally solid companies where puts 
outnumber calls are: Texas Instruments (TXN), and Lucent Technologies 
(LU). Have a good weekend. 

    

 


 


 




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 1.3, suggesting bearish sentiment picking up steam.

Market Posture:
Several indexes have broken new highs, including the Nasdaq 100, 
Morgan Stanley High Tech, Software, Hardware, and Semiconductors.

Volatility Index:
The VIX broke is below the 25 benchmark, after flirting in the 
danger zone.

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:

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.

Russell 2000: 
Even with the strong rally, the RUT is still below the 50 and 200 day 
moving averages. If this trend continues, this could prove very 
bearish. 
  
Pre-Earnings Season:
September is the start of pre-release season. 9 times out of ten, 
companies usually let Wall Street know some sort of negative news. We 
have already started to witness the negative pre-announcements this 
last week.


Advance/Decline Line:
The A/D line is still looking negative, even with this latest rally.


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%               
Friday, September 3      104,700        +153.2%


Market Sentiment at a Glance     Friday     Tues      Thurs  
Indicator                        (9/3)      (9/7)     (9/9) Alert

Pinnacle Index (OEX):          
                    
Overhead Resistance (735-780)    179.0      179.0     120.0
Underlying Support  (710-730)      2.4        2.4       2.4
Underlying Support  (630-690)      4.0        4.0       4.3
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7       .7       .6
CBOE Equity P/C Ratio               .5       .5       .5
OEX P/C Ratio                      1.1      1.1      1.5


Peak Open Interest (OEX):

Puts                              660          660      660
Calls                             720          720      720
P/C Ratio                         1.33         1.33      1.44

Market Volatility Index (VIX):	

CBOE VIX                         21.39



Investors Intelligence:

Bullish                         44.10%  *
Bearish                         30.50%  *


The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

 
OEX Pinnacle Index             Friday      Tues      Thurs
Benchmark                       (9/3)       (9/7)     (9/9)

Overhead Resistance (735-780)   179.00      179.00    119.70
Overhead Resistance (710-730)     2.37        2.37      2.43

OEX Close                       713.89      711.37

Underlying Support  (630-690)     3.99        3.99      4.30
                     
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                (9/3)      (9/7)      (9/9)

CBOE Total P/C Ratio             .69       .69         .59
CBOE Equity P/C Ratio            .54       .54         .46         
OEX P/C Ratio                   1.12      1.12        1.46

OEX
Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (9/3)            (9/7)           (9/9)

Puts                 660 / 13,325     660 / 13,325    660 / 14,099
Calls                720 / 10,042     720 / 10,042    720 /  9,817
Put/Call Ratio         1.33             1.33            1.44



 


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  5, 1999     Bottom?             32.12 
  
September 3, 1999                       21.39 



 





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

Index      Last    Tue    Wed    Thu   Week
Dow     11079.40 -44.32   2.21  43.06   0.95
Nasdaq   2852.02  -5.85 -28.52  43.28   8.91
$OEX      709.81  -2.52  -3.71   2.15  -4.08
$SPX     1347.66  -6.79  -6.30   3.51  -9.58
$RUT      437.77   2.27  -2.34   1.87   1.80
$TRAN    3113.27 -47.41 -28.34   8.83 -66.92
$VIX       23.40   1.94   0.85  -0.78   2.01

Calls              Tue    Wed    Thu   Week

HGSI       86.00  12.50  -3.31  -0.31   8.87  Use some caution
CHKP       90.69  -1.44   2.50   3.94   5.00  Looking strong
BGEN       89.19  -1.00   2.06   3.31   4.38  New, it's a looker
CNXT       79.72   1.50  -1.06   2.91   3.34  Found strength
ADI        56.00   2.94  -1.38   0.88   3.31  Stellar runner
LGTO       48.00   1.13   1.94   0.00   3.06  Hanging on tight
VRSN      110.63   4.47  -1.44  -0.25   2.78  Looking to move
SFE        70.25   2.63  -1.69   1.19   2.13  Increases income
DISH       88.06   2.94  -1.25   0.31   2.00  At the crossroads
FLEX       64.50  -0.25   2.19  -0.63   1.31  A relief haven
TXN        89.00   3.69  -2.75   0.13   1.06  Joining the rally
CMGI       87.38  -0.38  -3.75   5.13   1.00  Going strong
SFA        54.25   1.56  -1.44   0.69   0.81  Two steps forward
ERTS       75.19  -1.75  -0.38   2.56   0.44  Another new high
SUNW       84.19   1.81  -0.88  -1.25  -0.31  Potential success
DELL       48.88  -0.06  -1.75   1.25  -0.56  Running again
CSCO       69.94  -0.56  -1.50   1.00  -1.06  Top 10 tech list
INTC       87.75  -1.69  -1.69   1.81  -1.56  Its rally mode!
MSFT       94.06  -1.44  -2.00   1.81  -1.63  Technology rally
JDSU      110.44   0.19  -3.31   0.44  -2.69  Dog and pony show
BVSN      106.63   2.88  -4.38  -1.44  -2.94  Mercy or menace?
MU         75.63  -0.50  -4.13   0.13  -4.50  Broke its high!

Puts

GPS        35.44  -2.00  -0.75  -0.69  -3.44  New, worst retailer
CVS        37.75  -0.88  -0.75  -1.13  -2.75  New, no hope here
KO         55.00  -2.75   0.63  -0.25  -2.38  Sitting on a bubble
DOW       114.31  -0.63  -0.50   0.06  -1.06  Dropped, too much
ONE        38.94  -0.47  -0.25   0.06  -0.66  Sector softening
JCP        35.94  -0.25   0.13  -0.25  -0.38  Finding support?
HRB        47.00  -0.38  -0.13   1.06   0.56  Drastic measures
WLP        76.00   0.19   0.81   1.19   2.19  Dropped, it's gone




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:
******


There are no dropped calls today.


PUTS:
******


WLP $76.00 +1.19 (+2.19) It should be apparent to everyone at 
this point that the great WLP trend we've been playing has 
finally come to an end.  The stock decided against stopping 
at the 10-dma as it has for the past two months and instead 
has broken above that key level.  If you have been looking for 
news to explain the rise, you may not find any.  In fact, the 
entire sector has still looked weak which makes us wonder if 
maybe this is the real deal.  Whether or not it is doesn't 
matter as the risk now heavily outweighs the reward.  If you 
are not stopped out yet, you should quickly find an exit point 
to avoid any further stock price gains.

DOW $114.31 +0.06 (-0.44) As we've said before, the decline in 
shares of DOW may still come.  Waiting for it however has been
like watching paint dry.  Honestly DOW, seems to have been 
forming a base in the $113-$114 area.  With the right news or
announcement, DOW could fall out of bed.  In the last two days 
traders have tried to drive the chemical maker down only to have
buyers step in to support the stock.  DOW simply isn't going
our direction so we will look elsewhere for our opportunities.


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

INTC $87.75 +1.84 (-1.44)  After a few of days of consolidation, 
INTC headed north again today with a strong tech group, showing 
us that the stock is still in rally mode.  Technical analysis 
is not always helpful, but Intel is a classic example of when 
it is. Take a look at a 10 dma chart with Bollinger Bands.  You 
will see that except for a 3 point diversion during the third 
week of July, Intel has not dropped more than a point below its 
10-dma since early June, when the current rally began. Each time 
it gets much above the upper Bollinger band, it pauses for some 
consolidation.  If it should fail to bounce when it hits its 
10-dma (or just below), be ready to bail out.  Use this info 
as a guide for entries and stop loss orders.  In the news, INTC 
made Merrill Lynch's "top ten tech" stocks for "aggressive 
investors".  Merrill's report says the Internet and Intel's 
entry into the communications chip market will drive future 
growth. INTC has also entered the router and switch market this 
week with 3 new products, demonstrating further diversification 
into those Internet areas where the growth is. 

DELL $48.94 +1.31 (-0.50) Welcome back volume!  It may not look 
like much at first glance with DELL only trading 19M shares 
but volume came pouring into the markets in the final hour of 
trading today.  It was this commitment to the markets that 
took DELL higher to close right at the day-high.  Most likely 
this stems from traders trying to jump the gun on tomorrow's 
PPI report after last week's strong Friday rally.  If we get 
a favorable report, we should continue higher.  We would like 
to see DELL push above $50 to confirm the recent trend.  Look 
for an entry point intraday if DELL starts to run.  In the 
news on Wednesday, Dell announced they have struck a deal to 
purchase ConvergeNet Technologies for $340 million.  This is 
part of Dell's long-term strategy to become a leader in 
storage technology. 

CHKP $ 90.63 +3.88 (+4.94) Check Point continues to look strong.  
After hitting a speed bump on Tuesday, we saw on Wednesday and 
Thursday that CHKP still has a lot of momentum.  CHKP closed the 
day with an impressive rally and broke through to new 52-week 
high territory.  The volume was above average, indicating this 
rally may have legs.  With the lack of news on the stock we 
continue to use the upward trend as a guide.  Breaking to new 
highs is always positive and with the strength the sector has 
shown, look for CHKP to maintain its upward movement.

CMGI $87.38 +5.13 (+1.13)  The Nasdaq's beating yesterday 
after the Fed Governor's speech and the surprise interest 
rate hike by the Bank of England resulted in CMGI's descent 
of $3.63 to finish near its daily low.  For those who used 
this descent as an entry point profited today as CMGI 
advanced a healthy $5.13 on about 50% volume of its ADV.  
At first sight this may not seem like much but actually 
this is an improvement in the stock's recent trading volume 
levels.  Tomorrow will be the big tell-all with PPI numbers 
coming out.  Remember last Friday?  Well if we get a repeat 
explosion in the market CMGI should surge once again as it 
approaches its earnings' date on September 27th, after the 
bell.  This play is purely based on the expectation of a 
powerful earnings run.  
 
***** 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 
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a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.


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

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

HGSI $86.00 -0.31 (+8.88) Tug of war between the bulls and
bears.  The market however is helping the bears lately.  The
tails on the candle stick charts show that this stock still
wants to go higher but, market pressure has been too much.
Any reprieve we get in the market, should allow the bulls to
prevail.  For now use extreme caution!  We have turned 
negative in our stochastic and momentum is fading due to
market conditions.  At these levels we are very overvalued
so speculation is moving the stock.  Stops are your safety
net, so place them accordingly.  Support is well below current
levels at $75.  That's a long way to drop, so keep what you
have.  Some good news on Biotechs, especially for HGSI.  Tim
Bepler of the Orbitex Health & Biotechnology fund reported
many genetic research companies are getting to the end of
their research and as they propose drugs to the FDA, approval 
should be streamlined, helping recover costs and start early 
cash flows.

BVSN $106.50 -1.56 (-3.00) Mercy or Menace?  We could apply
this both ways to BVSN.  Mercy in that we are approaching
support and this could be another buying opportunity.  Menace
in that we are turning negative on our technicals and the
market may be saying $115 is our resistance.  Because the
market is the overseer of our plays, use it to your advantage
and don't try to out guess its moves.  Confirm a positive
direction in both the market and the stock before re-entering 
BVSN.  Volume has been quite lackluster in this stock the last
two days, indicating that the money is still sitting on the
side.  If we get some market relief, this could again propel
us.  For now be careful as we have developed two levels of 
support on BVSN.  One resting on our 10-dma today at $104 and 
a back-up on our 20-dma at $101.  For those of you that have 
been profitable, use this to protect your profits.  Buyers 
could use them as an entry gauge but as always, reconfirm the
upward momentum before jumping in.  In the news, Broadvision 
is a part sponsor of an e-services conference hosting 700 of 
the top executives from across the country.  Showing these elite 
how the Internet can increase revenue streams is definitely of 
benefit to BVSN's revenue as well.

MSFT $94.06 +1.81 (-1.81) Up, down, touch the ground.  This
children's song pretty much describes Microsoft today.  Couldn't
quite decide what to do.  We are currently close to support 
at $93, so it appears we are at the markets mercy.  With no
volume conviction, our 8/17/9 MACD has turned negative.  The
yellow light is on, as we wait patiently for the market to
convince itself we need a tech rally.  There is some consolation
in the fact that we did recover from our 12:15pm low to finish
at the high of the day.  Investors may see this as an
opportunity to buy.  Use caution however and confirm the
positive trend in both the stock, the sector, and the market
before committing.  Two news items worthy of note.  The foremost
is the interest MSFT has in Globex and their new fibre-optic
network in Asia.  MSFT will invest $175 mln to help GLBX 
meet their objectives.  Also, MSFT's MSN is gaining ground
against Yahoo.  IBM reported that traffic to their sites has
seen an increase from other search engines among which MSN is
at the lead.

FLEX $64.50 -0.63 (+1.38) How do you spell relief?  Relief
from the market woes that is.  Amidst all this market direction
confusion, FLEX provided investors with that relief haven, as
we headed higher yesterday on good volume.  Today we retraced
somewhat but much of that can be attributed to lower volume.
It is worth pointing out that the end of day rally that we saw
in the tech stocks today, didn't have FLEX's name on it.  In
fact FLEX headed lower.  This shouldn't be of great concern 
as investors may be protecting profits ahead of tomorrow's 
economic report.  It does necessitate caution however.  Protect 
Wednesday's gains with stops.  Our support sits at $61 so any
drop would give us a ways to fall.  FLEX should participate
well on any good news tomorrow but be patient and confirm
a positive direction in both stock and market before playing.

VRSN $110.63 -0.25 (+1.38)  On Wednesday, VRSN managed to 
set another 52-week high (for the second consecutive day!) 
before the battering took place on the Nasdaq.  VRSN spiked 
early morning hitting $117.25 to set the newest record 
providing a tidy little profit if you took your money and 
ran.  Right now VRSN is just above its 10-dma (now at $108) 
an indicator that has previously acted a springboard. 
Besides this mark historically being a solid entry point, 
there's enough volatility during the stock's intraday 
trading to target shoot for perhaps even a lower entry 
price.  This momentum play continues to make headway from 
when it first broke out amidst the sector's recovery and if 
we get positive results from the PPI data tomorrow VRSN 
could easily reach higher highs.  Once again, be advised 
VRSN is a very VOLATILE AND HIGH RISK play.  Please watch 
your positions closely as stops can be very difficult to 
use due to this stock's wild intraday swings.  In the 
news, VeriSign and Xedia Corp, a leading provider of 
Internet access routers, have entered into an agreement to 
integrate their products/services to provide extended 
digital certificates for virtual private networks (VPNs).

LGTO $48.00 +0.00 (+2.87)  LGTO bucked the Nasdaq's 
negative pressure on Wednesday and hung onto $1.69 in 
gains.  This is a favorable sign as LGTO renews it upward 
momentum from its consolidation period last week.  While  
advancing 6.4% this week, the stock has consecutively set 
new 52-week highs during all three days of trading.  The 
newest record is at $49.25 which was hit during a spike at 
the open.  For the most part LGTO is a steady climber and 
trades in a fairly close range of $2-4 dollars intraday, so 
your goal would be to get in on a daily bottom.  Still firm 
support is at $42 but its 10-dma is now at $44.  Keep in 
mind that these reference points are excellent gauges and 
if you see the stock reversing to these levels put up the 
red flags.

MU $75.63 +0.13 (-4.50)  MU slipped $4.13 on Wednesday 
after announcing that the price increase in its DRAM 
components will unfortunately not affect its 4Q earnings, 
but instead be carried over to the following quarter's 
earnings.  Couple this with a negative market sentiment 
following hints from the Fed Governor of US wage pressures 
and likely profit-taking and you have potent ingredients 
for a sell-off.  Recall MU just broke its 52-week high of 
$80.56 (set back in February) and pushed through this long-
time opposition on Tuesday.  Plus, just before the sell-off 
began on Wednesday the stock peaked at $82.50 to hit yet 
another new record.  Volume hit an exceptional level of 
double its ADV at over 11.89 mln shares exchanging hands.  
Still there was lots of good news for Micron on Wednesday.  
Crucial Technology, a division of Micron Technology, and 
Compaq Computers (CPQ) entered into an agreement.  Crucial 
Technology will supply the memory systems for Compaq's 
Presario 5300 series.   And importantly MU received 
reiterations from 3 different analysts.  Paine Webber 
restated a Buy rating and issued a $105 target price.  
Their analyst, John Lazlo, also raised fiscal estimates for 
the years 2000 and 2001.  ABN Amro came forward too and 
reiterated a Buy rating and raised its price target to $100 
from $90.  Then the bull, Merrill Lynch, reiterated its 
near-term Buy rating for MU.  Again today, volume remained 
strong while investors continued to rake in profits on the 
stock.  MU held up well managing to close up a fraction.  
This present level is evolving as September's bottom 
support for the stock.  But you should consider playing 
conservatively and waiting until the data from the PPI data 
hits the press before opening any new positions.  This is a 
good entry point, but MU is now perched right on its 10-dma 
and it'd be better to see it bounce off this mark first.

SUNW $84.19 -1.25 (-0.31) The tone in the broader markets is 
still mixed.  The bears came back from lunch yesterday flexing 
their muscles.  After making a new high at $88.00 shares of SUNW 
began to slide.  This appears to be nothing more than profit-
taking for the chip maker since beginning its run back on August
10th in the $65.00 area.  That's an increase of just under 34% 
in 30 days.  Yesterday SUNW ushered in its "SunRay" a desktop
computer unit designed to encourage companies to abandon 
traditional PC's.  Corporate computer buyers and several analysts
were hesitant about the potential success for the new bare-bones
machine from SUNW.  Sun Ray apparently never needs a software
upgrade and is far simpler than conventional desktop computers.
Time will tell on this one.  This morning Merrill Lynch released
a report describing its "top ten tech" investments.  SUNW made 
the list with Merrill describing it as "on the verge of becoming 
a franchise stock given its focus on Internet computing.  Stocks
included on the brokers list are considered "safe" ways to play
the Internet.  Bear, Stearns & Co analyst Andrew J. Neff 
reiterated his Buy rating for SUNW today as well.  We do expect 
shares of SUNW to get back on track.  There may be more profit-
taking ahead however.  Much depends on the PPI numbers that 
come out in the morning.  If you are still in a play on SUNW, 
move your stops up tight. Before entering a new play confirm 
tomorrow's PPI numbers and the direction of the broader markets 
as well as that of SUNW.

DISH $88.06 +0.31 (+2.19) DISH is a perfect example of Jim's 
"sell to soon" advice.  DISH kind of spiked in the opening hour 
Tuesday.  If you follow Jim's first hour rule we had an 
opportunity to buy calls for the balance of the day in the 
$88-$89 area.  Wednesday morning saw another spike up to $96.38 
in the first hour again.  Depending on your entry point, a 
$6-$8 move in one day isn't bad.  DISH has now fallen back to 
an intraday support level and we will let the market dictate 
our next move.  We are not suggesting that everyone play the 
markets this way as many people do want to nor have the ability 
to be in front of a quote screen all day.  We are simply trying 
to show that if you entered a play in DISH on Tuesday, the 
market gave you an opportunity to "sell to soon".  If you 
didn't take the money off the table, we are now at crossroads.
The fact that DISH closed near the low of the day Wednesday 
does not bode well near-term.  There was almost no follow 
through selling today which does help our cause somewhat.  Now 
we must wait for the PPI numbers in the morning.  If we get a 
positive move in the broader markets DISH will probably join 
in.  If it is negative get your stops in place.  In the news, 
the launch of the EchoStar V satellite scheduled for tomorrow, 
will now be Monday(weather-permitting) as adverse weather has 
delayed the final check-out tests.

ADI $56.00 +0.88  ADI had another convincing day, despite 
the markets dizzying performance.  Its obvious ADI has the 
confidence of investors to perform in a mixed of market 
volatility.  The stock was up most of the trading session, 
and did finish up $0.88 to close at $56.00.  From a technical 
stand point, today was another stellar performance for ADI  
as it's still closing well above its 10-dma   As a matter of 
fact, it seemed to be a positive day for most of the 
semiconductor industry.  Leaders such as Intel, Applied 
Materials and Motorola all made gains today, despite the fact 
that the looming PPI could place a shadow of interest rate 
uncertainty over the financial world.  There was no impacting 
news developments today concerning ADI.  The only articles 
published today was the reiteration of the new RF (Radio 
Frequency) business unit it is forming to meet growing demand 
for analog RF ICs (integrated circuits).  

SFE $70.25 +1.19 (+2.38) We made it through this week's Greenspan
and company speeches.  Now we are facing tomorrow's release of
the PPI numbers at 6:30am.  We are still looking for SFE to move
higher.  Since being added to our pick list Tuesday, SFE has 
really gone sideways.  Unfortunately we have been stuck in a 
market that gets news, makes a move and then sits, afraid of 
what Mr. Greenspan might think.  If he doesn't make a comment, 
then we just wait for next report and do it all over again.  
What we are trying to say is it makes for a tough market to 
trade at times.  So we must have patience.  If you entered 
yesterday or today, keep your stops close.  If not, wait for 
the release of the PPI numbers to see how the broader markets 
(and yes the FED, we can't forget them) interpret the data.  
Today DocuCorp, which is one of Safeguard Scientifics holdings 
announced a 42% increase in net income for fiscal year 1999, 
which ended July 31st.  In March Safeguard purchased Xerox 
Corporation's 9% ownership interest in DocuCorp giving SFE an
18% stake in DocuCorp.

SFA $54.25 +0.69 (+0.81) One step back two steps forward, 
this is the trend for SFA the past week.  Yesterday, along 
with the rest of the interest rate jittered investors, SFA 
gave up ground due to words spoken by Fed. Governor Meyer.  
He stated that wage pressures may be building therefore 
indicating inflation may be on the horizon.  Investors took 
this as a negative sign and reacted accordingly by once again 
converging on the sidelines.  A slight down turn in SFA was 
expected considering the stock set a 52-week high on Monday.  
With the technology issues making a late rally to close the 
day, going into tomorrow SFA is poised to make another run.  
However, the latest PPI numbers will be released tomorrow 
morning and may influence our play.  Expect another volatile 
day of trading and place orders accordingly.    

TXN $89.13 +0.25 (+1.19) If you like roller coasters, you 
would like this week's trading on the markets, up and down, up 
and down.  The markets are reacting to any individual comments 
that may influence it, whether it is from individual analysts 
or a fed governor.  Unfortunately, these individuals are taking 
TXN on the same roller coaster.  The stock has fallen off its 
highs and like many of its counterparts is in stall mode.  This 
stall however may be short-lived seeing that an important economic 
indicator will be released tomorrow.  Considering investors' 
edginess, look for a broad market movement one way or the other 
once the numbers are released.  Expect TXN to follow the broader 
markets, hopefully to the upside.  As a side note, there was 
good news released on TXN yesterday.  PaineWebber said it is 
raising its price target on TXN to $110 per share from $85.  
This news should give the stock a boost once current interest 
rate fears subside.  For tomorrow, confirm market direction 
before entering new trades, it should be a nice volatile day 
to end the week.

ERTS $75.19 +2.56 (+0.44) ERTS does it again - another new high.  
ERTS is ramping up production and introducing new interactive 
electronic games at a record pace.  Yesterday they announced the 
acquisition of Playnation, an online entertainment developer, 
which should further enhance the growing revenue stream.  
Following 2 days of losses, ERTS more than made up for it in 
today's trading.  Barring any ill-received PPI news (which at 
this point, isn't a big stretch), ERTS's volume should continue 
to confirm money managers' increased buying interest.  95% of 
ERTS is already institutionally owned, making large blocks 
extremely hard to come by, unless the new buyer is willing to 
pay up.  When volume dies, that will be the clue to exit the 
play.  All technical indicators are still very much in positive 
territory.  In the meantime, ERTS has touched its 10-dma (about 
$71 currently) on the downside only once in the last 30 days.  
You may want to set a stop at this level to protect your profits.  
If you still want to make the play, long-term support is way 
back at $67, where it's highly unlikely you'll get filled any 
time soon, barring catastrophe.  We think you'll be better 
served target shooting at $71 or buying a breakout over $76.50, 
market willing.

CSCO $69.94 +1.00 (-1.00) Technically still in the positive, CSCO 
gave us a buyable dip yesterday and today, as it swooped down to 
$68.63 before bouncing back north.  This looks like good support 
to us.  Helping CSCO out today was a Merrill Lynch news release 
stating that CSCO was one of their top 10 "tech list" picks, 
wherein they cited that CSCO would continue to benefit from the 
rapid growth of Internet infrastructure.  It happened that the 
news also coincided with another announcement that CSCO signed a 
strategic development agreement with Cable and Wireless to 
develop advanced communications services in Hong Kong.  Even so, 
CSCO has sputtered this week following last Friday's breakout to 
a new high.  Support appears regularly at its 10-dma (currently 
$68).  Market willing (by that, we mean cheerful reception of 
tomorrow's PPI figures), we think it's buyable at this level 
still, or if you are a bit more conservative, wait for a breakout 
over $72.  Volume has been a bit weak over the last 2 days, 
indicating that money is remaining on the sidelines.  When you 
see a return of volume over 17 mln shares per day and a rising 
price, it's probably safer to get back in.  "Don't fire 'til you 
see the whites of their eyes".

JDSU $110.44 +0.44 (-2.81) Considering JDSU did a dog and pony 
show at a presentation for analysts in New York City yesterday 
that J.J. Cramer reports as standing room only (SRO), our best 
guess is that JDSU failed to inspire the buyers, as indicated by 
lack of volume.  Let us take a moment to offer some country boy 
wisdom.  Have you ever seen a dog (no matter what the size) fight 
with a raccoon?  The raccoon always wins, especially if the 
tussle occurs near water.  That's because the raccoon tires the 
dog out by drawing the fight into deeper water, then sits on the 
dog's head until it gives up or drowns.  It seems to us that the 
market has taken JDSU to deep water and is now content to sit on 
its head.  It's having a hard time getting back over $114, 
especially without volume to back it up.  Though JDSU found 
support today at about $107, it may still have further to 
correct, perhaps to $103 or even lower if tomorrow's PPI figures 
aren't viewed favorably by the Street.  This is a volatile play 
to begin with and you don't want to try to catch the falling 
knife.  Wait until you see a definite bounce backed with 
increasing volume before you enter the play.  Just so you know, 
Salomon Smith Barney reiterated their Buy rating with a $130 
price target.  After all, they hosted the analysts' meeting in 
which JDSU performed their presentation yesterday.

CNXT $79.72 +2.91 (+3.34) Though yesterday looked a little bleak, 
CNXT drove to the hoop today to score another one on the "all 
time closing high" meter.  While this looks really great on the 
chart, today's volume indicates that seller's just didn't come to 
the party, which will scare a few technicians.  Frankly, we view 
it as a positive vote by investors that they have no desire to 
sell at this level, which may have helped CNXT close near its 
high of the day.  In the news, Globespan, a CNXT rival, may be 
doing a bit more business with Lucent, which could hurt CNXT in 
the short run but appears to have had no effect on traders' 
psychology.  A note of good news too, Sega will begin shipment 
of its 128-bit Dreamcast Web gaming machine equipped with CNXT 
technology, which should be a strong seller this Christmas.  
Anyway, over the last 30 days, support has been strong at the 
(gulp!) 7-dma, currently about $76.  We think dips to that level 
are buyable.  Just make sure the market has properly digested 
the PPI numbers tomorrow before starting a new play.  Price target 
is still $100

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

BGEN - Biogen Inc $89.19 +3.31 (+4.38 for the week)

Biogen is a biopharmaceutical company that researches, develops, 
manufactures, and markets drugs for human health care.  They 
develop and test drugs for multiple sclerosis, pulmonary diseases, 
kidney diseases and disorders, inflammatory afflictions and 
cardiovascular dysfunction as well as focusing on developmental 
biology and gene therapy.  However, Biogen derives about 55% 
of its revenues from the sale of AVONEX, a drug used to treat 
different forms of relapsing multiple sclerosis.  They also make 
money from royalties received on worldwide sales by licensees.  
Biogen also has research alliances with global pharmaceutical 
firms such as Creative BioMolecules, CV Therapeutics and Merck.

This new call play has quite a lot going for it.  First, it's 
evident from looking at a 10-day chart that BGEN first broke 
out during the powerful market rally last Friday.  It left its 
firm support level of $77 and $79 and has consecutively 
stretched itself into new territory by the day.  Today the 
52-week high record stands at $89.25 and was attained by 
bullishly climbing straight up from the open.  Second, this 
sector is hot and continuously gaining the respect of investors 
on the Street.  Now with earnings just around the corner 
expected on October 4th (this date will of course be confirmed 
ASAP), BGEN is gaining momentum.  Plus here's another tidbit 
that may play into this scenario.  BGEN is actually at a price 
level where it can be considered a split candidate.  Granted 
the stock just split 2:1 on June 25th and with 220 mln shares 
authorized and only 150 mln shares outstanding there's not 
quite enough for another one but nevertheless it became a 
possibility when BGEN reached $80.  The last Annual Stockholder's 
Meeting was on June 11th and thus far, there's no word on a 
Special Meeting but we'll keep you posted on any new developments.   
If the stock pulls back to $85 (which could evolve as new 
support), this would be a solid entry point, if not you'll need 
to look for an intraday bottom to get in on this earnings run.

In the news today, Dain Rauscher Wessels started coverage 
for BGEN with a new Buy rating and issued a 12-month target 
price of $112.

***CAUTION: September options expire next week***

***NOTE:  At this time there are no strikes above 90***

BUY CALL SEP-85 BGQ-IQ OI=287 at $5.13 SL=3.50
BUY CALL SEP-90 BGV-IR OI= 95 at $2.00 SL=1.00
BUY CALL OCT-85*BGQ-JQ OI=347 at $7.63 SL=6.00
BUY CALL OCT-90 BGV-JR OI=137 at $4.75 SL=3.00

Picked on Sep 9th at     $89.19    P/E = 64
Change since picked       +0.00    52 week high=$89.25
Analysts Ratings     9-12-5-0-0    52 week low =$25.18
Last earnings 06/99   est=-0.32    actual= 0.34 surprise +6.25%
Next earnings 10-04   est= 0.36    versus=-0.25
Average Daily Volume = 1.89 mln
Chart = http://quote.yahoo.com/q?s=BGEN&d=3m


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

KO $55.38 +0.13 (-2.00) Coca-Cola has yet to break through its 
support at its 52-week low but is still sitting on the bubble.  
KO failed to sustain much of a rally on Wednesday and has 
continued to look weak.  On Wednesday morning gains evaporated 
by the end of the day and any upward price movement was met by 
obvious selling pressure.  KO managed to close up a small 
fraction today, riding the wave of a late-day rally.  That move 
is more easily attributed to a lack of sellers in the market 
than to strength in the stock.  Little news has trickled over 
the wires about Coke in the last couple of days, and nothing 
fundamentally changed, so continue to look for further downward 
pressure. 

JCP $35.75 -0.44 (-0.56) After a fractional recovery yesterday, 
JCP turned its tail and once again headed to lower ground.  It 
has been a tough week for the retailer, which only had negative 
news to report.  First, the stock was downgraded by Prudential 
from accumulate to hold.  Second, Banc of America cut J.C. 
Penney's fiscal year 1999 earnings per share estimates to 
$2.39 from $2.65.  Despite the bad news, the stock has managed 
to maintain its support at $35 and became a nuisance for our 
play.  The final push to break through this support may be 
provided by tomorrows PPI numbers that will be released before 
market open.  With investors worried about interest rates, 
higher than expected PPI numbers will come across negatively, 
hopefully sending the markets and our play lower.  No matter 
what the outcome, be prepared for a volatile day to end the 
week so make use of the recommended stop loss orders.          

HRB $46.94 +1.00 (+0.50) Hard times require drastic measures, 
which is the process that HRB is undergoing.  Recently the 
company announced it would be buying Olde discount broker 
which has worried both analysts and investors.  With such a 
large acquisition, questions have risen how this will alter 
H&R Block's current operations.  To help the situation, the 
company announced yesterday that Mark Ernst was being 
appointed as president and chief operating officer.  Ernst 
has been a key driver in directing and implementing strategic 
initiatives in the past.  Whether this news is enough to help 
the depressed stock remains in question.  The stock is down 
over $13 since its high back on August 24 but managed to 
consolidate around the $46-$47 price range the last few 
sessions.  See if we can break this support with a little help 
from the broader markets.  Tomorrow the PPI numbers will be 
released, if the results are negative look for many stocks 
to move lower including HRB.  

ONE $38.75 -0.06 (-0.66)ONE had another negative day of trading 
on Thursday after further softness in the banking sector was
indicated by Chase Manhatten (CMB).  Rumors on the street
suggested that Q3 earnings for Chase Manhatten (the nations 
number 2 bank) might be softer than expected.  Chase's stock 
dropped $4.13 points today to finish at $77.63 on heavy trading.  
Stephen Biggar, an analyst at S&P Equity Group, stated "There 
has been some concern about revenue growth for all banks in the 
third quarter, after the Bank One Corp announcement."  ONE stock 
sank another $0.06 to finally close at $38.75 on moderate trading.  
If the Chase rumors was not enough, the 30-year bond was on the 
rise again after Japan's GDP was stronger than expected and 
expanded by 0.9 percent.  A favorable environment for increasing 
interest rates is not bullish for companies with credit card 
divisions such as ONE.  Currently, this still looks to be a 
potentially profitable put play but choose your entry points 
carefully and use stops.


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

CVS - Cvs Corporation $37.75 -1.13 (-2.75 for the wk)

CVS is a drugstore chain specializing in prescription drugs, 
over-the-counter drugs, photofinishing services and film, 
greeting cards, beauty & cosmetics, convenience foods and 
seasonal merchandise.  It operates about 4,200 drugstores in 
24 states in the eastern US. Thanks to its acquisitions of 
Revco and Arbor Drugs, CVS is the #2 drugstore chain in the 
US in total sales and #1 in store count and prescriptions 
filled.  Nearly 60% of sales come from pharmacies.  CVS's 
purchase of online pharmacy Soma has expanded its market 
reach to the Internet. 

If you are looking for a play with a consistent trend, CVS 
is definitely worth a look.  For the last month CVS has been 
losing ground while undergoing an increase in volume.  This 
is not a good sign, indicating that investors are leaving in 
droves.  The stock is down over $12, or 25%, since the onslaught 
began back in late July.  Hurting the stock during this time 
period was two different downgrades.  The first was on August 4, 
Merrill Lynch downgraded the stock form Strong Buy to Buy.  The 
second shot came on August 13 when Josephtal and Lyon downgraded 
CVS from Buy to Accumulate.  This started the ball rolling and 
momentum has kept it going, ending today with a new 52-week low.  
The stock is trading well below its 50-dma and 200-dma 
demonstrating its technical weakness.  We expect this weakness 
to continue and see the potential for lower lows, therefore we 
decided to add CVS as a put play.  Even though bearish indicators 
are predominate, use caution with this play.  Any stock that 
falls this far, this fast has the potential to turn.  Choose 
your entry points carefully and place the recommended stops 
for protection. 

***CAUTION: September options expire next week***    

BUY PUTS SEP-40 CVS-UH OI= 55 at $0.69 SL=0.00
BUY PUTS SEP-45*CVS-UI OI=321 at $7.38 SL=5.50
BUY PUTS OCT-40 CVS-VH OI= 94 at $3.75 SL=2.00

Average daily volume = 2.30 mln
Chart = http://quote.yahoo.com/q?s=CVS&d=3m 


**********

Puts are continued in section three

Play of the Day, Combos, Straddles are
in section three


**********

SEE DISCLAIMER IN SECTION ONE

**********


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


************
New Puts - continued
************

GPS - The Gap Inc $35.44 -0.69 (-3.44 this wk)

The Gap Inc is a international clothing retailer that operates 
almost 2,600 clothing stores in the United States, Canada, 
France, Germany, Japan, and the UK.  Its stores offer a 
tremendous variety of men's and women's casual clothing.  The 
clothing sold at The Gap consist of T-shirts, jeans, and khakis 
pants.  The company's owns other retail chains including Banana 
Republic, Old Navy Clothing Co, and GapKids.  For the first 13 
weeks ending in May 1, 1999, net sales increased 32% to $2.28 bln 
and net income increased 49% to more than $202 mln.

GPS is one of the worst performing stocks of the week and 
that's good enough to qualify it for our recommended put list.  
The Gap is off 9.26% since last week making it one of the worst 
retail performers.  In fact, the entire sector has declined 
4.26% since last week.  GPS is a key component of the S&P Retail 
index but the stock did not contribute to the anemic 3.42 gain 
the index had on Thursday.  GPS was down $0.69 yesterday and 
finally ended the trading session at $35.44.  Volume was heavy 
with more than 3.66 mln shares changing hands.  This is in 
comparison to a three month daily average of 3.66 mln shares.  
From a technical view, the stock has been meeting significant 
resistance at its 10-dma of $38 and has been loosing ground in 
its price since last Friday.  Currently, there does not appear 
to be any direct news or developments to have any significant 
bullish impact on the stock.  So it's time to ride the momentum 
wave.  We suggest that you hold off on any plays during amateur 
hour tomorrow as traders will be sorting out the PPI numbers.  
You will also want to hold off if the numbers are favorable 
and cause a rally.  But if GPS doesn't participate, then it 
is time to find an entry point to ride the wave.

***CAUTION: September options expire next week***

BUY PUT SEP-35 GPS-UG OI=1116 at $1.06 SL=2.00 
BUY PUT SEP-40*GPS-UH OI=4499 at $4.75 SL=3.25 

Average daily volume = 2.09 mln 
Chart = http://quote.yahoo.com/q?s=GPS&d=3m 




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

CNXT - Conexant $79.72 +2.91 (+3.34)(+5.13)

Spun off as the electronic chip division of Rockwell Intl in 
December 1998, Conexant is a major manufacturer of 56K PC modem 
chips and is now the largest communications semiconductor 
manufacturer in world, with estimated 1999 revenues of $1.4 bln.  
With 56K modems reaching saturation, CNXT has expanded its 
product line to include chips for personal imaging (fax machines, 
office peripherals, video systems), wireless communications 
(cordless phones, global positioning system receivers), digital 
infotainment (cable modems, set-top boxes) and network access 
(corporate hubs and multiplexers).  Network access is another 
name for DSL and Wide area network transport.  Competitors are 
Broadcom, Texas Instruments and Intel.  Customers include Compaq 
and Ericsson.

Sunday's Write Up

What we have here is a great player in a hot sector.  As 
semiconductors, benefiting last week from favorable analyst 
comments, really lit up investors' radar screens.  CNXT has 
steadily marched up from $56 in early August.  While volume 
remained light last week, CNXT set a new record high of $76.50 
on Wednesday and fell just $0.13 short of that during Friday's 
close.  What we found particularly impressive was the $1 price 
gain in the final 30 minutes of Friday's trading, coupled with 
increased volume.  On the technical chart, MACD and momentum 
are both positive.  Support has been strong in the $72 range.  
Fundamentally, each of CNXT's 4 divisions is growing revenues at 
least 35% per year.  Internet trafficking semiconductors (WAN 
products) and DSL chips grew 75% from the previous quarter (!), 
thanks to a brisk business with local exchange carriers eager to 
implement DSL for their customers.  Look for that to continue.  
Profitability has caused Morgan Stanley Dean Witter to raise 
their 1999 estimates from $0.45 to $0.58 per share.  We expect 
trading volume to pick up with the return of money managers and 
traders from the Labor Day weekend, adding to the sector's 
momentum.  Now, it's on a hot streak so the only caution we can 
offer is to be on the lookout for profit taking.  RSI is looking 
slightly tired, indicating CNXT may need a day or 2 of rest.  
Other than that, confirm market direction before jumping in

Banc of America Securities earlier this week began coverage 
with a strong buy rating and a new price target of $100.  There 
isn't any other news that will move the price.

Tuesday's Write Up

Another new high for the record book! Apparently, CNXT didn't 
need a rest today and escaped the slight NASDAQ profit-taking. 
Volume was average at 1.5 mln shares. Pushing the envelope, 
CNXT traded as high as $80.06 (which will now serve as 
resistance) and as low as $75.94, before settling midway between 
the two. There is no news to move CNXT, just good old-fashioned 
momentum. Though, we don't like to reach for an average this 
low for support, we can find it at its 7-dma of $75. We don't 
know how long that will last before it's violated but it's 
working for now. If there is a violation, support occurs again 
around $72, a definite target if you want to shoot for it. 
While you may get filled there if the market gets Greenspooked 
this week, consider it a gift. We don't think it will remain 
there for long in light of last week's new price target of 
$100. Be on the lookout for profit-taking if you're already 
in the play and confirm market direction before making a new 
entry. 

Thursday's Write Up

Though yesterday looked a little bleak, CNXT drove to the hoop 
today to score another one on the "all time closing high" meter.  
While this looks really great on the chart, today's volume 
indicates that seller's just didn't come to the party, which 
will scare a few technicians.  Frankly, we view it as a positive 
vote by investors that they have no desire to sell at this 
level, which may have helped CNXT close near its high of the 
day.  In the news, Globespan, a CNXT rival, may be doing a bit 
more business with Lucent, which could hurt CNXT in the short 
run but appears to have had no effect on traders' psychology.  
A note of good news too, Sega will begin shipment of its 128-bit 
Dreamcast Web gaming machine equipped with CNXT technology, 
which should be a strong seller this Christmas.  Anyway, over 
the last 30 days, support has been strong at the (gulp!) 7-dma, 
currently about $76.  We think dips to that level are buyable.  
Just make sure the market has properly digested the PPI numbers 
tomorrow before starting a new play.  Price target is still $100

***2 weeks until September strike expiration***

BUY CALL SEP-70 QXN-IN OI=936 at $10.25 SL=7.50
BUY CALL SEP-75*QXN-IO OI=554 at $ 6.13 SL=4.25
BUY CALL SEP-80 QXN-IP OI=777 at $ 3.00 SL=1.50
BUY CALL OCT-75 QXN-JO OI=158 at $ 9.63 SL=7.50
BUY CALL OCT-80 QXN-JP OI=308 at $ 6.50 SL=4.75

Picked on Sep 5th at     $76.38    P/E = N/A
Change since picked       +3.68    52 week high=$80.06
Analysts Ratings      5-6-0-0-0    52 week low =$13.00
Last earnings 08/99   est= 0.17    actual= 0.24 surprise +41.2%
Next earnings 10-20   est= 0.26    versus= N/A
Average daily volume = 1.55 mln 
Chart = http://quote.yahoo.com/q?s=CNXT&d=3m


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

Straddle Update for September 9, 1999 – Its looks as if we 
survived the 9999 day, without so much as a scratch.  
Personally I was hoping MTV would crash, giving us one less 
crappy cable channel in a sea of dozens.  So what has 
Thursday left us with?  How about one "double your money" 
straddle, and quite a few more that are looking really good 
in our group of open positions.  Let's take a look at our 
open positions, as well as positions that have hit our 
exit targets.  Finally, I also have a bit of bad news to 
tell you at the end of this update.  

Straddle Holds

HON,Honeywell 
HONJD,HON Oct 120 Call ,4.875,5.25,4.875
HONVD,HON Oct 120 Put ,4,4.375,4.5

AVY,Avery Dennison Corp
AVYJL,AVY Oct 60 Call ,1.0625,1.3125,1.25
AVYVL,AVY Oct 60 Put ,4.5,4.875,4.75

MMM,Minnesota Min'G/Mfg
MMMJS,MMM Oct 95 Call ,5.125,5.625,5.375
MMMVS,MMM Oct 95 Put ,1.5625,1.8125,1.625

GCI,Gannett Co
GCIJN,GCI Oct 70 Call ,2.375,2.75,2.375
GCIVN,GCI Oct 70 Put ,2.375,2.75,2

BPA,BP Amoco ADS
BPAJD,BPA Oct 120 Call ,2.5625,2.8125,2.75
BPAVD,BPA Oct 120 Put ,6.625,7,10

ARC,Atlantic Richfield
ARCJS,ARC Oct 95 Call ,2,2.375,1.75
ARCVS,ARC Oct 95 Put ,5.375,5.875,6.5

BAX,Baxter International
BAXJN,BAX Oct 70 Call ,1.1875,1.4375,1.25
BAXVN,BAX Oct 70 Put ,3.75,4.125,

UAL,UAL Corp
UALJM,UAL Oct 65 Call ,3.75,4.125,2.25
UALVM,UAL Oct 65 Put ,2.5,2.75,4.375

The eight options strategies above are exits IF one of the 
following criteria have been met.  1- We are 30 days to 
expiration, in which I would exit on the 3rd Friday of 
September in this case.  2- I get a 50% gain on the entire 
straddle.  

MOB,Mobil Corp
MOBKA,MOB Nov 105 Call ,4.875,5.25,6
MOBWA,MOB Nov 105 Put ,3.375,3.75,3.375

SEBL,Siebel Systems
SGQKO,SEBL Nov 75 Call ,7.625,8,6.875
SGQWO,SEBL Nov 75 Put ,7.375,7.75,8.75

AES,AES Corp
AESKL,AES Nov 60 Call ,7.375,7.75,7.375
AESWL,AES Nov 60 Put ,2.125,2.375,2.3125

ETH,Ethan Allen Interiors
ETHKF,ETH Nov 30 Call ,1.5625,1.8125,1.9375
ETHWF,ETH Nov 30 Put ,2.375,2.75,2.375

UTR,Unitrode Corp
UTRKI,UTR Nov 45 Call ,2.875,3.25,3.625
UTRWI,UTR Nov 45 Put ,3.125,3.5,

The five options strategies above are exits IF one of the 
following criteria have been met.  1- We are 30 days to 
expiration, in which I would exit on the 3rd Friday of October.  
2- Same as above, if I get a 50% gain on the entire straddle.  
Remember that October accounts for some of the highest options 
premiums too!

DOW,Dow Chemical
DOWLF,DOW Dec 130 Call ,1.9375,2.1875,2
DOWXF,DOW Dec 130 Put ,16.75,17.5,11.25

CHV,Chevron Corp
CHVLS,CHV Dec 95 Call ,7.125,7.5,7.5
CHVXS,CHV Dec 95 Put ,4.125,4.5,4.125

Looking at these two options strategies, I would exit on the 
3rd Friday of November or if I get a 50% gain on the entire 
straddle.  On any of these exit strategies, you are out before 
time decay sets in too much.





Straddle Exits

MYG,Maytag Corp
MYGJN,MYG Oct 70 Call ,0,0.1875,0.8125
MYGVN,MYG Oct 70 Put ,13.5,13.875,9.125

Well, I cannot do better than Maytag when looking for an exit.  
During the day today, this $7 straddle hit a high of just over 
$16!  Maytag rallied to the close, but still had puts worth 
13.5 – 14.  Here is an Email that I received today from a 
subscriber that puts the icing on the cake for this trade.  
Henry writes:  "Dear Tom: I pulled the trigger on the myg 
straddle just now for a $2,000 profit held for exactly one 
month! I was in @ 7 1/8 and out at 9 1/4.  25% profit for 
the month! Thank you, thank you!"   Pat yourself on the back 
Henry.  All the planning in the world does no good if one 
doesn't act on his or her plans.  You did it, buddy!  

What makes me exit this position today?  Look at two things.  
First, we had a volume spike on MYG.  Volume today was over 
4 million shares when average volume is less than 1 million.  
Also look at the rally during the latter part of the trading 
day.  This suggests that the low is in.  I have one more bit 
of educational advice to straddle traders.  Just because I enter 
the order as a spread order, doesn't mean I have to exit the 
entire straddle as one order too.  Look at the calls today.  
They are 0 bid at .18 offer.  Who in the world would want to 
exit that?  Not me... I will save my commissions and just exit 
the puts.  Also, I am holding those free calls as a lottery 
ticket.  Hey, you never know, right?



FINAL COMMENTS

Yep, you heard it right, this will be my final straddle segment 
for a while.  I will still be adding articles in the Traders 
Corner section, so click there from time to time for the latest 
information.  While there are many details that I save for the 
OptionInvestor / Optionetics Seminar Series, remember the three 
basics.  They are as follows: Look for consolidating markets.  
Consolidating markets act as springboards to new highs and lows.  
Look for cheap options prices.  There is nothing I hate more 
than to pay too much for options.  The other thing I like to 
look for is impending news announcements.  This generally ignites 
the stock in one direction or another.  These three criteria 
will definitely help you increase profits, while limiting risk 
on straddle positions.

As some of you may know, I have a new addition coming to the 
family very, very soon.  With trading, research, and publishing 
on my plate, I am a busy man.  I have made a family decision to 
take some time off in a few areas of my schedule to make more time 
for Mom.  If I don't, then I will look worse than an out-of-the-
money option expiring worthless.  I hope that over the past two 
months I have educated the OI group to how I trade.  If you would 
like to learn more on Straddle trading, as well as many other 
great option techniques, then join us this fall for another round 
of OptionInvestor / Optionetics Seminars.  We will be adding new 
shorter-term segments this fall including trading earnings reports, 
stock splits, and momentum stock plays.  These techniques will be 
straight from Jim's treasure chest.  For more information, go to 
the OptionInvestor Website.  Once again, thank you for your time 
in reading my trading autobiography, and I hope to see you soon 
in an upcoming seminar.  

Tom Gentile
Chief Options Strategist

(Editors Note: Although we will miss Tom, we do understand the 
problems with over commitment. Family comes first in our book. 
Tom will continue to write Traders Corner and educational 
articles as time permits. Ray Cummins will pick up the straddle 
slack at OIN and start listing straddles as a regular feature in
the Combo section starting Sunday.   Jim) 






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

Tech Stocks And Oil Shares Lead The Way..

Stocks closed higher on Thursday with the technology sector up
after an Internet sector upgrade and a rise in chip prices.

Wednesday, September 8th

The markets were mixed Wednesday and most investors remained on
the sidelines ahead of the release of producer price data due
this Friday. The Dow rose slightly, up 2 points to 11,036, on
subdued volume of 779 million shares traded. The Nasdaq index
fell 28 points to 2808 while the S&P 500 stock index declined
6 points to 1344. Declines led advances 1,758 to 1,169 and the
long Treasury bond rose 3/32, lowering the yield to 6.07%.

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

Biogen        BGEN  LJAN90C/SEP90C   $16.12  debit  LEAPS'CC's 
Computer As.  CA    LJAN60C/SEP55C   $9.12   debit  LEAPS'CC's 
Motorola      MOT   LJAN105/SEP105C  $17.50  debit  LEAPS'CC's

All three stocks fell at the open but Motorola was significantly
lower; down $1.75 to the $98 range. Our target entry was quickly
adjusted to fit the new price and we opened the position at a
lower debit than originally expected. Computer Associates was
also lower in the first few minutes but started to rebound near
9:50 AM. About ten minutes later, the stock price sagged and the
quote for the aggressive LEAP/CC play (our personal choice) was
observed at $9.25. The original target may have been available
but we will record the opening slightly higher at $9.12. Biogen
was our last candidate and luckily, the opening quotes on the
long side (LEAP) were lower than our previous day's data. Near
10:00 AM, the stock price dropped $0.50 and a new target of
$16.12 should have been easily achieved.

Portfolio plays:

Another selective day in the market as investors boosted premium
issues while ignoring less-attractive ones. One of our positions
that is benefitting from this neglect is Cisco (CSCO). The stock
has consolidated near $68-$69, allowing us time to decide on the
next move; up or down. If we decide to remain in each position,
we will probably protect the downside. Solectron (SLR) is also in
a sideways trend and our suggestion is to take an early exit on
the diagonal position for $3.88 profit. The one stock that we
would like to see lower had a nice recovery today. J.P. Morgan
(JPM) moved back up to the $130 range but appeared to falter at
that point. This weakening issue should remain below our sold
strike ($130) through next week.

Mid-cap issues and smaller stocks performed well and our leaders
in that group were USWeb (USWB), up 1.25 to $26 and now $4 ITM;
Microchip (MCHP), up $2 and nearing a recent high - and blue sky
territory; and Home Depot (HD), with a nice move to $65 - our
sold strike in the long-term calendar spread. Peoplesoft (PSFT)
had a sharp move higher, climbing $1.43 on takeover speculation.
We will watch this issue over the next few days for a roll-out
to October options. Luckily, yesterday's move on Mentor (MNTR)
"paid off" as the stock continued its bullish movement today on
heavy volume. The long option was sold today for $3.75, a profit
of almost $2.
 
Oils had a solid rally and most the drilling & service companies
were higher. Chevron (CHV) and Exxon (XON), two larger issues,
also participated in the upward movement. Our bullish spread on
Chevron is comfortably ITM and should expire at maximum profit.
One of our smaller oil issues that appears to be making a move
is Occidental (OXY), up almost a $1 and near previous technical
resistance. We will watch this one closely over the next few
days and plan to protect the upside with a buy-to-close STOP on
the sold option. The current ASK (on the SEP-22.50C) is $0.87,
so a debit price near $1.25 would be a good place to start.

Thursday, September 9

Stocks closed higher on Thursday with the technology sector up
after an Internet sector upgrade and a rise in chip prices. Crude
prices also soared on reports of decreasing inventories, giving a
boost to shares of major oil companies. The Dow Jones industrial
average rose 43 points to close at 11,079. The Nasdaq composite
index also rose 43 points to 2852. The S&P 500 stock index rose
slightly to 1347. The long Treasury bond fell 13/32, pushing the
yield higher to 6.10%.

Portfolio plays:

Another day of mixed activity and the spreads portfolio had some
big movers. Intuit (INTU), one of our "readers request" plays,
vaulted $8 to the $100 mark and took our bullish debit spread to
maximum profit. 3Com Corp. (COMS) hit a midday high near $28 on
renewed speculation of a merger with Lucent, Siemens or Nortel.
Our debit spread is comfortably ITM but now we have to protect
for further upside movement in the January calendar spread. The
short position is at $27.50; just below COMS closing price. The
speculation on Peoplesoft (PSFT) continued and expectations for
a surge in software sales by year-end helped boost the price to
a recent high near $18. We decided to start the monthly roll-out
of long-term positions with this one; the net credit was $0.75
to remain at the $17.50 strike for October. Another recent mover,
Polaroid (PRD) continued its bullish activity today. It was also
a candidate for adjustment (to October) and we decided to roll-up
on this play to the $30 strike. The technical history suggests
a new trading range is in order and downside support appears to
be near $27.

Biogen (BGEN), one of our new long-term positions rallied today,
up over $3 and just short of our sold strike at $90. This move
places it in uncharted territory again, so watch it closely. We
also had activity in two positions from yesterday. Both of our
short-term diagonal spreads on Cisco (CSCO) were closed for
favorable profits, taking the safe (early) exit; and the bullish
debit spread on UsWeb (USWB) was closed at maximum profit as the
stock rallied to $28. J.P. Morgan (JPM) finally relented, down
almost $4 to $125 at midday. The stock managed a close at $129,
but we still don't think it has the strength to surpass our
break-even price of $132.

Oils are once again on the move and almost all of our positions
were higher. Halliburton led the way with a $3 gain to $51. Our
bullish debit position is safely ITM and this is also a great
time to roll forward the calendar positions to October (high IV
and new interest in call options). If you had any doubt about
closing Baker Hughes (BHI), do it now for a $1.25 credit. Other
positions that participated in the rally were Chevron (CHV), up
$3.12 to a recent high near $98, Diamond Offshore (DO), Unocal
(UCL), Noble Drilling (NE) and Exxon (XON). We are planning to
use today's bullish move as an excellent opportunity to adjust
forward in our other long-term oil positions (UCL and XON).

Good Luck!

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


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

Unfortunately, I was required to serve the community today (in
Jury service) and I had little time to search for "new plays".
Here are some volatility (and speculation) candidates that rose
quickly to the top of my pricing and volume list. The Philip
Morris (long-term) position is relatively conservative based on
the recent technical history of the stock and the two Internet
plays should benefit from the sector rebound that is currently
underway.

*****

MO - Philip Morris  $38.68     *** On The Rebound? ***

Philip Morris is a holding company whose principal subsidiaries,
Philip Morris Inc., Philip Morris International, Kraft Foods, and
Miller Brewing Company, are engaged in the manufacture and sale
of various consumer products. MO is the largest cigarette company
in the US. Kraft Foods is the largest processor and marketer of
retail packaged foods in the US. Miller Brewing Company is the
second largest brewing company in the US. Philip Morris Capital
Corporation, engages in various financing & investment activities.

Tobacco issues have recently under-performed the market and MO
has participated in the thrashing ever since a lawsuit in November
against the tobacco industry ended in a $206 billion settlement.
Phillip Morris also lost two other major cases last year and most
investors were surprised at the size of the punitive damages that
were handed down in those cases.

The big news last week was a decision out of the Florida state
appeals court that essentially says that new cases will have to
be considered one by one; they won't be able to do a lump sum
punitive damage award. That is a big positive for the companies;
it makes it more difficult to get any kind of large settlement.

With the stock on a rebound, options players have been active in
recent months. One big investor recently took a post-class-action
ruling stand with a major trade in the long-term call options.
The AMEX options floor handled the trade, which totaled roughly
10,000 calls each in the 2000 January $37.50 strike price and the
2001 January $35 strike. We will use the new pricing disparities
from the recent interest to open a favorable long-term position.

PLAY (conservative - bullish/CC's with LEAPS):

BUY  CALL JAN01-35 ZMO-AG OI=10603 A=$7.70
SELL CALL OCT-40   MO-JH  OI=4351  B=$0.93
INITIAL NET DEBIT TARGET=$6.38 TARGET ROI=100% (18 months max)

- or -

PLAY (conservative - bullish/debit spread):

BUY  CALL OCT-32.50 MO-JZ OI=102  A=$6.25
SELL CALL OCT-37.50 MO-JU OI=2251 B=$2.06
INITIAL NET DEBIT TARGET=$4.00 ROI(max)=25% B/E=$36.50

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

*****

UNFY - Unify Corporation  $19.88  *** Internet Rally ***

Unify Corporation develops, markets & supports Unify VISION, an
advanced client/server application development environment for
development, deployment and management of high-end scalable
applications. It also enhances, markets & supports Unify ACCELL,
a family of fourth generation language application development
tools and Unify DataServer, a family of database management
system products.

Unify stock soared $3 Thursday after the electronic commerce
company said it's extending its partnership with Red Hat (RHAT)
by certifying two Internet programs for use with Red Hat's new
Linux operating system.

A spokesperson for the company said they were encouraged with
the increased interest for Unify products that run on the Linux
operating system. By leveraging their partnership with Red Hat,
they are able to offer customers complete and comprehensive
solutions on Linux for their Internet and e-commerce needs. In
May of this year, Unify and Red Hat announced a deal to develop
and market software for the Linux system.

Today's move was on trading of 14 million shares, more than 58
times its usual daily volume. That should be favorable for the
trend over the next few weeks. The option premiums are excellent
with extreme implied volatility/volume in the October positions.

PLAY (speculative - bullish/debit spread):

BUY  CALL OCT-12.50 OI=84 A=$7.75
SELL CALL OCT-17.50 OI=0  B=$3.62
INITIAL NET DEBIT TARGET=$3.88 ROI(max)=28%

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

*****

BNBN -  Barnesandnoble.com  $18.00   *** Internet Rally ***

Barnesandnoble.com is one of the world's largest Web sites and
e-commerce retailers. Focused largely on the sale of books and
related products, the company has capitalized on the recognized
brand value of the Barnes & Noble name to become one of the
fastest growing, online retailers of books.

Barnes & Noble just reported a solid second quarter, surpassing
analyst estimates. The main reason for the positive earnings
surprise was that sales in the company's superstores climbed 6%
while total sales increased 9% for the quarter.

The company recently completed its BookMaster product, which is
an in-store type of card catalogue. The BookMaster systems links
by computer all Barnes & Noble stores, as well as all the books
and inventory found at its online store, bn.com. This service
gives customers access to the same amount of titles as online
users. Barnesandnoble.com is also expected to open a new facility
next spring in Memphis which will enable them to reduce delivery
time.

The stock appears cheap to most analysts and the technicals for
this position reflect that BNBN has support near $16 and the next
up-leg is now beginning.

PLAY (aggressive - bullish/debit spread):

BUY  CALL OCT-15.00 BEU-JC OI=20 A=$3.50
SELL CALL OCT-17.50 BEU-JW OI=80 B=$1.68
INITIAL NET DEBIT TARGET=$1.62 ROI(max)=54% B/E=$16.62

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

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




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DISCLAIMER
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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 
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information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.


DISCLAIMER

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

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

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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