Option Investor

Daily Newsletter, Tuesday, 09/14/1999

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The Option Investor Newsletter         Tuesday  9-14-99
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)
        9-14-99          High     Low     Volume  Advances Decline
DOW    10910.33 -120.00 11028.74 10886.27  723,785k    844   2,147
Nasdaq  2868.29 + 23.52  2870.26  2837.93 1013,002k  1,696   2,217
S&P-100  704.80 -  3.96   708.76   701.43   Totals   2,540   4,364
S&P-500 1336.29 -  7.84  1344.13  1330.60            36.8%   63.2%
$RUT     438.24 -  1.41   439.70   436.82
$TRAN   3090.69 -  0.84  3099.11  3049.45
VIX       25.05 +  1.21    25.69    24.27
Put/Call Ratio      .67

Bigger than Hurricane Floyd...

People are running for cover.  They are boarding up windows and 
evacuating their homes.  These people are doing everything they 
can to avoid the monster that is approaching with terrifying 
ferocity.  Hurricane Floyd?  Not hardly, it is the American 
consumer, and those people are investors and traders everywhere.

Twice the size of the state of Florida, Hurricane Floyd has been 
flooding the airwaves before it floods our East coastline.  While 
150 MPH winds are intimidating... investors were more fearful of 
the August Retail Sales numbers this morning.  A 1.2% jump in 
retail sales for August pushed investor's buttons this morning.
That button said "sell".  The jump was nearly double what 
analysts had been expecting for the retail sales figure.  This 
was the largest move in six months.  While this may be good news 
for store owners, it alludes to an economy that may be out of 

Overheating may be the correct term.  Bond prices took a tumble 
this morning on word of the super strong retail number.  This 
drove the yield from 6.05% yesterday to 6.11% today.  Traders are 
concerned that a U.S. economy that is too strong will be enough 
reason for the Fed to raise rates again on October 5th.  The 
previous two interest rate hikes were enacted to cool this raging 
machine we have created in the U.S.  

It is not just numbers alone.  Fed bankers believe that the 
recipe of extremely strong consumer demand mixed with a very low 
unemployment rate will eventually produce sharper inflation.
Rising oil prices and a weakening dollar against the yen have not 
been helping the matter.  Yes, oil was down today.  It fell $0.35 
to back under $24/bbl.  But the dollar slipped again to under 106 
yen.  This is the lowest in years.  While not all companies do 
worse with a weaker dollar, it does make imports from Japan more 
expensive creating more inflationary pressures here at home.

It is this combination of Oil, $/yen, and consumer spending that 
has traders worried about the Fed.  Word is out that retailers 
have been doing very well in September.  There has not been much 
support for a slow down in the U.S. economy.  Domestic consumers 
have basically ignored the previous two interest rate hikes.
Today's figures have done nothing but heighten our Fed watch for 
Oct. 5th; but the key will be the CPI (more on that later).

First, let's look at what the market did today.  The good news 
today was the Dow finally broke out of its recent trading range.  
The bad news was it went downward.  Falling quickly below support 
at 10,980, the Dow 30 didn't even hesitate to blow past 10,950 
(expected support) and aimed for the more crucial 10,900.  All of 
this is obvious on an intraday chart, but I'm happy to see we 
closed above 10,900 after hitting the low of 10,886 near the 
close.  Even so, the index lost 120 points on the day.

DJIA chart.


The other side of the market chose to rally instead.  The NASDAQ 
turned in a quick morning rally of 20 points before rolling over 
and bottoming shortly before noon.  However, the semiconductor 
index lead the charge and tech stocks rallied behind them.  Many 
of the semiconductors did exceptionally well after getting 
booster shots from two different sources.  First, there was 
another rally in spot DRAM chip prices pushing them up to $15.
Compare that to just $4 in June of this year.  Secondly, J. 
Morgan, chairman and CEO of Applied Materials, offered some very 
bullish opinions about the future of the chip industry.  He 
believes that the Internet will continue to create a strong 
demand for computers which in turn will cause chip production to 
more than double over the next few years.  Semi's in general 
rallied on the news with MU +6.13, KLAC +6.56, VTSS +5.06, ADI 
+4.13, TXN +2.56, and RMBS +2.19.  Intel was only up 1.44.  We 
struggled with dropping Intel today for two reasons.  First, 
earnings are expected in about four weeks.  Secondly, a lot of 
traders really expect Intel to pre-announce strong earnings for 
the quarter.  However, we've been so successful on the play, that 
we wanted to make room for a couple of more stocks that have a 
higher potential.  Besides, it has recently fallen out of its 
ascending channel and may need to consolidate before closing in 
on its earnings run.

Other sectors in the news were Banking, Brokers, and the 
Internet.  The Internet sector continues to capture the spotlight 
with a constant barrage of IPOs.  However, more recently many of 
the big names have begun climbing as we approach 3Q earnings.
You'll see YHOO on the list today after slipping back to my 
target price of $160 in yesterday's sector wide profit taking.
Fortunately, buyers were a little subdued before the CPI report 
tomorrow, but several of the Internet stocks are trending higher.
Some of the bigger winners were: INKT +4.19, YHOO +4.44, EBAY 
+7.06, DCLK +6.06.

Quite a difference from the rest of the interest rate sensitive 
stocks.  Normally, high P/E, high growth stocks like the 
internets would cringe with new inflationary data on the horizon, 
but today they left it up to the banks and brokerages.  The 
retail numbers sent investors on the run with the CPI looming 
over our heads.  In effect it was the banks (BAC -2.69, JPM 
-2.81, WFC -1.88), the credit cards (COF -1.13, PVN -1.31, ONE 
-0.94, AXP -0.88), and the brokers (MER -2.88, MWD -1.31, LEH
-0.88) that suffered the most.

While most of us are concerned over a potential disaster with the 
CPI, other investors were focusing on the Floyd's potential to do 
some damage to their favorite holdings.  Insurance companies took 
a beating while airlines also hit some turbulence in afternoon 
trading.  Hurricane Floyd now has the dubious distinction of 
closing Disney World for the first time in its 28 year history.
Roller coaster ride, anyone?

Speaking of rides...we can probably count on the CPI report 
tomorrow morning at 8:30 a.m. to really move the market.  The CPI 
is one of the MOST followed indicators for measuring price 
inflation.  It is guaranteed that Greenspan and company will be 
all over this report with a fine toothed comb.  What exactly is 
the CPI?  The Consumer Price Index is a "basket" of goods with 
hundreds of categories to help identify rise and fall of prices 
on items the everyday consumer will be buying.  Only once every 
ten years is this "basket" re-evaluated to correctly reflect new 
consumer spending patterns.  

If you are optimistic, we can hope that the CPI will be flat to 
down.  The current consensus is for a rise of 0.3% (the same as 
July).  This may not be just wishful thinking.  The CPI is a 
product of the PPI, or the Producer Price Index.  What happens to 
producer prices should trickle up to the consumer prices.  We all 
know that the PPI was disinflationary, at least in the core 
figures.  However, all of this pain and anguish may be for 
naught.  Some economists believe that the Fed has more than 
enough ammunition to raise rates again this year.  The question 
we are trying to answer is whether Greenspan will raise rates in 
October or will the CPI allow us a couple of more months to trade 
before the next hike.  We obviously hope the report is low and we 
can get back to business with 3Q earnings right around the 
corner.  Not to be left out, the July business inventories will 
also come out tomorrow, but it tends to leave less of an impact.  

If the numbers are bad, our first line of defense is 10,800 on 
the Dow and 10,600 beyond that.  We are currently resting on the 
100 dma which has held as support for the last several weeks.
The NASDAQ, while it looks more positive, would probably react 
violently.  The first level of support is 2800 (doubtful) and 
beyond that we are looking at 2700.

Whatever you do, I don't recommend trading during amateur hour 
tomorrow unless you like chasing stocks.  However, there is the 
possibility that the numbers will come in mixed or undecisive and 
we may be stuck in a trading range for the rest of the month 
waiting on the Fed's next move.

Sell too soon.


Market Posture
As of Market Close - Tuesday, September 14, 1999 

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

DOW Industrials   10,500  11,320  10,910    Neutral   7.20    
SPX S&P 500        1,320   1,420   1,336    Neutral   8.17     
OEX S&P 100          675     735     705    Neutral   8.13     
RUT Russell 2000     440     465     438    BEARISH   9.14   *    
NDX NASD 100       2,320   2,400   2,522    BULLISH   9.03   
MSH High Tech      1,120   1,200   1,274    BULLISH   9.03   

                   Key Benchmarks
Technology         Bearish/Bullish  Last    Posture/Since  Alert
XCI Hardware       1,035   1,050   1,134    BULLISH   8.24    
CWX Software         750     800     909    BULLISH   9.03         
SOX Semiconductor    515     520     574    BULLISH   8.24      
NWX Networking       555     625     618    Neutral   8.13      
INX Internet         500     580     464    BEARISH   7.20    

                   Key Benchmarks
Financial          Bearish/Bullish  Last    Posture/Since  Alert
BIX Banking          690     710     589    BEARISH   7.23    
XBD Brokerage        410     440     373    BEARISH   7.23    
IUX Insurance        645     660     581    BEARISH   7.23         

                   Key Benchmarks
Other              Bearish/Bullish  Last    Posture/Since  Alert
RLX Retail           915     960     835    BEARISH   7.23     
DRG Drug             355     390     359    Neutral   8.24    
HCX Healthcare       735     785     736    Neutral   8.24    
XAL Airline          180     190     144    BEARISH   5.21      
OIX Oil & Gas        285     310     310    BULLISH   9.09     

Posture Alert    
Hurricane Floyd continues to dampen insurance stocks, as that 
sector was down another -1.95% on Tuesday. Other loss leaders 
heading into Wednesday's CPI include Banking (-2.63%) and 
Brokerage (-2.11%). Leaders Tuesday include Software (+2.55%),
Networking (+1.74%),and Semiconductors (+5.12%), which was strong
thanks to several brokerage upgrades, merger activity (SLR & 
SMOD), and memory prices continuing their run-up in price. 
With Tuesday's action, we have turned Neutral on the Russell 2000. 

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


Market Sentiment - 

Tuesday, September 14, 1999

When will it be over?

Two Friday's ago, heading into the employment data, we noted how 
traders were extremely pessimistic and were expecting the worse. 
The outcome was a Nasdaq triple digit gain! This last Wednesday, 
we saw similar negative sentiment going into the Producer Price 
Index. The outcome of this event was positive for the stock market 
as well. Will we see the Triple Crown tomorrow with the CPI? Only 
time will tell, but the negative sentiment is very similar to the 
proceeding two events!

During the last several years, this market has been referred to 
as the Goldilocks Economy. Low inflation, low interest rates, 
low unemployment, etc. Everything that could have been perfect 
was! When we hear about oil surpassing 24/barrel, how does this 
affect your portfolio? Well, any company that ships large 
quantities of products will be affected. Whether they ship by air, 
rail, or ground, costs will go higher. The cost of doing business 
will only rise, even though we may not feel the effects for 6 
months. Executives or salespeople, who travel the world, will feel 
the effect of higher airfares. So will the companies bottom line. 
What about an Internet company who sells products over the net? 
The cost of getting the product to the buyer will increase, so 
who will eat the cost? The company, the shipper, or the buyer? 
Look over your portfolio, and ask yourself what companies will be 
affected, and how?

This market can do anything over the next couple of weeks, let 
alone after tomorrow's CPI. Several things that we watch here at 
Pinnacle Capital is the sentiment on the S&P 100. Based upon the 
sentiment in the OEX, we have stated numerous times during the last 
4 weeks that this market will continue to be trading range bound. 
When looking at the index now, we see no change. We see good 
support at 690, and heavy resistance above 720. The Pinnacle Index 
for 630-690 is now clocking in at 6.06, which indicates heavy 
bearish sentiment. The PI for 735-780 is off the charts, while 
710-730 is moderate. After Hurricane Floyd (CPI) passes, we will 
probably have a few days of clear skies, before the next storm 
approaches (Fed meet). Until the higher powers (Greenspan & Co.) 
take a firm stand, this market will continue to trend.





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

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

Mixed Signs: 

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.


Interest Rates:
The yield on the 30-yr Treasury is now above the 6% benchmark and 
nearing the 6.272% high. Any negative economic indicator can easily 
knock the long bond into new highs.

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.

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                        (9/10)     (9/14)    (9/16)  Alert

Pinnacle Index (OEX):          

Overhead Resistance (735-780)    108.9      313.0
Underlying Support  (710-730)      2.5        2.4
Underlying Support  (630-690)      4.2        6.1

Put/Call Ratios:

CBOE Total P/C Ratio                .5       .5
CBOE Equity P/C Ratio               .5       .5
OEX P/C Ratio                      1.3      1.2

Peak Open Interest (OEX):

Puts                              660          
Calls                             720          
P/C Ratio                         1.16

Market Volatility Index (VIX):	

CBOE VIX                         25.05

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.

Pinnacle Index
OEX                             Friday      Tues       Thurs
Benchmark                       (9/10)      (9/14)     (9/16)

Overhead Resistance (735-780)   108.90      313.00
Overhead Resistance (710-730)     2.45        2.38

OEX Close                       712.79      704.80

Underlying Support  (630-690)     4.20        6.06 

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                (9/10)     (9/14)     (9/16)

CBOE Total P/C Ratio             .52       .56
CBOE Equity P/C Ratio            .46       .50
OEX P/C Ratio                   1.32      1.21

Peak Open Interest (OEX)
                     Friday           Tues            Thurs
Strike/Contracts     (9/10)           (9/14)          (9/16)

Puts                 660 / 14,393     660 / 14,375    
Calls                720 / 13,506     720 / 12,384
Put/Call Ratio         1.06            1.16


Market Volatility Index (VIX)
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 14, 1999                      25.05 


Investors Intelligence Survey
                    Major             Percent     Percent
Date                Turning Point     Bullish     Bearish

October 97          Bottom            22.0        48.3       
July 20, 1998       Top               52.0        24.0         
October 8, 1998     Bottom            38.5        42.7
January 11, 1999    Top               58.3        30.0
March 4, 1999       Bottom            49.1        32.5

January   6, 1999                     58.3        30.0   
January  13, 1999                     60.0        30.0   
January  20, 1999                     61.7        25.9   
January  27, 1999                     60.7        28.2   

February  3, 1999                     60.0        26.7   
February 10, 1999                     61.7        25.9   
February 17, 1999                     55.7        28.7   
February 24, 1999                     54.1        31.5   

March 3, 1999                         50.9        32.1   
March 10, 1999                        49.1        32.5   
March 17, 1999                        52.6        17.6     
March 24, 1999                        55.9        29.7     
March 31, 1999                        55.6        31.6     

April 07, 1999                        56.4        31.6     
April 14, 1999                        55.9        30.5     
April 21, 1999                        56.4        30.8     
April 28, 1999                        56.1        30.7     

May 05, 1999                          58.1        27.6     
May 12, 1999                          56.9        31.0     
May 19, 1999                          60.9        28.7      
May 26, 1999                          61.6        27.7 

June 2, 1999                          61.6        27.7  
June 10, 1999                         58.3        28.7  
June 16, 1999                         58.8        26.3 
June 24, 1999                         57.5        26.5  
June 30, 1999                         55.8        25.7  

July  7, 1999                         52.6        27.2  
July 14, 1999                         55.2        26.7 
July 21, 1999                         54.1        27.9  
July 28, 1999                         53.6        24.6 

Aug   4, 1999                         52.2        27.8 
Aug  11, 1999                         50.0        29.3
Aug  18, 1999                         45.8        31.3
Aug  25, 1999                         44.5        31.1 

Sept  1, 1999                         42.9        31.9 **
Sept  8, 1999                         44.1        30.5 

Please view this in COURIER 10 font for alignment

Daily Results

Dow     10910.33   1.90 -120.00 -118.10
Nasdaq   2868.29 -42.29   23.52  -18.77
$OEX      704.80  -4.03   -3.96   -7.99
$SPX     1336.29  -7.53   -7.84  -15.37
$RUT      438.24  -1.54   -1.41   -2.95
$TRAN    3090.69   0.70   -0.84   -0.14
$VIX       25.05   1.49    1.21    2.70

Calls              Mon     Tue    Week

INTU      105.81  -0.50    5.13    4.63  It's going the distance
FLEX       67.63   2.13    1.81    3.94  It's watching the markets
SFA        58.44   2.63    0.13    2.75  Price target is increased
ADI        58.75  -1.63    4.13    2.50  Chip prices rally again
NTAP       70.00  -0.69    2.94    2.25  Bounced off its support
TXN        91.88  -1.63    2.88    1.25  Computer demand increases
EMC        68.38   0.69   -0.38    0.31  SG Cowen gives it a buy
JDSU      112.13  -2.56    2.69    0.13  Showing no conviction
AMZN       66.00  -3.25    2.69   -0.56  Using all its arsenal
SFE        72.00  -3.00    2.38   -0.63  PC sales help move stock
ERTS       75.50  -4.31    3.63   -0.69  Revamping the industry
SUNW       85.00   0.00   -0.69   -0.69  Standing its ground
INTC       85.81  -2.75    1.44   -1.31  Dropped, out of gas
BGEN       87.38  -0.69   -0.94   -1.63  Flirting with resistance
HGSI       84.69   2.38   -4.31   -1.94  Is this an entry point?
LGTO       47.19  -0.88   -1.09   -1.97  Momentum is in question
INKT      125.88  -6.44    4.19   -2.25  Two companies use INKT
DISH       91.50   0.38   -2.88   -2.50  Landed in a crater
CNXT       75.00  -4.25    1.63   -2.63  Dropped, lost its spark
DELL       46.88  -1.63   -1.00   -2.63  Dropped, broke its 10-dma
CHKP       90.72  -2.50   -0.41   -2.91  Expanding relationships
QLGC       92.75  -3.00   -0.44   -3.44  Patience is the key
CMGI       86.13  -5.50    1.88   -3.63  Making a break for $90
YHOO      165.19  -9.75    4.44   -5.31  New, turning and burning


LLY        69.88  -0.50   -2.00   -2.50  New, worries haunt Lilly
COST       67.56  -1.06   -1.25   -2.31  This one's a keeper
KO         54.56   0.44   -0.81   -0.38  Continues to look weak
GPS        35.94  -0.81    0.94    0.13  No definitive support
HNZ        43.19   0.19    0.00    0.19  May be showing support
CVS        40.19   0.06    0.19    0.25  Will it make the bounce
SWY        44.94   1.75    0.25    2.00  Breaking resistance?
IDPH      110.06  11.84   -9.56    2.28  Dropped, just too strong

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

The Option Investor Newsletter         Tuesday 9-14-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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.

DELL $46.88 -1.00 (-2.63) A weak market is stalling out DELL 
despite positive comments from Michael Dell on Monday.  In an 
interview with Reuters on Monday Dell's CEO said he expects a
very healthy second half of the year.  He is referring to the 
fiscal year second half which runs from August through January.  
He said that due to structural advantages in distribution that 
DELL has an advantage over its competitors, which will help to 
gain market share.  He also said he expects the percentage of 
online sales to climb to 60 to 70 percent "in the not too 
distant future."  As strong as these comments are, the market 
has been too weak to spark any meaningful rally.  So with the 
backdrop of an uncertain market and DELL failing to hold support 
at $48, we are dropping DELL for now.  We will take another 
look as we get closer to earnings but for now, with all the 
positive news and no stock gains, we are heading for the exit.

INTC $85.81 +1.44 (-1.31) A semiconductor rally gave INTC a 
gain of $1.44 today but it was not enough to keep us in this 
play.  As we told you in Sunday's letter, we needed to see a 
bounce upward from the dip below INTC's 10-dma in order to keep 
the stock as a current play.  We didn't get it.  INTC failed 
to bounce yesterday; instead it lost $3.00.  The stock remains 
below its 10-dma and other technical indicators are becoming 
more negative as well.  Therefore, we are dropping INTC and 
moving to the sidelines while the stock consolidates.  Earnings 
are still a month away and we may consider the possibility of 
an earnings run play as that date gets closer.

CNXT $74.88 +1.50 (-2.75) Despite a gain today, it's tough for 
us to stay connected to Conexant.  Yesterday, and on 3 other 
occasions in the previous week, CNXT reached through $80 but 
couldn't hold it.  Making matters worse, despite hitting $80.50 
yesterday, CNXT closed at its low of the day ($73.50) after 
failing to find traditional support at its 10-dma, despite 
announcing a 2:1 split.  Today's gain wasn't sufficient to send 
it back over its 10-dma, thus we're dropping CNXT tonight.

IDPH $110.06 -9.56 (+2.28) A Merrill Lynch upgrade proves to 
Strong to keep IDPH on our put list.  Merrill came out on 
Monday and upgraded IDEC to a Near-term Buy.  They cited 
upcoming news of strong sales and trends for Rituxan.  You 
may remember that the concern stemmed from comments from 
the CEO about possible slowing in sales of Rituxan just last 
week.  Merrill also increased earnings and sales projections 
for IDPH.  This has caused a few developments that have 
changed the outlook for IDPH.  First, on Friday when we added 
IDPH it had closed below the 50-dma at $105.  Unfortunately 
that was a head fake as it came right back above that level.  
Second, $110 has shown great support this week.  Third, we 
are concerned that Merrill must feel strongly to upgrade 
the stock only a few weeks after they downgraded IDEC.  They 
originally downgraded IDEC based on valuation but if they 
are so anxious to jump back on board, they probably have 
good reasons.  Therefore, we are closing out our high-risk 
put play since the risk has increased beyond even our pain 


Who Dares Wins? 

Who Dares Wins is the motto of the British Special Air Service 
commandos, maybe the best in the world. I have thought about it 
this week as I go into expiration week with calls on MSFT, CSCO, 
JDSU, and SUNW. I held them at the end of last week because I
thought that the market was being artificially held down by a 
focus on interest rates and Fed speak. I reasoned that this 
week had a few potential positives which might yet unleash a 
real September rally to relieve this range bound misery. First, 
there are the Retail and CPI report on Tues and Wed. If these are
benign, then I think the 30 year bond rate will go down, maybe 
below 6%, and make stocks more attractive. Second, ORCL announces 
after the bell on Tuesday. If it blows out its numbers, I think 
this might begin to shift the market focus from interest rates to 
earnings expectations.  Particularly with good Q3 numbers ahead, 
I think this could be market positive. 

Third, options expire on Friday. This normally provides an 
upward bias.  The Market Sentiment section mentioned the possibility
of a short covering rally. I think the potential for this type of 
short covering, including buying of stock by call writers, is a 
real possibility on Thursday and Friday. Take for example, the 
MSFT Sept 95 contract, with an open interest of 32,000. If MSFT 
nudges over 95, that is a very large amount of contracts that can 
be sold or exercised. The institutions that wrote those calls need 
to have the stock to cover those contracts. I saw this situation 
in the July expiration week with the MSFT July 95 contract. When 
MSFT finally pushed above 95, it quickly hit 97, and closed 
above 99.

Those who dare also often lose. This is a rocky market
at best. Playing options with 4 days remaining is a good way 
to lose a lot of money. This is NOT recommended. So, let me tell
you how I am managing my risk. First, 55% of my financial assets
are in long term stock holdings and bond funds. I never play
options on them. Second, I am only playing about 40% of my 
options trading portfolio in the Sept plays.  Thus, I have 
15 - 20% of my overall assets in these highly risky short term
plays. Third, I am planning to modify my personal money management
rules. The most important ones are the following: 
- Each play gets a minimum of 15% and a maximum of 25% of my
trading capital.  No more than 3 plays at any given time. Never
play a stock twice in the same 4 weeks. This means that I don't get
into plays with too little of my capital. It also means that I
never risk more than 75% of my capital at any one given time.
- Immediately set limit sells, one at 25% for half of the play, 
one at 50% to 100% for the other half. Put a time limit on the
play of 1 - 4 days. Immediately set a (mental) stop loss order at
no more than -20%. (My broker does not allow stop loss orders,
but I would not use them even if I could. I would rather have
limit sell orders in place so that a intraday spike will take me
out of the play. However, I have been setting my limit sells too 

I intend to use these rules for the rest of my plays through the 
Sept/ Oct earnings season, which I expect to be very volatile. 
As I look back at my trades for the last three weeks, I realize
that I could have done very well if I had taken half of my trade
off the table when it passed 25% profit. Every one of my trades, 
including the losing QCOM trade, would have hit 25% despite 
my poor entry points. It would be easy to be angry about the 
post Labor Day rally that never happened. Maybe it occured two 
weeks before Labor Day, maybe it will occur two weeks late. 
Emotion is pointless. The market just is. Cash flow is king -- 
reread the 10 rules regularly! I made good money in January, and
lost a lot of it in February. I made good money in April, and
lost a lot of it in May. I made good money in June/ July... and
kept it, and increased my gains in August. Part of the trick
to being a successful option trader is not losing money. In 
fact, this is probably the first rule of money management. Another 
trick is combining option trading with a good life, and that
means minimizing stress. So, I intend to make another important 
change. I will make half of my trades with the above rules, 
which still give me the opportunity to get the the big gains
approaching 100% with my winning plays. But I will use the more
advanced strategies taught at Fontanill's course for the other 
half of my trades. With significantly reduced risk and stress, 
I can get the cash flow I want with these trades. I can also 
grow my trading capital aggressively with a more disciplined 
strategy of playing the naked puts and calls which I have
been using for most of this year. 

Tuesday afternoon -- Well, the Retail numbers were bad, and ORCL
reported in line. The only remaining positives for the week are 
the CPI and the upward bias from expiration. MSFT is above 95, 
and CSCO is almost at 72. There's hope, but that statement itself 
is the danger. This is not the style that I want to develop for the 
future. In future column's I will be detailing my own efforts
to develop my trading style. Maybe that's the challenge for 
all of us. 



HGSI $84.69 -4.31 (-1.94) It's to be expected.  With our current 
surge in price, interest and inflation worries, dollar and 
oil woes, this pull back to support in HGSI is par for the 
course.  Support is at $81, so now the question is... do we 
buy here, or not?  Good question and it all depends on the 
market.  If our general trend were up, this might be a good 
entry point but given our current unsteady status, we would 
advise continued caution.  We are turning negative on our 
strength, momentum, stochastic and MACD's so be careful.  
General indicators are turning bearish, so protect your profits.  
Tomorrow's CPI report will give us some direction for the 
short-term so wait until after the report and get a market 
confirmation before entering the play.

FLEX $67.63 +1.81 (+3.94) At first glance, FLEX appears to be
acting as an inverse stock, in comparison to the market.  It
is performing exceptional in these turbulent times, defying the
markets pessimism and setting a new 52-week high today.  Actually
it is getting it's strength from the NASDAQ, as a comparison
of their general trend lines are similar over the last two
days.  What has also been of help, is the very strong support
in our 10-dma, now at $64.  This is one of the reasons we are
playing this stock.  The move today and Monday have boosted
our momentum technically but we must remain cautious.  We are
like a twig in a river.  For now we're afloat but investors
will definitely protect these gains, especially on any sign of
continued economic worries.  Wait for a pullback now before
re-entering and be cautious of tomorrow's CPI numbers.

QLGC $92.75 -0.44 (-3.44) QLGC's interval chart reminds us of
the dating years.  Full of mixed signals and head games.  Monday
it looked like we were getting dumped towards the end of the day.
It continued this morning until QLGC showed some interest around 
mid-day.  It was short lived though as interest faded and then
the last minute tease with 15 minutes to go.  In relationships
such as these, patience is the key.  We are still above support
at $92 but you have to be careful.  Everyone (the market) is
saying this won't work out.  They think it's too complicated
(interest, inflation, CPI tomorrow, et al).  But we think QLGC 
is worth working for.  QLGC continues to win support with Fibre 
Channel technology.  Several companies announced their use of the 
technology.  Analysts are also praising companies in Internet 
infrastructure areas, as areas for continued growth.  Set your 
stops to avoid a broken heart and definitely don't make any 
positive moves until after the CPI tomorrow or you may get 

EMC $68.38 -0.38 (+0.31) EMC is proving to have a tough chin,
considering the punches that the market has been throwing at
it.  Despite the negative retail numbers out this morning, EMC
got a last minute (5 min. actually) burst of energy to close
up from it's low of the day.  This could be in anticipation of
a surprise in the CPI numbers tomorrow.  We hope this is the 
case.  Support is at $65 and our chart continues to look good 
except for a slowing stochastic but that's to be expected with 
the performance of the last two days.  SG Cowen gave EMC a Buy
rating today, as they initiated coverage.  They set $77 as a 
price target, which puts us at a good level currently.  Bank of
America also upgraded the stock to a buy.  Be careful ahead of
tomorrow's CPI numbers.  Monday's high shows our potential 
however, we were unable to maintain that.  With some market 
help we should continue up nicely.  Use stops to protect capital 
from any unexpected events.

NTAP $70.00 +2.94 (+2.25) What a day for NTAP as it bounced 
perfectly off of support at $67.  The support I am referring 
to is the 10-dma which has held the stock up for the past 
month.  If you used this to your advantage, you are sitting 
with a tidy profit.  The reason for the gains may be purely 
technical and momentum driven as there has not been any company 
specific news released this week.  We also could still be riding 
the momentum from Merrill Lynch's positive comments to end 
the week last Friday.  Today's close is a new high after moving 
above the previous high and resistance at $69.69.  This is a 
bullish indicator as we have no resistance above us but with 
the CPI due out in the morning, it is always wise to use caution 
and keep your stops close.

CHKP $90.72 -0.41 (-2.91) Check Point continues to look strong 
and yesterday announced that it is expanding its relationship 
with IBM.  The IBM RS/6000 B50 server provides a manageable 
and scalable platform for Check Point Software's Internet 
security solutions.  In addition to supporting the full range 
of IBM RS/6000 products, Check Point Software and IBM are 
working together through the Check Point Software OPSEC (Open 
Platform for Security) Alliance.  It also didn't hurt that 
CHKP would be introducing its Ground-Breaking SVN Products this 
week in Atlanta and Paris at the NetWorld+Interop Trade Shows.  
The stock soared to a new high on Monday to $96.50 before the 
market turned down sharply as profit-takers stepped.  The stock 
sold off to close down -2.50 at $91.13.  Today the uptrend 
resumed and yesterday's close provided anyone who had not taken 
advantage of the previous rally a buying opportunity.  Volume 
and buying pressure remains strong and should remain intact. 
Conservative traders, confirm market momentum and direction 
before taking a new position.  Any move below the 10-dma at 
$86 would be the hint to close out all plays.

LGTO $47.19 -1.09 (-1.97) Since peaking intraday at its latest 
new high of $50.38 on Friday, LGTO pulled back by about 4% this 
week.  It's still above its 10-dma (now at $46), but be careful.  
This is a simple momentum play set off by company news a couple 
of weeks ago.  It's important to note that in the past two days 
trading volume has dropped to levels below its ADV and this is 
a warning sign that LGTO's momentum may be dwindling.  It'd be 
best to play cautiously and wait for confirmation of not only 
its direction and stronger volume levels, but also to see if it 
has the intensity to break its overhead resistance at $50.  

BGEN $87.38 -0.94 (-1.63) BGEN flirted with its near-term 
resistance at $90.44 both days this week but just couldn't 
penetrate the opposition.  After the bullish gains last week, 
some profit-taking and a mild pullback is quite natural.  At 
this point it's difficult to determine where new support may 
be emerging so instead use the 10-dma ($85) as a guideline for 
entry and exit points in this earnings' run play.  It's been 
confirmed that Biogen will report its 3Q earnings on October 
7th after the bell.  Please watch out for the CPI data coming 
out tomorrow as it may add quite a twist to your trading day.

CMGI $86.13 +1.88 (-3.63) CMGI wasn't given any amnesty in 
yesterday's onslaught against the techs.  Make no mistake, CMGI 
took a fierce beating with damages totaling a $5.63 loss, but
today the stock performed gallantly as it held gains right at 
its 10-dma.   Recall, it'd be better to see this earnings' run 
candidate make a break for the 50-dma at $90 on a show of volume.  
This technical indicator is a certain point of resistance.  
Tomorrow is the release of the CPI numbers and let's hope we 
don't get Greenspammed - be prepared for anything!  And keep in 
mind there's only a couple weeks left before CMGI reports its 
earnings on September 27th.  If anything, we should get extra 
volume and volatility ahead of earnings so use this to your 
advantage in playing CMGI.  

SUNW $85.00 -0.69 (-0.69) SUNW exhibited strength this week 
as it maintained its current price level ahead of the CPI 
numbers expected bright and early tomorrow morning.  Volume 
did retrace a bit but was still moderate at over 7 mln shares 
exchanging hands.  It's likely that if we are blessed with a 
distinctly bullish market over the next few days, SUNW will 
rise to the occasion and bounce off the 10-dma where it's 
presently made itself a home.  Look for SUNW to make this 
conviction before opening any new positions.  If you have any 
open orders, consider using stop losses to hedge against a 
sudden reversal and to protect any existing profits.

ADI $58.75 +4.13 (+2.50) It was a bad day for ADI and the rest 
of the semiconductor sector on Monday.  The irony of yesterday's 
performance was the fact that ADI hit an all-time-high before
ending off $1.58 for the day.  Once the stock hit it 10-dma, 
it took a strong bounce and has been on its way back up ever 
since. But that was Monday.  On Tuesday ADI was bullish along 
with the entire semiconductor sector after memory chip prices 
rose again over night.  DRAM chips prices rose to $15.50 in 
Asian markets on Tuesday.  This was up from $14 on Monday alone.  
Expect the momentum to carry over until tomorrow and if the 
CPI is positive for the markets, you may want to look for an 
entry point on a intraday dip.  Currently the 10-dma is $54.88 
which may be to much to ask for at $4 dollars away.  Again, 
use caution ahead of the CPI and a possible pullback after 
today's stellar gains.  

INKT $125.88 +4.19 (-2.31) INKT rebounded on Tuesday after 
Monday's $6.50 loss.  Tuesday was a much better performance, 
with the stock gaining back $4.19 to finish at $125.88.  INKT 
is technically performing very well as it bounced off the 10-dma 
at $120 this morning.  If you're looking to jump in this play, 
you may want to wait until the market reacts to the CPI report 
due out early Wednesday morning.  If it is positive, try to 
pick an intraday dip if you can.  In the news, it was announced 
today that in the weeks to come, WealthHound will be launching 
its INKT search engine.  No financial details on the announcement 
were released at this time.  Also, Exodus Comm announced it 
will use INKT's traffic server for their new ReadyCache Content 
Distribution Service.

SFA $58.44 +0.13 (+2.75) How do you increase the price of a 
stock that is already at its high?  In the case of SFA, the 
answer would be an announcement that Motorola is buying one 
of your competitors.  Monday, shares of Scientific Atlanta 
were boosted by talks that rival General Instrument may be 
acquired by electronics giant Motorola.  SFA investors, with 
the hope that SFA may be a takeover candidate, continued 
buying additional shares and closed the stock at a new 52-week 
high.  Takeover euphoria was short lived however as profit- 
takers moved in today, taking back some of yesterdays gains.  
Despite this slight setback, SFA remains both technically and 
fundamentally strong.  Trading above all its moving averages, 
the only question is how high will it go?  According to 
analyst Greg Mesniaeff's, we have quite a ways as he upgraded 
his six-month price target for SFA to $75 from $60.  Let's see 
if we can get to this new price target.  Continue to place 
the recommended stops and adjust them accordingly if the 
stock continues to rise.

TXN $91.88 +2.88 (+1.25) What a great day for those stocks 
associated with computers.  While the majority of stocks ended 
lower today, semiconductor stocks took advantage of the 
increased demand for PC's.  Semiconductor stocks posted strong 
gains following a bullish forecast from an industry executive. 
James Morgan, chairman and chief executive of Applied 
Materials, said semiconductor production worldwide is expected 
to more than double in the next few years as the Internet 
feeds heavy demand for computers.  Thanks to this statement, 
investors were once again reassured of the strength within the 
industry and TXN.  The stock's strength is reflected in the 
current price, which closed just below its 52-week high.  
After consolidating for the past week, this latest boost may 
be the start to bluer skies.  Even though we expect TXN to 
continue its upward trend, tomorrow more economic data will be 
released that may influence our play.  With investors on pins 
and needles concerning inflation and rate hikes, the release 
of the CPI figures could add to the confusion.  Confirm 
market direction before placing new trades and keep the stop 
losses ready just in case. 

SFE $72.00 +2.38 (-0.63) SFE had a great day along with the 
rest of the software sector and NASDAQ when economic data 
suggested that the economy was growing faster than expected.  
Most analysis predict PC sales will be strong heading into 
next year and profit margins in the industry appear to be 
stable.  By itself, SFE is still technically very strong 
closing once again above its 10-dma.  This play still appears 
to have more profit potential in it.  On Tuesday, the stock 
gained $2.38 to finish the trading session at $72.00.  SFE has 
the ability to breakout with just about any catalyst giving 
it a reason.  First Union Capital recommend SFE is a wise long 
position as well when it upgraded the stock on September 8th 
from Outperform to Buy. 

ERTS $75.50 +3.63 (-0.69) Whew!  A drop and a close below its 
10-dma yesterday spelled potential disaster for this play.  
Today on news that Sony unveiled its PlayStation2 for the 
Japanese market (the next generation of its wildly successful 
PlayStation), investors logically presumed that ERTS would be 
revamping and making new games for it, which would of course 
bring in more revenue.  Never mind that it won't be available 
until March 4, 2000, 3 months behind schedule.  Investors didn't 
care as volume drove the price higher again.  ERTS behaves this 
way because it has very few shares in float, making it necessary 
to pay up for any large blocks of the stuff.  That works both 
ways, as evidenced yesterday.  10-dma support is $74.  Only if 
the market cooperates, a clean break over $77 with volume is 
buyable.  If you want to target shoot, wait for a bounce off $74.  
Careful, technicals are starting to weaken.

JDSU $112.13 +2.69 (+0.13) Showing no conviction whatsoever for 
about 2 weeks, JDSU remains rangebound between $108 and $114.  
So why do we keep it?  Low volume consolidation over the last 
week and relative stability during a tumultuous market are the 
main reasons.  Barring any unforeseen catastrophic event, the 
consolidation tells us that more selling is unlikely to occur. 
All we need for gains now is a return of volume to the issue.  
Earnings don't come out until late October.  We still have 4 
weeks to make a great play.  Realize that JDSU is a volatile and 
a somewhat risky play.  So wait for it to come to us at support 
(around $108).  There is still plenty of time.  Money managers 
and investors will soon remember "oh yeah, earnings are coming" 
and bid the price back up.  After all, JDSU, as the leader in the 
age of photonics is selling everything they produce.  The long-
term portfolio owners will be happy with this one.  So should we 
short-termers prior to earnings.  If you want to play it more 
conservatively, wait for a move over $115 with volume.  Just a 
reminder too that JDSU is holding a special shareholders meeting 
Sept. 28 to increase the outstanding shares from 200 mln. to 300 
mln.  This could foreshadow a 3:2 split but more likely just a 
pocket full of currency to go on the acquisition trail.  We'll 
keep you posted.

AMZN $66.00 +2.69 (-0.56) The Holiday gift-giving season is 
approaching fast and consumers are expected to generate $10 bln 
of sales this year compared to last years $3.5 bln.  That spells 
good news for AMZN, who has since added home electronics and 
online auctions to its arsenal of revenue generators.  Not only 
that, Internets are showing good strength right now in front of 
Yahoo's earnings scheduled for release in 3 weeks.  Yep, AMZN is 
a sympathy earnings play too, in addition to its own story and 
sector momentum.  Technically, AMZN has found support at $63 
since its 2:1 split a week and a half ago, which also happens to 
be its 10-dma.  For the risk takers, we had a good entry sign 
yesterday as AMZN dipped to $62.50, then bounced up before the 
close.  As we noted Sunday, dips are buyable to that level if you 
catch them on the bounce back up.  Short-term resistance is $68.  
A breakout over $68 backed up by strong volume is a bit more 
conservative for those desiring to err on the side of caution.  
Just make sure the market is also in your favor before starting 
a new play.  Value and fundamentals do not figure in this play.

DISH $91.50 -2.88 (-2.50) DISH advanced yesterday on news that 
they are adding over 100 K new customers per month, while the 
rest of the NASDAQ landed in a crater.  Today was DISH's turn to 
visit the crater.  While we can find no news, we suspect that 
today's loss came from yesterday's scuttled Florida launch of 
a 500-channel satellite in the face of Hurricane Floyd.  The 
revenue picture clouds if the rocket can't get off the ground 
soon.  Despite today's loss, DISH still showed strength, as 
volume picked up along with the price into the close.  This play 
is extremely volatile.  Support is good at its 10-dma, currently 
$89.  Resistance is at $96.  If you are trying to disguise 
yourself as a conservative player, wait for a breakout over 
$97 backed with volume.  DISH has been a high flyer so protect 
existing positions with stops.  If the CPI news is favorable 
tomorrow, DISH should participate in any rally.  Just make sure 
the hurricane danger in Florida is minimized.

INTU $105.81 +5.13 (+4.63) Intuit continued higher today on 
stronger than average volume thanks to the good technicals and 
fundamentals in place ahead of the newly announced 3:1 stock 
split.  The payment date will be September 30th.  We expect 
this stock to continue to run-up through at least the ex-div 
date but remember we always recommend closing out before the 
actual split.  If you kept Intuit on your radar screen, as 
requested in Sunday's report, you would have been able to find 
nice entry points yesterday and today near the $100 level.  We 
got the pullback we were hoping for before the shares soared 
again to close today near the high at $105.81.  The 52-week 
high is not far away at $110.75 and we expect it to make a 
strong run to this resistance point and hopefully, breakthrough 
to blue sky territory if the sector strength remains intact.  
At this point, aggressive traders can enter the stock above 
today's high of $105.94 after confirming market direction and 
momentum in the overall market.  Conservative traders should 
wait for another round of profit-taking, followed by a new move 
higher on strong volume before opening plays. 


Play Updates Continued, New Calls, Play of the Day, Combos, 
Straddles are in section three




The Option Investor Newsletter         Tuesday 9-14-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


HNZ $43.19 +0.00 (+0.19) Heinz may be seeing support.  This 
news could be of concern to us since we are playing HNZ on the 
short side.  The chart is showing support at $43 and it appears 
to be gaining strength, as it has held at that level for the
last three sessions.  Considering the negative outlook for
HNZ sales and earnings, we will hold this as a play.  We
anticipate additional downgrades and with the market jitters
currently upon us, we could see HNZ continue down.  Today HNZ
announced a $37 million plant expansion at it's Pittsburgh
facility, to centralize soup and baby food production and
distribution at one facility for the U.S.  Use caution and 
place stops, as a positive CPI number and the above mentioned 
support could through a wrench in our play.  Confirm a negative 
market and stock movement before playing.

KO $54.75 -0.63 (-0.38) Coca-Cola is still looking weak but a 
lot of support at the $54 level is stopping it from dropping as 
fast as we would like.  It did manage to break thorough the 
low from yesterday at $54.81 and drifted as low as 54.38 before 
closing the day at $54.75 on lower than average volume. (so 
there wasn't much action).  Although the stock remains weak, 
the drift downward today was not due to selling pressure but 
due to an overall weak stock market.  Going forward we would 
expect Coke to continue to drift lower but at this point stops 
should be set tight since there has been no new developments 
in the news for a number of days.  We don't want any surprises.

SWY $44.75 +0.06 (+1.81) SWY gave us a scare yesterday as it 
rebounded $1.75 and closed smack on its daily high; especially 
on the very strong trading volume at about 50% higher than its 
norm.  Nonetheless, we're still keeping SWY on our put list for 
now.  Yesterday the press reiterated Safeway's completed 
acquisition of Randall's Food Market, which by the way was 
more currently estimated at $755 in cash and $12.7 mln of SWY 
common shares, prompted analyst Gary Giblen at Banc of America 
Securities to restate his Strong Buy rating.  Likely this is 
the reason SWY snapped back.  From a technical perspective, 
SWY is still below its 10-dma ($45.29) which for the past 
month or so has acted as overhead resistance and this is a 
good sign.  The more cautious investor will confirm another 
drop towards the 52-week low at $37.62 before entering a new 
play on this retail stock.

GPS $35.94 +0.94 (+0.25) GPS finished the day on a positive 
note by gaining $0.94.  However, we are still bearish on GPS 
despite the small upturn.  The stock is still trading well 
below its 10-dma of $37.09 and there appears to be no 
definitive support for the stock for it to break this barrier.
On Tuesday, the entire retail sector was soft again, which 
confirms the recent trend.  On Wednesday we have the CPI being 
released and if we get a stronger than expected number, GPS 
should start a new downtrend.  For new participants, if you 
want to begin participating in the play, use caution until 
market sentiment is decided after the CPI release. If the 
numbers are positive for the markets and GPS starts to rally, 
keep you finger on the trigger to pull your remaining capital 
out of this play.  Remember, we advise playing trends and 
the overall trend for the past 2 1/2 months is bearish.

CVS $40.19 +0.19 (+0.25) Just when we thought it was time to 
take advantage of CVS falling below all signs of support, 
the stock pulled an about-face and sought shelter on higher 
ground.  With a stock that has fallen so much we expected 
some type of bounce however, whether it is an actual 
turnaround remains to be seen.  The reason we have decided 
to keep the play is because of the 10-dma for CVS, which is 
at today's closing price.  We are hoping we see a bounce at 
this resistance point leading the stock once again to lower 
levels. Again, we emphasized the need for extreme caution 
with this play and stress the importance of confirming the 
direction of the stock before placing new trades.       

COST $67.56 -1.25 (-2.31) Investors continue to beat this 
stock down which only means more profits for us.  Picking up 
where it left off last week, COST has sunk to even lower 
levels, leaving its investors questioning as to why.  With 
the release of today's retail sales figures one would think 
that retailers would be happy seeing that sales are rising.  
On the flip side, investors have taken this information as 
another reason for the Fed. to validate a interest rate hike.  
It was the interest rate sensitive investors that had the 
upper hand today, selling their positions and one again 
heading for the sidelines.  Costco has had its fair share of 
deserting investors lately and is reflected in the current 
price.  Now trading below $70, the stock doesn't show any 
real support until the $60.  With the help of inflation 
worried investors and a retail sector that remains 
questionable, see if we can make it to these lower supports.


YHOO - Yahoo! $165.19 +4.44 (-5.31)

Yahoo! Inc. is a global Internet media company that offers a 
branded network of comprehensive information, communication and 
shopping services to 80 million users worldwide.  As the first 
online navigational guide to the Web, YHOO is the leading guide 
in terms of traffic, advertising, household and business user 
reach and is one of the most recognized brands associated with 
the Internet.  The company's global Web network includes 19 
World properties.  Yahoo has offices in Europe, the Asia Pacific, 
South America, Canada and the United States and is headquartered 
in Santa Clara. 

We're keeping this really simple for now, and adding YHOO as a 
traditional earnings play.  They report is on October 6 after 
the close, just 3 weeks away.  In the last 4 reporting periods, 
YHOO made nice earnings runs in investors' anticipation that 
they would beat Street estimates by significant margins.  They 
weren't disappointed either.  We believe the same psychology 
applies again.  We want to buy YHOO significantly in front of 
earnings to take advantage of the run-up that will likely ensue.  
Technical indicators are all in the positive.  Since Labor Day, 
support is at its 10-dma, currently about $160, though there 
may be dips back to $155 as a normal part of this stock's 
volatility.  October strikes will become cheaper by this Friday, 
as September strikes expire.  Buy dips at your comfort level 
during the mid-day lulls but don't chase this one.  We still 
have a few days, perhaps a week to make a good entry.  What 
will make this one scary is the FOMC meeting October 5, 1 day 
prior to the earnings announcement.  Tentatively, plan to be 
out of the play by Friday, October 1.  A strong history makes 
a repeat likely here.

News is brief and uneventful but here goes:  YHOO's e-commerce 
revenue is expected to be about 25% of total revenues this year.  
Currently, 85% of revenues are derived from advertising.  Also, 
in a recent survey, YHOO was rated the most efficient financial 
information site in delivering graphics.  

***No NOV strikes available yet; JAN strikes are expensive and 
not recommended for an earnings play***

BUY CALL OCT-160 YHV-JL OI=2433 at $15.75 SL=12.50
BUY CALL OCT-165*YHV-JM OI=1142 at $13.38 SL=10.75
BUY CALL OCT-170 YHV-JN OI=3496 at $11.00 SL= 8.75

Picked on Sep 14 at     $165.19   P/E = 392
Change since picked       +0.00   52 week high=$244.00
Analysts Ratings     9-17-5-0-0   52 week low =$ 40.81
Last earnings  7/99   est= ????   actual= 0.09
Next earnings 10-06   est= 0.09   versus= 0.05
Average daily volume = 9.35 mln
Chart = http://quote.yahoo.com/q?s=YHOO&d=3m


LLY - Eli Lilly and Company $69.88 -2.00 (-2.50 this week)

Eli Lilly is a major U.S. drug company that discovers, develops, 
manufacturers and sells products in the Life Sciences industry.  
Some of Lilly's products include Prozac, to treat depression, 
Zyprexa, used in treatment of schizophrenia, Permax, a treatment 
for Parkinsons disease and Gemzar used for treatment of a 
pancreatic cancer.  Also the company produces a wide range of 
antibiotics, growth hormones, cardiovascular therapy medications, 
anti-ulcer agents, vitamins and animal health products.  The 
company also has subsidiaries through which it provides health 
care management services in the U.S.

A cancellation of Lilly's drug to treat heart congestion has 
sent shares trending lower.  The announcement came on Sep 03 
when LLY was at $77 and it has been downhill every day since 
then.  Apparently deaths in the trial patients doubled from 
the control group.  Company officials were not saying that 
the drug had a direct impact but they have decided against 
continuing with the trial, which has concerned investors as 
LLY's pipeline is now one drug thinner.  This was the trigger 
for the selloff but more fuel continues to push LLY lower.  
Today, Eli Lilly was downgraded by Banc of America Securities 
to a Buy from a Strong Buy.  This included a cut in the price 
target from $120 to $90.  This is a significant drop for a 
target price, as it adds up to a 25% revision.  The details 
of the revision are still unknown but it should help to keep 
the stock underwater.  Technically speaking, LLY lacks support 
until $65 and even then it shouldn't be strong.  We would 
expect LLY to get closer to $60, which was the previous low.  
The CPI will be released before the open tomorrow so we should 
know market sentiment ahead of opening new positions.   Look 
for an intraday bump up to get in. 

BUY PUT OCT-70*LLY-VN OI=1540 at $3.00 SL=1.50
BUY PUT OCT-65 LLY-VM OI=2090 at $1.19 SL=0.00 High Risk!

Average Daily Volume = 2.84 mln
Chart = http://quote.yahoo.com/q?s=LLY&d=3m


SFE - Safeguard Scientifics $72.00 +2.38 (-0.50)

See details in Sunday's write up

Tuesday's Write Up

SFE had a great day along with the rest of the software sector 
and NASDAQ when economic data suggested that the economy was 
growing faster than expected.  Most analysis predict PC sales 
will be strong heading into next year and profit margins in 
the industry appear to be stable.  By itself, SFE is still 
technically very strong closing once again above its 10-dma.  
This play still appears to have more profit potential in it.  
On Tuesday, the stock gained $2.38 to finish the trading 
session at $72.00.  SFE has the ability to breakout with just 
about any catalyst giving it a reason.  First Union Capital 
recommend SFE is a wise long position as well when it upgraded 
the stock on September 8th from Outperform to Buy.

BUY CALL OCT-65 SFE-JM OI=119 at $ 9.63 SL=$7.50
BUY CALL OCT-70*SFE-JN OI=146 at $ 6.63 SL=$5.25
BUY CALL OCT-75 SFE-JO OI= 75 at $ 4.00 SL=$2.50
BUY CALL NOV-70 SFE-KN OI=713 at $ 8.88 SL=$6.75
BUY CALL NOV-75 SFE-KO OI=969 at $ 6.88 SL=$5.25

Picked on Sep 7th at    $70.75     P/E = 17
Change since picked      +1.25     52-week high=$120.00
Analysts Ratings     5-5-1-0-0     52-week low =$ 17.13
Last earnings 06/99  est= 0.19     actual= 0.33
Next earnings 10-19  est= 0.15     versus=-0.55
Average Daily Volume =   472 K
Chart = http://quote.yahoo.com/q?s=SFE&d=3m


New Plays Off To A Good Start..

Sunday's new positions (opening prices):

Continental Airlines          CAL  MAR35C/MAR35P  $8.62   debit
Donaldson, Lufkin & Jenrette  DLJ  JAN50C/JAN50P  $13.25  debit
Avis Rent-A-Car               AVI  DEC22C/DEC22P  $4.38   debit

All three of our new positions were available at the suggested
entry points. Continental (CAL) was a bit difficult yesterday
but it was easily achieved in this morning's session. Avis (AVI)
option premiums were lower than expected at the open on Monday
and our debit target was adjusted downward. The overall position
traded as low as $2.25 during the day.

More about straddles..

A straddle is an appropriate strategy for situations in which one
suspects that the stock price will move substantially but does not
know in which direction it will go. A straddle can work very well
in situations where important news is about to be released and it
is expected that it will be either very favorable or extremely

Corporate earnings announcements, new drug approvals, merger or
takeover speculation and annual board meetings (splits/spinoffs)
are other examples of situations in which uncertain information
will be released on a specific date. Those of you interested in
event driven straddles might consider a Liposome (LIPO) position
ahead of Thursday's FDA review of Evacet. Implied volatility is
extremely high but some traders expect the position move as much
as $5 on the announcement. In this case, a straddle is certainly
not without risk however. When investors already know or expect
the information, options will be overpriced and the underlying
stock price may move very little when the announcement is made.
If this happens, the worst thing a trader can do is to hold on to
a previously purchased straddle in the faint hope that some other,
unanticipated news will be released before the options expire.

The most important thing to remember when evaluating a straddle
is to understand that the greater uncertainty associated with the 
previous examples are known by everyone. The options will already
be priced according to a higher stock volatility, making the play
unfavorable. The most attractive straddles will be those in which
the trader is confident that the stock will be more volatile than
everyone else.

If you do not have a good knowledge of Implied Volatility, please
review that concept before you trade these types of positions. It
is important that you understand what it is and how it behaves
before spend your money on positions that profit from volatility.

Assuming you now have an understanding about Implied Volatility,
we can discuss another component of option pricing: time value.
Option premium consists of two components: Intrinsic Value and
Time Value. Assume that a current stock price is equal to the
strike price. In this case an option's premium for the call and
put does not have any intrinsic value, only time value. 

The main factors that influence Time Value include:
1) The number of days till expiration
2) Implied Volatility 
3) How far the Option is in or out-of-the-money. 

At-the-money options have the highest time value. As the option
starts moving in or out-of-the-money, the time premium begins to
lose value. The closer an option is to expiration, the more an
option's premium will shrink (per day) due to time decay.

This gives us a guideline in selecting a straddle. We have to pick
an expiration month so that the price of the straddle will not be
too high (not too far from expiration). However, it should still
provide enough time for the stock to perform as expected, before
we have to exit the trade to preserve capital. One important fact
to remember; the highest increase in time decay for at-the-money
options occurs in the last 30 days before expiration. That means
we should rarely hold a straddle position to expiration. When you
understand that time decay is working against you, you can begin
to choose trades in which the other beneficial components such as
intrinsic value and implied volatility, will help your position
profit, even as time passes.

More on that subject next week..

Good Luck!


Roaring Retails Wreck The Dow..

Monday, September 13

Blue-chip issues managed to hold their ground in the midst of
a major technology sell-off as investors await a key economic
report due at mid-week. The Dow Jones industrial average was
virtually unchanged at 11,030 but the Nasdaq composite index
fell 42 points to 2,844, one session after setting a record
high close. In the broader market, declines beat advances
1,728 to 1,210 on moderate volume of 652 million shares on
the New York Stock Exchange. The 30-year Treasury bond fell
5/32, raising the yield to 6.05%.

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

C.R. Bard     BCR   JAN55C/OCT55C  $1.93  debit  calendar
BJS Services  BJS   OCT40C/SEP40C  $0.00  debit  calendar
Tut Systems   TUTS  OCT22C/OCT25C  $2.06  debit  bull-call
Zoltek        ZOLT  APR7C/OCT7C    $1.06  debit  calendar

Lots of new plays to watch on Monday morning and some other
adjustments as well. The activity was interesting with our
issues going in both directions. C.R. Bard was probably the
most commonly played candidate of the group and the spread
should been available at the target entry. We noticed a pair
of trades (20 contracts total) at $1.93 debit near 10:30 AM
and the soon the market-makers were wise to our game; they
quickly widened the spread to $2.12. It appeared unplayable
beyond that point. BJS Services was never really in play as
the bid on the short option was significantly lower in the
morning session. The best we recorded was $2.00 debit and
that's just a bit too far from the target for a short-term
volatility play. Luckily, it appeared that no one played the
(overpriced) position. Zoltek was basically unchanged during
the session. The suggested price should have been achievable
but there were no (spread) positions opened. The alternate
play was APR/OCT and there were 8 contracts in that series
(at the same price as the original play). We will study the
new play to observe its performance. The last offering was a
bullish debit spread on Tut Systems. The recommended entry
was not available but it appeared that at least two spread
positions were opened near $2.00. We will record the entry
at $2.06; that price (although slightly higher than we would
personally play) was available at 10:09 AM.

Portfolio plays:

Today's market was dominated by moves in individual issues as
the report on August consumer prices due on Wednesday, weighed
heavy on the minds of investors. Analysts expect the overall CPI
will rise 0.3% and the core rate should rise 0.2%, possibly a
precursor to higher interest rates. The earnings season is still
weeks away and the next Federal Reserve policy is not scheduled
until early October so this is the big issue right now.

Lots of activity in the spreads portfolio and it was mostly in
the large-cap issues. Motorola (MOT) was probably the biggest
mover in that group after a pre-market announcement that they
were planning to acquire General Instrument (GIC) in a stock
transaction worth about $10 billion. Motorola's comments that
it expects to meet 1999 and 2000 earnings estimates did little
to sway analysts from thinking that the (GIC) takeover is a bad
idea and the stock lost $8 to $90.38 by the end of the day. In
our case, the news solved our current roll-out decision for us.
We quickly sold the ATM options for October ($100 at the time)
and the current resistance at that price should protect against
any upside moves. The problem now, of course, is the downside.

Solectron (SLR) was also one to watch as it unveiled new plans
to buy Smart Modular Technologies (SMOD) in a stock deal valued
at $2 billion. In this case, that was good news, as the stock
price fell closer to our sold (short) position. After the close,
Solectron reported fourth-quarter earnings of $0.33 a share,
beating both the analyst estimates and the year-ago earnings.
Selectron is now a candidate for roll-out as investors decide
the market value of the merger over the next few days.

3Com Corp (COMS) was a big mover among the smaller issues and
while that's good for our bullish debit spread, it plays havoc
with our current long-term position at $27.50. COMS has a habit
of making one day rallies so we may still be able to catch this
one before the Friday expiration. Another small-cap issue that
is making waves is Cabletron systems (CS). Once again, we have
two positions here; one is bullish with a sold $17.50 strike,
now trading at maximum profit and the other involves a longer
term call with the sold (short) option also at $17.50. Today's
morning move sealed our fate on the 2001 LEAPS/CC"s play as we
took the opportunity to roll-forward for a small credit ($1.00).
Chiron (CHIR) is one of the few remaining diagonal spreads and
today's small rally pushed it to maximum profit at $4.88. It
should be closed to protect gains and prevent potential losses.

Two issues that moved lower in our favor were J.P. Morgan (JPM)
and Occidental Petroleum (OCC). The JPM bearish debit-spread is
now trading at small profit and should finish at the maximum
return on Friday. If you didn't adjust the OCC play last week,
you now have another opportunity with the roll-out to October
$22.50 options trading at a $0.50 credit.

Tuesday, September 14

Blue-chip stocks extended their losses after a strong retail
sales report heightened interest rate fears ahead of the CPI
report on Wednesday. The Dow Jones Industrials dropped 120
points to 10910. The Nasdaq actually managed a gain, rising 23
points to 2868. In the broader market, declining issues beat
advances by a wide 3-1 margin on volume of 723 million shares
on the New York Stock Exchange.

Portfolio plays:

Qualcomm (QCOM) was a giant today, up almost $20 at one point
after the company said that it will match the Street's earnings
expectations for the fourth quarter. QCOM also announced plans
to sell its mobile telephone business by the end of the year as
it focuses on developing its more lucrative wireless technology

Solectron (SLR) also bounced back slightly from yesterday's
sell-off and we used the opportunity to roll our 2001 LEAPS
position to October with a credit of $1.75 at the $70 strike.
Another long-term, in-the-money play was moved into October;
Medtronics (MDT), at a credit of $1.50 for the $75 strike.

Today's top candidate for adjustment was 3Com Corp (COMS) as
it consolidated in morning trading, down $1.25 in the first
hour. The move provided an excellent exit opportunity and our
short-term position (OCT25C/SEP25C) was closed for a profit of
$1.88 while the January calendar spread (at $27.50) was moved
forward to October with a $1.38 credit.

Our play on Cabletron (CS) yesterday may have been premature as
today the stock moved higher after one analyst raised his 2001
earnings/revenue estimates and upped the price target to $25.
In his report, the analyst said he expects strong new product
flows at the networking company but he also commented on CS's
history of miscues suggesting that the speculation of higher
earnings is not without risk. In any case, we will have to live
with the current position (extreme downside protection) and
make our next adjustment as conditions dictate.

Good Luck!

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

Communications stocks appear to be returning to the forefront of
institutional trading. Here are three well-known issues that have
been in the news recently..
BEL - Bell Atlantic  $64.13   *** Vodaphone Deal? ***

Bell Atlantic is at the forefront of the new communications and
information industry. Bell companies are premier providers of
advanced wireline voice and data services, market leaders in
wireless services and publishers of directory information. Bell
Atlantic companies are also among the world's largest investors
in high-growth global communications markets, with operations
and investments in 21 countries. Bell Atlantic's Information
Services Group is the world's largest publisher of Yellow Pages

Bell Atlantic confirmed this week (Sunday) that it is in talks
with Vodafone - AirTouch (VOD), the world's largest wireless
telephone company, to establish a U.S. business relationship.
If the negotiations go as planned, the companies could form a
nationwide wireless company valued at $75 billion. BEL was not
specific about what type of business relationship would emerge
from the discussions and a timetable had not been established
to conclude the talks.
An industry source said that a deal for a nationwide wireless
network would enable the companies to benefit more from the
advertising and customer service dollars spent, since those
costs could be spread over a larger customer base. A company
with a larger geographic area also would enable its customers
to use its wireless service when they traveled to various parts
of the country.

The response from investors has been mediocre but the options
market has been very active, leaving us with a favorable premium
disparity to open this position. Regardless of the final outcome
of the negotiations, BEL's improving operating and net margins,
its steadily increasing dividend payments, and the progress it's
making to enter the long distance services market against rivals
Sprint and AT&T, make it a viable issue for a long-term play.

PLAY (aggressive - neutral/calendar spread):

BUY  CALL APR-65 BEL-DM OI=41   A=$6.62
SELL CALL SEP-65 BEL-IM OI=1599 B=$0.43

Chart = http://quote.yahoo.com/q?s=BEL&d=3m
FON - Sprint  $51.00     *** Takeover Rumors! ***

Sprint Corporation is a holding company. The principal activities
of Sprint and its subsidiaries include domestic and international
long distance and local telecommunications services.

Once again, FON has become the source of new takeover rumors and
implied volatility increased in options as the stock price rose
to recent highs near $50. The volume also remained above average
with most of the interest in call options. This follows a large
order last Friday, over 11,000 call option contracts in the $50
series for October.

Back in August, Sprint was also a merger candidate but declined
to comment on takeover talk, which has reappeared periodically.
The most recent rumors have boosted the stock price 10% over the
last week and the trend is definitely bullish in the short-term.
The extreme disparity in the front-month OTM options offers an
excellent probability of profit if the stock price can remain
in a reasonably small range for the next few days.

PLAY (aggressive - bullish/volatility spread):

BUY CALL  OCT-55 FON-JK OI=4698 IV=83 A=$2.93
SELL CALL SEP-55 FON-IK OI=3225 IV=66 B=$0.38

If you like Sprint for the long-term, a favorable disparity
exists in the 2001 LEAPS as well..

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

BUY  CALL JAN01-55 ZON-AK OI=257  A=$9.38
SELL CALL OCT-55   FON-JK OI=4698 B=$2.68

Chart = http://quote.yahoo.com/q?s=FON&d=3m
QWST - Qwest Communications  $30.00   *** A New Trend? ***

Qwest Communications is a leader in reliable and secure broadband
internet-based data, voice & image communications for businesses
and consumers. The Qwest Macro Capacity Fiber Network, designed
with the newest optical networking, will span more than 18,500
miles in the United States when it is completed. Qwest also has
a pan-European venture with KPN, the Dutch telecommunications
company, to build and operate a high-capacity fiber optic,
Internet Protocol-based network. They also recently acquired
Icon CMT Corporation.

Qwest stock rose this week after the company said it completed
construction of its high-speed fiber-optic network on time and
under budget. The new system will help them deliver low-cost
Internet and e-commerce services to businesses at a local level.
The company is now set to focus efforts on building high-speed
fiber networks in 25 cities in order to provide local broadband
access to its nationwide network. Construction in seven cities
is expected to be finished next year. The remaining networks
will be completed by the end of 2001 with resources that are
being shifted to accelerate building of these local broadband

The news is great but we like the short-term technical history
with most of the common indicators pointing higher and buying
pressure moving to the upside since early August. This issue
appears poised for a new run to the $35 range and our deep ITM
cost-basis will withstand any minor correction.

PLAY (conservative - bullish/debit spread):

BUY  CALL OCT-23.75 QWA-JT OI=225  A=$6.62
SELL CALL OCT-27.50 QWA-JY OI=6335 B=$3.37
INITIAL NET DEBIT TARGET=$3.00 ROI(max)=25% B/E=$26.75

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

See Disclaimer in section one


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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