Option Investor
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Daily Newsletter, Thursday, 09/16/1999

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The Option Investor Newsletter         Thursday  9-16-99
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)
************************************************************
        9-16-99            High     Low     Volume  Advances Decline
DOW    10737.50 -  63.90 10799.30 10626.60   727,146k    888   2,066
Nasdaq  2806.72 -   7.45  2820.84  2756.03   960,306k  1,358   2,501
S&P-100  694.89 +   1.08   697.37   684.10    Totals   2,246   4,567
S&P-500 1318.48 +   0.51  1322.51  1299.95             32.9%   67.1%
$RUT     430.25 -   6.08   436.63   429.31
$TRAN   2986.88 - 100.72  3089.85  2979.02
VIX       26.99 +   0.61    29.95    25.96
Put/Call Ratio      .81
*************************************************************

Storm clouds blow in, bringing uncertanity to the markets.

As if the ever changing interest rate climate was not enough to
give the markets indigestion, Hurricane Floyd, now downgraded to
a tropical storm, pounded away on the east coast and threatened
to shut down trading early. After the bond markets and the NY
Mercantile Exchange closed early the SEC rushed to assure traders
that the equity markets would be open on triple witching Friday.

Traders rushed to cover positions this morning after various
rumors made the rounds about a possible Friday closure. Closing
the markets on Friday would have been a disaster for the options
and futures expirations. Traders were concerned about when/how
the expiration would be handled. Would Thursdays close be the
number? No, not hardly. Would trading be carried over to Monday
with expirations occurring on Tuesday? The question was ruled
mute when officials rushed to assure traders that the markets
would be open for trading. As with a collective sigh of relief
the Dow roared back from a -177 point drop but still ended the
day down -64 points. The Nasdaq also recovered from a -58 point
fall to flirt with positive territory near the close.


 

 

 

Four days, four drops, where is the Sept rally I was looking for?
It looks like the positive market fell victim to a variety of
problems. Last week we had not one, not two, but six FED speak
appearances. After the Kelley attack the week before, the markets
were very cautious of any future FED stealth bombs. Secondly
the PPI was another milestone holding traders back last week
and the CPI marked this weeks deadline. Both to be avoided by
big investors. Thirdly, the wildly optimistic earnings for the
third quarter of +20% are now being called into question almost
daily with earnings warnings by big name companies. The fourth
market problem was the falling dollar which makes our goods and
services more expensive and investments in the U.S. less desirable
for Japanese investors. Last and not least is the soaring price
of oil. At $24.50 today, a 2.5 yr high, the damage is being felt.
With future estimates of $28-30 now commonplace the transport
sector, the first sector to be impacted strongly, set a new yearly
low. Honorable mention here should also be the impending Y2K
sell off. It appears investors are becoming more and more concerned
that their might not be a third quarter earnings run and selling
into any rally is picking up speed. 

Federal Express was a major factor in today's drop with an earnings
warning for the next quarter. After missing estimates for last
qtr by -.02 and warning about next, FEDEX dropped -5.44 to lead
the transports down. QTRN was the next lucky loser of the day with
a -14.75 after warning of slowing orders for several drugs that
were not living up to expectations. But, you point out that those
are not tech stocks. Sorry pardner, but some of those leaders took
a bullet also.

HWP dropped on news that sales of their UNIX servers were slowing
for the fourth quarter. One analyst said that SUNW had a much
better product and SUNW sales were increasing rapidly. That was
enough to drop HWP for a -4.56 loss and account for about -20
of the Dow drop. As if that was not a big enough name to attract
attention, Xerox also reported that sales were expected to grow
in the +3 to 4% range when analysts were expecting +5% growth.
Boom! Another one bites the dust to the tune of -4.31 for the
day. Raytheon (RTNA) rounded out the trio of big tech losers with
it's own warnings of a pending shortfall and was dropped for a
-7.25 loss.

Things are not looking good in the market. However, that is 
probably a good thing. Sometimes, like the hurricane problem,
things look blackest just before the storm. When the storm
actually arrives it's bluster and fury don't always equal
the expectations. Look at Floyd. This morning it was a market
mover as the entire north east geared up to be blown away. Tonight
it is turning into just a strong thunderstorm. The Dow had
dropped -516 points from its recent high of 11142 last Friday.
-500 points in four days = a strong possibility of a technical
bounce. Secondly, we are at the very bottom of our longer term 
trading range. Right at the bottom set on Sept 2nd/3rd and the
bounce today came only a couple dozen points off the August lows.
Another receipe for a technical bounce. Thirdly there are not
any earth shaking economic reports due out tomorrow. Sure, we
have another Fed scare at 8:45 AM ET tomorrow as Alan Greenspan
talks about Y2K preparedness but the downside is very slim. I
doubt he will preach doom and gloom. I suspect he will brag
about measures already in place and try to reassure investors
that Y2K will just be another holiday. While many will not
believe it there are also many who are hoping that the government
will just "take care of it" and their investment plans will
not suffer. These people will be encouraged and the market could
rally from here. The technicals of the market continue to be 
very negative. Today there were 17 new highs compared to 147 new
lows and the advance/decline line was negative by better than 2:1.
However, even with all the doom and gloom in the technicals the
market has been know to turn on a dime just when the outlook
looked worst.

My take on today? ENTRY POINT !!   But never fight the tape. If
I am wrong, and it will not be the first or the last time, sell
too soon. Friday could be just a technical rally or the start of
a more prolonged move. Lets just hope the direction is up. Watch
out for more earnings warnings in the morning and wait for amateur
hour to be over before opening any new positions.

Jim Brown
Editor




*****************
MARKET POSTURE
*****************

As of Market Close - Thursday, September 16, 1999 

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

DOW Industrials   10,500  11,320  10,737    Neutral   7.20    
SPX S&P 500        1,330   1,420   1,318    BEARISH   9.16  *     
OEX S&P 100          675     735     694    Neutral   8.13     
RUT Russell 2000     440     465     430    BEARISH   9.14       
NDX NASD 100       2,320   2,400   2,467    BULLISH   9.03   
MSH High Tech      1,120   1,200   1,241    BULLISH   9.03   

XCI Hardware       1,035   1,050   1,103    BULLISH   8.24    
CWX Software         750     800     868    BULLISH   9.03         
SOX Semiconductor    515     520     552    BULLISH   8.24      
NWX Networking       555     625     604    Neutral   8.13      
INX Internet         500     580     455    BEARISH   7.20    

BIX Banking          690     710     586    BEARISH   7.23    
XBD Brokerage        410     440     367    BEARISH   7.23    
IUX Insurance        645     660     578    BEARISH   7.23         

RLX Retail           915     960     818    BEARISH   7.23     
DRG Drug             365     390     359    BEARISH   9.16  *    
HCX Healthcare       745     785     729    BEARISH   9.16  * 
XAL Airline          180     190     137    BEARISH   5.21      
OIX Oil & Gas        285     310     302    Neutral   9.16  *     

 
Posture Alert    
Hurricanes, hedge funds, insurance companies, whatever the excuse, 
sector after sector is slowly breaking down. With Thursday's action, 
we have turned BEARISH on Healthcare, Drugs, and the S&P 500. We have 
also turned Neutral on Oil & Gas, which could not hold the positive 
gains from the previous week.   Technology (semi's, software, 
hardware, NDX) seems to be the only place that is holding, but we 
have all felt the speed at which these sectors can drop, so we will 
continue to watch these sectors with close scrutiny. 

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

/members/marketposture



*****************
MARKET SENTIMENT
*****************


Thursday, September 16, 1999

Name 3 Things You Want To Avoid This Week?

Planes, Trains, and Hurricanes. 

Anyway, is Wall Street waiting for October's earnings, or waiting for 
the capitulation that we spoke about in July/August? Our guess is the 
latter. Many Wall Street professionals were caught off guard by the run 
up that we've had recently, and many did not even participate. We never 
really had the huge intra-day drop, with the outcome being positive at 
the end of the day. The rubber band snapping back into place. Is it 
around the corner, or are new highs?

We are seeing failed rallies in many sectors across the board. They had 
a bounce late August, but are now back to trending lower. There are 
several sectors still doing well (semiconductors, hardware, software, 
MSH high tech, NDX), however, anyone with experience can tell you how 
quick these sectors can drop. Tech wrecks happen and happen quickly. In 
the blink of an eye, you're down 10 points on a stock that you thought 
had already bottomed out. Right now, in the Market Posture section, 5 
sectors are bullish (named above), 4 neutral, and 10 are bearish. This 
is not a good sign. How quick can those 5 bullish sectors become 
neutral or bearish? You know the answer.

Several other things of note, first of all, negative sentiment is once 
again building. Bullish sentiment dropped 2.6% this week, while bearish 
sentiment increased .9%. It looks as if we had a one-week head-fake, 
with more bearishness to come. As we have stated before, this will be 
good for the market down the road. Also, the VIX broke above and closed 
above the 25 mark. This technically may also indicate further weakness 
in the market. For the last several months, the VIX did break into the 
low 30's, which proved to be an excellent buying opportunity, so watch 
and see if that number holds again.   
 
On Tuesday, Pinnacle noted that for OEX traders, there was good support 
at 690. This number did come into play, and held ground as evidenced by 
today's action. However, based upon current indications and our 
sentiment research, our new support level is 680.
    

 


 


 





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.

Mixed Signs: 

Market Posture:
Several indexes have broken new highs recently, including the Nasdaq 
100, Morgan Stanley High Tech, Software, Hardware, and Semiconductors. 
However, as volatile as these specific sectors are, any weakness can 
lead to a steep drop in a short period of time.

BEARISH Signs:

Volatility Index:
The VIX broke above the 25 mark, indicating further weakness ahead. It 
has held ground in the low 30's, which may indicate a bottom, if held.

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 these 
last two weeks.


Advance/Decline Line:
The A/D line continues to be poor and is getting worse.





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      325.0
Underlying Support  (710-730)      2.5        2.4        3.1
Underlying Support  (630-690)      4.2        6.1        5.8
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .5       .5           .7
CBOE Equity P/C Ratio               .5       .5           .6
OEX P/C Ratio                      1.3      1.2          1.2


Peak Open Interest (OEX):

Puts                              660          
Calls                             720          
P/C Ratio                         1.36

Market Volatility Index (VIX):	

CBOE VIX                         27.09



Investors Intelligence:

Bullish                         41.50%  *
Bearish                         31.40%  *


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

Overhead Resistance (735-780)   108.90      313.00     325.00
Overhead Resistance (710-730)     2.45        2.38       3.08

OEX Close                       712.79      704.80     694.89

Underlying Support  (630-690)     4.20        6.06       5.83
                     

 
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        .71
CBOE Equity P/C Ratio            .46       .50        .56
OEX P/C Ratio                   1.32      1.21       1.18


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

Puts                 660 / 14,393     660 / 14,375    660 / 14,080    
Calls                720 / 13,506     720 / 12,384    720 / 10,385
Put/Call Ratio         1.06            1.16             1.36



 


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 16, 1999                      27.09 


 



Investors Intelligence 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 
Sept 15, 1999                         41.5        31.4  *



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

Index     Last    Mon     Tue     Wed     Thu    Week
Dow    10737.46   1.90 -120.00 -108.91  -63.96 -290.97
Nasdaq  2806.72 -42.29   23.52  -54.12   -7.45  -80.34
$OEX     694.89  -4.03   -3.96  -10.99    1.08  -17.90
$SPX    1318.48  -7.53   -7.84  -18.32    0.51  -33.18
$RUT     430.25  -1.54   -1.41   -1.91   -6.08  -10.94
$TRAN   2986.88   0.70   -0.84   -3.23 -100.72 -104.09
$VIX      26.99   1.49    1.21    1.33    0.61    4.64

Calls             Mon     Tue     Wed     Thu    Week

NTAP      72.00  -0.69    2.94    2.19   -0.31    4.13  Impressive
ADI       57.06  -1.63    4.13   -2.19    0.50    0.81  Come back
INKT     128.63  -6.44    4.19    3.13   -0.78    0.44  Surfing
SFA       55.75   2.63    0.13   -2.06   -0.63    0.06  Volatile
EMC       67.75   0.69   -0.38   -2.56    1.88   -0.38  Defiant
AMZN      65.25  -3.25    2.69   -0.44   -0.31   -1.25  Stalling
SUNW      84.69   0.00   -0.69   -3.00    2.31   -1.38  Blazing
INTU      99.75  -0.50    5.13   -4.31   -1.75   -1.44  Opportunity
ERTS      74.50  -4.31    3.63   -1.19    0.19   -1.69  Bounced
DISH      91.00   0.38   -2.88   -0.56    0.00   -3.00  Drifting
TXN       87.63  -1.63    2.88   -5.25    0.88   -3.13  New venture
FLEX      60.25   2.13    1.81   -2.63   -5.19   -3.50  Dropped
SFE       68.81  -2.88    2.38   -2.00   -1.19   -3.69  Hanging on
BGEN      84.88  -0.69   -0.94   -3.25    0.75   -4.13  Earnings up
JDSU     107.63  -2.56    2.69   -2.31   -2.19   -4.38  Rough ride
LGTO      44.31  -0.88   -1.09   -1.00   -1.88   -4.81  Dropped
QLGC      91.00  -3.00   -0.44   -1.00   -0.75   -5.19  Stormy
YHOO     163.44  -9.75    4.44   -2.44    1.06   -7.06  Entry point
CHKP      86.00  -2.50   -0.41   -2.94   -1.50   -7.63  Dropped
CMGI      81.69  -5.50    1.88   -0.69   -3.81   -8.13  Downslide
HGSI      76.81   2.38   -4.31   -6.69   -1.19  -10.69  Dropped

Puts

LLY       67.56  -0.50   -2.00   -1.75   -0.56   -4.81  Free fall
COST      66.69  -1.06   -1.25   -0.50   -0.38   -3.19  Wounded
GPS       33.00  -0.81    0.94   -2.13   -0.81   -2.81  No support
JNJ       95.75  -0.19   -1.38   -0.75    0.00   -2.31  New play
KO        54.06   0.44   -0.81   -0.69   -1.44   -1.06  Sell-off
CVS       41.19   0.06    0.19    1.25   -0.25    1.25  Dropped
HNZ       44.50   0.19    0.00    1.44   -0.13    1.50  Merger?
SWY       45.25   1.75    0.25    1.19   -0.69    2.31  Breakout




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:
******

HGSI $76.81 -1.19 (-10.69) Take what you can and run for cover!
That's what investors have been saying as HGSI has been acting
like it's running from Floyd.  The hurricane that is.  We took
a turn for the worse as investors cashed in their gains and
worry about the markets future.  The turn has dropped HGSI below
support of $83 and now rests on the 20-dma.  Yesterday the 
stock started it's tumble on negative earnings news in the 
biotechnology sector.  Hopefully OIN investors took our advice 
and protected those gains with stops.  Because our technical 
indicators have turned bearish in all areas, this play is now 
being dropped.  Although HGSI has been speculative, it has been
a very profitable play.  Rising over $35 since our pick, most 
investors should have realized nice gains in this stock.  We 
hate to see it turn but it's a drop until better days.

FLEX $60.25 -5.19 (-3.50) Break the rules and your out!  Flex
broke our rule and dropped significantly below support so FLEX 
is a drop.  Closing up from the days low, it now rests close 
to the 20-dma at $60.  With all the technicals in a negative 
mode, this play is history.  So why the sudden change in 
direction?  The company announced that it is selling 14.4 
million shares of stock to re-pay dept.  This decision is 
providing negative pressure since investors like companies to 
buy back shares, not sell them.  It dilutes the stock and the 
earnings.  Because of the many good bounces off support, FLEX 
did provide us with opportunities for profit, although not the 
long-term play we had expected.  Hopefully you profited as you 
played the stock off support and protected gains with stops.

CHKP $86.00 -1.50 (-7.63) Check Point today is suffering from a 
swift kick of 'all the news is out' syndrome and the stock is 
selling off.  After a nice run to new highs in the previous days 
it has just run out of steam.  Today it pulled back to its 10-dma 
after it was downgraded by "Sands Bros" from a Buy to a Neutral.  
Strangely enough, two weeks ago they started it as a Buy.  The 
overall weakness in the stock market did not help its case.  
Although no fundamental bad news has been reported on Check 
Point, it is time to retreat from this trade.  In current market 
conditions, stocks like Check Point that have continuous 
technical price extensions are a profit-taking target for Wall 
Street.  We believe that the target practice has not ceased at 
these levels and the shares may continue to sell-off. 

LGTO $44.31 -1.88 (-4.81)  The nasty market has pressured LGTO 
to below its ominous 10-dma and this is definitely not a 
favorable condition for this momentum play.  On Tuesday we 
noted the dwindling volume and warned that LGTO's strength may 
be waning.   Well the recent performance is especially anti-
climatic since LGTO just set a new 52-week high at $50.38 on 
Friday.  And to top it off, this latest record followed 4 
straight days of the stock exploring new territory!  But we 
can't fight a trend and are dropping LGTO tonight.  Your stop 
losses should have minimized any losses if you hadn't jumped 
ship before today.  


******
PUTS:
******

CVS $41.19 -0.25 (+1.25) Well, we were hoping for the best 
and unfortunately received the worst.  We were watching for 
a bounce off the 10-dma but it never developed, instead the 
stock broke through its resistance and continued to show 
signs of strength.  Originally we emphasized the need for 
caution with this play because of the possibility of this 
event.  When a stock falls to the extent CVS has, it's just 
a question of what price investors feel it is a fair value.  
In this case, it was just under $40 where investors were 
willing to buy back in.  For the obvious reason we have 
decided to end our play on CVS.


******

Plays continued in Section Two

******


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








The Option Investor Newsletter         Thursday 9-16-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

**************
TRADERS CORNER
**************

Judgment

Judgment is the result of experience, and experience is the result 
of bad judgment. That rings through my head as I sit here and 
watch a market fall apart, knowing that I should have closed some 
positions. At least, I closed enough positions so that my core 
option trading capital was protected. Here are my plays:

CSCO Sept 70. Bought at 1 1/4 two weeks ago, sold at 2 yesterday 
at the open. 60% return. I saw CSCO spike over 72 on the positive 
CPI Report, then begin to head south with the rest of the market. 
Remember: don't buy calls during amateur hour, but consider 
selling calls on the opening spike. That's what I did when it 
looked like the CPI would not be enough to push the market up. The 
ORCL numbers were disappointing, and that didn't help the tech 
sector either. 

SUNW Sept 80. Bought at 1 5/8 two weeks ago, sold at 5 3/8 
yesterday at the open. 230% return. Same situation as CSCO 
above. 

Here is an exercise that I recommend to anyone evaluating your 
plays from the last 3 weeks. Take the options that you played, and 
print out a chart of the price over the last three weeks. Now, ask 
yourself what your entry and exit strategy was. I have detailed how 
I could have set up better entry points in past columns (patiently 
target shoot, allocate a certain % of capital over a several day 
period). But, on the exit strategy I have (re)learned another 
lesson: 25% is beautiful. And easy. Almost every option play that 
the newsletter recommended over the last 3 month had multiple
opportunities to take 25% profits. Bad entry, good entry -- 
regardless of your entry, on most plays, you could have made easy 
25% gains, often in a couple of hours. Now, take out a financial 
calculator, and do a simple compounding exercise. Put in $1000 and 
add 25%, and repeat the process 5 times. You get $3051. That's a 
200% return. That's what the 10 rules (see the left side of the 
menu bar near the bottom) mean by Cash Flow is King. 

This is why I have returned to the most basic learning point of my 
first two months as an option trader. Go for the cash flow profits 
of 25% on my plays. My hard and fast personal rule now is to take 
25% profits on half of EVERY position. As I look back on the 
winning and losing trades that I made over the last 3 weeks, I 
realize that I would have done very well if I had followed that. 
I want to make one further point about this rule, which is the
downside protection that it gives you. Suppose you buy 10 
contracts of IBM January 100 Calls at a cost of 5. You have $5000
dollars in the play. If you follow my rule of taking half of the 
position off the table at 25% profit, you will sell 5 of the 
contracts at a price of 6.25. You get back $3125 on an original 
investment of $2500. That's good cash flow, especially if you 
accomplish that in a few hours, or a day. You can use the money
again immediately in other good opportunities. But, look at your 
remaining 5 contracts. If they go to 75% or 100% profit, great, 
you should have limit sells set at those levels too. The 
newsletter picks good plays, and you will often get this. But 
often your entry timing will be bad. You STILL make a profit, 
if you chose to sell the remaining 5 contracts at anything above 
3 3/4 (excluding commissions). That gives you some peace of mind 
if you let the play run a few days in a volatile market.

Anyway, this will be my approach to playing options for the next 
two months. After the Oct Earnings Season, I also plan to 
transition into the more advanced strategies which Jim Brown and 
Fontanills are teaching at their seminars. Good Luck. 

Janar Wasito

janar@OptionInvestor.com



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

QLGC $91.00 -0.75 (-5.19) The relentless pounding of the market
storm, has driven QLGC back, close to it's 10-dma of $93.  We 
are currently slightly below that level and sitting in a bearish 
mode.  Our stochastic, MACD and relative strength have all 
taken a negative turn, so the caution light is officially on.  
At this level, we could see a turn around and, with some market 
help, have this play back on track.  The risk is great however 
and only for the brave of heart.  There is nothing wrong with 
waiting out the storm for a better forecast.  Hopefully after 
today's recovery from the day-low in the markets, we could be 
back on track.  But for now, be content to sit it out and
wait for the positive confirmation.

EMC $67.75 +1.88 (-0.38) EMC defied the odds today.  While the
market in general was in retreat mode, EMC managed to give us
a slight gain.  This strength puts EMC in a very favorable
position to rise on a market turn around.  Don't hold your
breath however, as many traders may not be around to take 
take the stock higher due to the storm.  With support at $66, 
we are close enough to still have a good entry point, should 
the market favor us with a positive run.  EMC is being buoyed 
by positive investor outlook and expectations.  Although the 
news on EMC is not recent, it is good with buy recommendations 
and information on the companies using their products to 
increase productivity.  Be cautious, do not jump in too soon!  
Wait for an upward move in both the market and the stock.  

NTAP $72.00 -0.31 (+4.13) The beat goes on for NTAP despite 
any positive news or a positive market to help the stock.  The 
strength NTAP is displaying is impressive as it continues to 
hold well above the 10-dma at $68.50 despite the overall market 
jitters.  We were looking for a pullback to open new plays 
but it only made a quick dip to $70 before bouncing right 
back to close only $0.75 from a new high.  With today's nice 
turn around in the broad markets, we would not be surprised 
if NTAP does make a run for a new record.  At this point, new 
plays will be tricky.  You may now want to consider an intraday 
dip for an entry point.  But use caution because NTAP is now 
carrying a lofty valuation with a P/E of 122.  This is not the 
kind of play you want to have reverse on you without a stop loss.   

INTU $99.75 -1.75 (-1.44) Intuit continues to provide us with 
buying opportunities ahead of its 3:1 stock split.  After 
another round of profit-taking today, it pulled back to as low 
as $98.18 (or right to the 10-dma) before bouncing back to 
close down slightly at $99.75 on average volume.  Tomorrow the 
market should be rather volatile on a triple witching Friday 
and should give us another opportunity to enter this play, if 
you have not already done so.  We are anticipating a nice run 
in the next 7 to 10 trading days ahead of the ex-dividend date.  
As the stock split draws nearer, the positive action in the 
stock should pick-up.  Technically it has shown good support 
at the 10-dma level and the overall fundamental picture remains 
positive for the company.  Before entering a trade always 
confirm market direction and momentum in the overall market. 

ADI $57.06 +0.50 (+0.81) The semiconductor industry was weak 
again today in early trading, before bouncing nicely off of 
the lows around midday.  We were looking for an entry point 
on an intraday dip in the market near the 10-dma and that is 
exactly what we got.  ADI traded as low as $55, which is just 
what we were looking for.  The semi's commenced to rallying 
off of their lows across the board and although it only ended 
up $0.50, this was 2 points off of the lows and the uptrend 
seems to be intact for both the stock and the sector. There 
are rumors in the market that DRAM chip prices have hit there 
high levels for the year, this and a weak stock market could 
have caused some of the early morning selling pressure.  Going 
forward we would advise that you confirm sector momentum before 
entering a new position.  If momentum in the sector remains 
strong, look for ADI to take out the 52-week high of $59.94 
in the short-term.

BGEN $84.88 +0.75 (-4.13) BGEN was up on news today it will 
report higher-than-expected 3Q estimates on October 7th, after 
the bell.  First Call's EPS consensus for this biotech firm 
is $0.36 and Biogen announced it will come in at $0.38 as a 
result of increased sales of AVONEX, the best selling treatment 
for relapsing Multiple Sclerosis.  AVONEX 3Q sales are expected 
to be $160 mln and this is welcome news.  One of the first 
analysts out of the gate was Elise Wang from PaineWebber.  On 
Wednesday she reiterated a Buy rating and upped the target 
price for BGEN to $105 from $90.  Ms. Wang also adjusted the 
fiscal 2000 and 2001 estimates to $1.72 from $1.70 and $2.00 
from $1.96, respectively.  Today Raymond James reiterated 
their Buy rating and issued a target price of $100.  US Bancorp 
Piper Jaffrey also reiterated a Buy rating and put a price 
target on the stock at $90.  After the dip yesterday, we're 
right at the 10-dma indicator.  But the slight bounce today 
was backed by strong trading volume and this is a plus sign.   
It'd be wise to keep the stops in place.  Much of a descent 
below here could hint at a lower consolidation level and 
remember time costs us money. 

CMGI $81.69 -3.81 (-8.13)  CMGI went on another downslide 
today ahead of its confirmed earnings' date on September 27th, 
after the bell.  Volume advanced to 5.03 mln closer to its 
ADV of 5.66 mln, unfortunately it occurred during the sell-off.  
This volatility has offered a variety of entry points but now 
CMGI is walking the tight rope on the long-term 200-dma.  Last 
month this mark served as bottom support for the stock so 
there's some technical indication that it could bounce again 
under better market conditions.  In the news, CMGI announced 
the completion of Cha! Technologies.  CMGI paid $12.5 mln for 
an 80% stake in the 1ClickCharge(TM) Internet Payment Service 
Company and will commit an additional $12.5 mln to support 
current business operations.  This is the first of its kind 
to be added to CMGI's portfolio.

SUNW $84.69 +2.31 (-1.38) SUNW was one of the few winners on 
the Nasdaq today!  The stock didn't wait for a bullish market 
to make a rebound after slinking down to the low end of its 
support at $82.  This level can certainly be considered an 
entry point but it may be more prudent to confirm the upward 
movement over the next few days.  Remember too that the stock 
is facing overhead resistance at $88, a new record set just 
a week ago.  On a positive note, analyst Daniel Kunstler at 
J.P. Morgan Securities reiterated his Buy rating and issued 
a 12-month target price at $105.  SUNW is now heading into 
its earnings season with the company expected to report on 
October 14th and if anything, this should add some spark to 
this momentum play.  (Remember the strong earnings run it had 
last quarter)  In the industry news yesterday, Microsoft (MSFT) 
announced it will acquire the Visio Corporation in a $1.26 bln 
stock deal.   

TXN $87.63 +0.88 (-3.13) Markets remain mixed these last few 
trading sessions as investors rallied behind benign inflation 
news then quickly sold, taking profits.  TXN has a similar 
story except it was increasing demand for PC's and rising chip 
prices that rallied the computer and semiconductor stocks.  
Fortunately, the result of the rally was different from the 
broader markets.  Even though we sustained loses yesterday, 
a late rally in the broader markets this afternoon helped TXN 
close in positive territory.  Other positive information helping 
the stock was a press release this morning.  Chinese telecom 
equipment maker Eastern Communications announced it had set up 
a joint venture with TXN.  The venture, with registered capital 
of $7 million, was primarily for research, development and 
design of digital information products.  Considering the good 
news, overall technical strength of the stock and the late 
afternoon rally, lets see if the momentum can carry over into 
tomorrow.  Because it is a crazy market, choose your entry 
points carefully and confirm market direction.

SFE $68.81 -1.19 (-3.69) The bears had the upper hand 
throughout the day but the bulls showed their existence by 
late afternoon.  When all was said and done the bears still 
won the war but the bulls managed to recoup most the morning 
losses.  Unfortunately, these loses extended into our current 
play on SFE.  After consolidating between $69 and $72 for the 
past week, the stock managed to break its 10-dma support 
level at $69.58 resting just above it 100-dma at $68.67.  We 
decided to continue the play to see if SFE will hold this 
level.  Continue to use caution with this play and wait for 
positive momentum before placing new trades.  Remember to 
place the recommended stops for protection in case the bears 
get another death grip.

SFA $55.75 -0.63 (+0.06) Just when the stock was flirting 
with another high, profit-takers stepped in and spoiled the 
party.  For the last 2 sessions profit takes have taken many 
technology stocks (including SFA) to lower levels.  Despite 
closing fractionally lower for the day, a late afternoon 
rally sparked SFA, closing the stock more than five points 
higher than its intraday low.  Talk about a comeback.  If the 
technologies carry this rally into tomorrow, expect SFA to be 
a participant.  The stock closed just above its 10-dma at 
$55.25, which is it's nearest support.  Watch for entry points 
at this level and confirm the stock holds before placing new 
orders.  Expect more volatile trading to end the week so keep 
your stops in place and adjust them accordingly. 

INKT $128.63 -0.78 (+0.44) If you think the waves created by 
Hurricane Floyd are rough, check out the past week of trading 
on INKT.  Considering the current market conditions INKT has 
reacted accordingly, rolling with the punches.  Today's trading 
was a good example as the stock traded as low as $123.75 then 
rebounded to close on a respectable rally.  The stock shows 
support at its 10-dma at $122 and resistance around $140. 
Expect more volatile trading within this range as the bears 
and bulls continue to battle it out.  For those placing new 
trades, confirm positive direction in the stock and buy on the 
dips.  Historically speaking, there should be plenty.  Other 
events that may influence our play was a press release on 
Thursday.  INKT agreed to a definitive deal to buy WebSpective 
Software, a maker of software used for Internet content 
distribution and tracking, for about $106 million in stock.  
The deal will help Inktomi offer Web site content management 
services to firms that rent computer capacity to companies 
and manage Web sites on their behalf.  WebSpective software 
will also allow it to begin serving corporate customers 
directly, later this year.  With this news and the help of 
a late market rally, lets see if we can make a run for $140.

ERTS $74.50 +0.19 (-1.69) Volume slacks off and the price falls 
or stays even.  We've noted frequently that volume is the key to 
moving ERTS, as institutions own 95% of the outstanding issues, 
leaving very little float to trade.  If you want it, you've got 
to pay.  Average volumes here tell us the demand has been slack.  
We also noted that the 10-dma was lending support at $74, which 
had been true.  Sometimes, like in ERTS case, historical support 
from a hard number can be more telling.  ERTS didn't think twice 
about piercing $74 on its way to historical support at $72, from 
where it bounced nicely today.  The technical chart is still 
showing signs of weakness.  Keep your stops set folks.  ERTS now 
rests at $74.50, its 10-dma as of today's close, and could break 
either way.  Frankly, were it not for today's after lunch rally, 
we'd have dropped the play.  To many traders were missing from 
today's market action for us to draw hard conclusions about this 
great performer though.  If volume comes back tomorrow and takes 
the price with up with it, ERTS will be a great play.  If however 
the market is ugly, don't waste a minute hoping this play back 
up.  Protect your capital and get out.  No price moving news to 
be found.

JDSU $107.63 -2.19 (-4.38) Moving dangerously close to the edge 
of being dropped, JDSU stays on the list 1 more day with our 
expectation that following a week of weak trade, tomorrow could 
be an up day, thanks to triple witching.  Note though that JDSU 
broke south of its $108 trading range support, all the way to 
$105, a level not seen since late August.  Worse, it exceeded 
its ADV by about 20% in the process.  That's a negative that may 
portend weak trading in the near future.  The good news (if you 
call it that) is that it bounced nicely at noon with the rest of 
the market, though volume remained flat and JDSU sold off $1 at 
the close.  Candidly, it's looking weak and we don't recommend 
starting a new play until the market and the stock show some 
conviction.  In short, JDSU is on double secret probation.  Cross 
your fingers for tomorrow but avoid heroism in trying to call a 
bottom if JDSU stagnates or heads south.  Dutifully, we offer 
another reminder 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.  

AMZN $65.25 -0.31 (-1.25) Despite that the NASDAQ got clobbered 
yesterday, AMZN gave up only $0.44, while drifting south another 
$0.31 today.  Though there are no earnings until late October, 
AMZN will act in sympathy with YHOO, which reports earnings 
October 6.  AMZN has its own story too, as it continues to add 
new divisions ahead of the Holidays, which investors will 
perceive to be building the revenue stream (don't ask about 
profitability yet).  No only that, but AMZN ranked second in 
sales volume in the top 100 e-tailers as determined by the 
National Retail Federation.  AMZN still has good support at $63.  
If the market cooperates, dips are buyable but wait for a bounce 
back up.  You don't want to lose fingers catching a falling 
knife.  A flat morning followed by a steady progression of volume 
since noon today sent AMZN back up in the latter half of the day.  
We continue to see strength in the Internet sector but remember, 
AMZN is still a stomach churner for those with a low to moderate 
risk tolerance.  Confirm market direction and use support as a 
buying opportunity.  No value or fundamentals here.

DISH $91.00 +0.00 (-3.00) DISH made a nice recovery from this 
morning's gap-down low, only to fall off a cliff, then re-scale 
half of it in the final hour of trading.  That such a volatile 
issue would lose just $0.50 yesterday and break even today in the 
face of market weakness is good testimony to the sentiment this 
issue carries.  Part of our concern earlier this week was that 
they might lose a new satellite on the launch pad to Hurricane 
Floyd.  From all appearances, the rocket and satellite are safe, 
and investors can breath a sigh of relief but it still needs to 
get off the ground in order for DISH to generate new revenue.  
The 10-dma is providing support at $90 but recent historical 
support is $89.  Take your pick.  Resistance is still $96.  
Though tomorrow may be an up day thanks to triple witching, 
technicals are fading just slightly from their previous good 
looks (sort of like looking at yourself in the mirror 10 years 
from now!).  Wait for the market to give us a direction before 
taking a new position.

YHOO $163.44 +1.06 (-7.06) YHOO got bonked on the head yesterday, 
along with everything else on the NASDAQ.  However, as testimony 
to its strength in the downdraft, it only gave up $2.81 and $1.06 
yesterday and today, respectively, both on low volume.  Pure and 
simple, this is an earnings play scheduled for reporting on 
October 6, 1 day after the FOMC meeting.  If history repeats, we 
will have a strong run, followed by a sell-off prior to or after 
the release.  That's proven true in the last 4 quarters.  We 
noted Tuesday that support was at $160, its 10-dma but look for 
dips to $155 in the normal course of trading.  If you had this 
on your radar screen today, you would have noted a great entry 
point following YHOO's 3-time bounce off of roughly $157.50.  
There is still time to get a good entry, especially during a 
triple witching Friday, wherein we expect the market to be up.  
Be patient, let YHOO come to us.  No chasing.  Target shooting 
at your own comfort level should yield the best results.  In 
light of the FOMC news conflict, you may want to be out of the 
play by Friday, October 1, depending on your risk tolerance.  
Braver souls will be taking their chances by holding through 
the Fed meeting.  Unless you have a financial death wish, you 
should not even consider holding through earnings.
 

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

No new call plays today.



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

LLY $67.56 -0.56 (-4.81) We have had a couple of good days 
for our play of LLY.  You may have noticed it as the 'play 
of the day' for Thursday after a failed rally Wednesday 
that left Lilly to close right on the day low.  We got the 
continuation we were looking for as LLY dropped to $66.38 on 
the low before rebounding with the markets.  This rebound 
shouldn't be considered a bounce as there is no support 
until $65 but it may provide an entry point.  The entire 
sector was weak again today, further fueling the decline 
in shares of Lilly.  One news article hit the wire today 
but it was of little importance.  They made a change in 
their front office that won't affect trading in the shares.  
Looking for a good entry point?  Watch the 50-dma at $70 
for resistance but make sure it bounces before jumping in.

GPS $33.00 -0.81 (-2.81) Support at $35 was finally broken on 
Wednesday in a big way.  We were concerned, as you may recall, 
in Tuesday's update that investors were trying to halt the 
slide at $35.  The stock had been consolidating before a quick 
bounce back up to resistance at the 10-dma.  Fortunately, the 
10-dma continued to hold the stock down and knocked it right 
back and this time GPS dropped right past $35.  Our next target 
for support is $30.  The Gap released their 10-Q report on 
Tuesday but it didn't reveal any new information.  The overall 
negative sentiment stems from lackluster results and angry 
investors from insiders selling at high prices in July.  This 
sector is filled with stocks heading in different directions 
so don't try and pick a bottom just because you see other 
retailers moving up.  We continue to see any bounce off the 
10-dma (currently $35.75) as an excellent entry point as long 
as it bounces first.

HNZ $44.50 -0.13 (+1.50) Heinz has shown some extraordinary
strength for a put play considering our negative market. So
what's up?  Mostly speculation.  News had been circulating 
that Heinz and BestFoods were in merger talks to create one 
of the largest companies of their kind.  Yesterday however,
BestFoods denied that they are considering a merger with HNZ.  
The point of certainty in this is that HNZ is looking for a 
partner, even though it may not be the company of choice, 
BestFoods.  We are keeping HNZ as a play, as the stock should 
continue down due to the uncertainty and from continued troubles 
the company is having.  The stock is sitting right below 
resistance at $45, a good entry point for any continued movement 
down.  Wait for negative market and stock price confirmation 
before starting a new play.

KO $54.06 +0.00 (-1.06) Coca-Cola today traded through a major 
support level at $54 to as low as $53.63 during today's sell-
off in the stock market, before bouncing back to unchanged as 
the Dow recovered due to short covering ahead of Friday's option 
expiration.  Stock patterns remain weak and it continues to 
drift downward.  If you have not been stopped out of this play 
previously, you should be making money.  Going forward we expect 
Coke to remain weak.  Continue to keep stops set tight and only 
enter new positions at this point below today's low $53.63 on 
strong volume and or a sell-off in the stock market. 

SWY $45.25 -0.69 (+2.31) We picked up SWY last week after 
seeing a 7% decline amid bearish trading patterns and 
critical company-specific news events; and so far this put 
play hasn't been painless.  On Wednesday, SWY climbed up 
another notch breaking through its overhead resistance (the 
10-dma at $45) with $1.19 in gains on very strong volume.  
Then today the stock swung back around (also on strong volume)
demonstrating it couldn't hold any advances over its long-time 
opposition.  So we have it that SWY is now teetering on a 
breakout point and which way it'll go is, of course, the 
million-dollar question.  The weakening retail sector is 
certainly a plus but beware this play could go either way.  
Until SWY firmly demonstrates a definitive direction, it's best 
to stay out or play very conservatively.  There was no news 
worthy event since Tuesday to report to affect SWY's trading.

COST $66.69 -0.38 (-3.19) Despite the good news of a benign 
inflation report on Wednesday, investors were not convinced 
and sold positions, taking profits from earlier in the week.  
COST investors were in a different situation however, there 
were no profits from earlier in the week to take yet the stock 
managed to continue to lose ground.  All the better for us, as 
the negative momentum of the broader markets add salt to the 
wounds of COST, as the possibility of even lower price levels 
increase.  COST is currently trading well below its moving 
averages and shows little support until the $58-$60 price 
range.  For those individuals placing new trades, confirm the 
stocks direction and look for entry points during intraday 
spikes.  Because the stock has fallen almost 20 percent in 
the last month keep your stops in place for protection.



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

JNJ - Johnson and Johnson $95.75 -1.44 (-3.75 this wk)

J&J is the world's largest and most diversified maker of health 
care products.  They are engaged in the manufacturing and sale 
of their products through 3 distinct divisions.  They are 
pharmaceuticals, consumer products and professional products.  
The pharmaceuticals are in the allergy, antibacterial, pain 
management contraceptive and dermatology.  The consumer products 
include Tylenol and Motrin analgesics, Reach toothbrushes and 
Band-Aid bandages.  The professional division includes ACUVUE 
contact lenses, surgical instruments, joint replacements which 
assist physicians, nurses, therapists, hospitals and clinics.

What went wrong with the Drug sector?  At last check this group 
was riding high on new found optimism that a bottom may have 
been reached this summer after a couple months of retracement.  
Unfortunately, it was a short-lived rally as we have gone 
downhill ever since August 25th.  This sector is one that 
moves tightly together and negative sentiment will hurt even 
the stronger players like JNJ.  There are also concerns over 
the acquisition of Centocor.  It will be dilutive to JNJ profits 
for both the 4th quarter of this year and also next year.  
Analysts are speculating over the size of the one-time charges 
but needless to say, it will hurt over the short-term before 
adding value down the road.  The technical picture is an 
interesting one on JNJ as well.  We are right on the 100-dma 
at $95 which may provide some short-term relief from the fall 
but historically the 100-dma hasn't done much to help the stock.  
We have much stronger support at $90 which is over a $5 move 
and would make for a tidy profit.  Anyone interested in buying 
JNJ stock would likely wait for support to be reached first.  
Conservative players may want to wait until the stock cleanly 
breaks $95, on good volume, before opening plays.  Otherwise, 
for you brave souls, jump aboard on an intraday bounce.  Any 
bounce should be met by resistance at $97.50 from the 50-dma.

BUY PUT OCT-100*JNJ-VT OI= 955 at $5.50 SL=3.75
BUY PUT OCT- 95 JNJ-VS OI=1495 at $2.75 SL=1.50

Average Daily Volume = 2.06 mln
Chart = http://quote.yahoo.com/q?s=JNJ&d=3m




SEE DISCLAIMER IN SECTION ONE

**********


The Option Investor Newsletter         Thursday 9-16-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

NTAP - Network Appliance Corp. $72.00 (+4.13)

Their customer base is an impressive group of clients.  Names 
like Yahoo, AOL, Motorola, Siemens and the UK's #1 ISP Demon 
Internet depend on them daily.  Network Appliance uses its 
Netcache software and NetApp suite of network storage servers 
or filers.  These products are designed for and provide fast 
reliable cost effective service for Internet service providers 
and corporate intranets.  NTAP's hi-powered ONTAP operating 
system allows simultaneous access by users from Windows, UNIX 
and Web platforms.  NTAP is located in Sunnyvale, Ca and 
competes against EMC, Sun Microsystems, Cisco Systems and Novell. 

Sunday's Write Up

What's not to like about a company that has made it to the 
number 4 spot on  Forbes 1999 list of "America's Fastest Growing 
Companies."  NTAP also earned a position in the S&P 500 Index.
NTAP was one of the lucky few this past earnings season that 
didn't get kicked in the teeth for reporting better than 
expected earnings.  Since beating the street by $0.02 on August 
18th NTAP has climbed from the $55 area to a high Tuesday of 
$69.69.  After retreating to the $65 area near its 10-dma, NTAP 
regained its focus yesterday closing up over $2 for the session 
on better than average volume with 1.5 mln shares changing 
hands.  Sales for the computer networks company rose over 80% 
and net income jumped 90% in the latest quarter and current 
projections are for more of the same.  We would look for more 
upgrades from analysts as the last upgrades came in May.  It 
may a little early yet but on August 27th, NTAP filed with the 
SEC to have an additional 3.3 mln shares reserved for issuance.  
Their annual stockholders meeting is scheduled for October 26th 
in Sunnyvale, Ca.  NTAP did split in late December of 1997 
and 1998.  When they announced the split last year shares of 
NTAP were trading in the $70-$72 area.  The tech sector has 
basically remained very strong and has led the NASDAQ to new 
highs.  Intraday support for NTAP is in the $65 area.  When 
considering a play in NTAP, look for a positive move in the 
stock itself accompanied by those in its industry.  As always
assess your risk profile and set your stops accordingly. 

Earlier this week NTAP and Legato Systems announced a partnership
dedicated to delivering open and scalable data protection 
solutions for enterprise customers.  The two companies are 
co-founders of the Network Data Management Protocol(NDMP), an
open standard protocol for network-based backup of network-
attached storage.

Tuesday's Write Up

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.

Thursday's Write Up

The beat goes on for NTAP despite any positive news or a 
positive market to help the stock.  The strength NTAP is 
displaying is impressive as it continues to hold well above 
the 10-dma at $68.50 despite the overall market jitters.  
We were looking for a pullback to open new plays but it only 
made a quick dip to $70 before bouncing right back to close 
only $0.75 from a new high.  With today's nice turn around in 
the broad markets, we would not be surprised if NTAP does make 
a run for a new record.  At this point, new plays will be 
tricky.  You may now want to consider an intraday dip for an 
entry point.  But use caution because NTAP is now carrying a 
lofty valuation with a P/E of 122.  This is not the kind of
play you want to have reverse on you without a stop loss.

BUY CALL OCT-60*NJQ-JL OI=  84 at $13.13 SL=$10.75
BUY CALL OCT-65 NJQ-JM OI= 145 at $ 8.75 SL=$ 6.50 
BUY CALL OCT-70 NJQ-JN OI=1406 at $ 5.50 SL=$ 3.75
BUY CALL DEC-65 NJQ-LM OI= 152 at $12.50 SL=$10.00
BUY CALL DEC-70 NJQ-LN OI=  83 at $ 9.75 SL=$ 7.00

Picked on Sep 11th at    $67.75    P/E = 122
Change since picked       +4.25    52 week high=$72.75
Analysts Ratings      6-3-1-0-0    52 week low =$16.00
Last earnings 08/99   est=-0.14    actual= 0.16 surprise +14.3%
Next earnings 11-17   est= 0.17    versus=-0.11
Average daily volume = 1.07 mln
Chart = http://quote.yahoo.com/q?s=NTAP&d=3m



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

Stormy Weather On The Horizon..
 
Wednesday, September 15

U.S. equity markets closed lower on Wednesday as the weak dollar
overwhelmed positive inflation data in the CPI report. The Dow
slumped 108 points to close at 10,801 after rallying early in
the session. The Nasdaq composite index fell 54 points to 2,814.
In the broader market, declining issues beat advances 1,760 to
1,181 on moderate volume of 780 million shares on the NYSE.

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

Bell Atlantic  BEL  APR65C/SEP65C  $6.00  debit  calendar
Sprint         FON  OCT55C/SEP55C  $2.38  debit  calendar
Sprint         FON  JAN55C/OCT55C  $6.50  debit  LEAPS/CC's
Qwest          QWST OCT22C/OCT27C  $3.00  debit  bull-call

All three of our new communications issues started strong with
the blue-chip rally but the positive movement lasted barely an
hour. By 10:45 AM, each stock was fighting its own battle for
survival and the outcome was grim. By the end of the day, all
of them succumbed to profit-taking and the short-term outlook
is now less attractive. Of course the target entry points were
easily achieved but most traders were scrambling (like I was)
to withdraw their limit orders. Sprint was the most hideous of
the three, falling $3.38 by the end of the day and taking our
$2.38 position to $1.93. We did not open the LEAPS/CC's play
but even with today's loss, the discount on the long position
should help it finish profitably. BEL was less gruesome, with
the long option reduced to $5.50; a $0.50 loss to open. Qwest
was the most surprising of the three, falling back through a
short-term bullish trend to a recent range near $28. Lets hope
that the technical (buying) support starts there.

Portfolio plays:

This morning's rally provided a great opportunity to make some
final adjustments on the long-term plays. Many of our October
positions (new short options) benefitted from increased volume
and volatility. First up was Biogen (BGEN), and the stock price
opened $1.12 higher with the target option (OCT-90C) trading at
$3.75 bid. The cost to close our short position was $0.50 so a
credit of $3.25 was entered against the price of our 2001 LEAP.
Johnson & Johnson (JNJ) also moved higher in the morning, up
$1.25 by 10:00 AM and that brought new interest (50 contracts)
to the buy side of our target option (OCT-100C). The roll-out
credit for our new position (LJAN100C/OCT100C) was $2.25. Once
again, we are protecting the downside in almost every position
because of the potential for an October sell-off. The last play
in the 2001 LEAPS portfolio, The Limited (LTD), was rolled to
October for a $1.50 credit at the $40 strike.

While we are discussing the long-term plays, its important to
note that Motorola (MOT) fell significantly today on the actual
announcement of the anticipated merger with General Instrument.
The deal is valued at $11 billion and each GIC share would be
exchanged for 0.575 shares of Motorola, or $53.58, based on
Tuesday's closing prices. This is not a favorable move as far
as analysts are concerned and they have succeeded in scaring
the public from this issue. Our personal intention to roll to
the $95 strike for the month of October looks more promising
now but we will wait for the issue to settle into a new trend
before making any new adjustments.

General Dynamics (GD) and Riggs National (RIGS) were our other
two active positions. The GD transaction added $1.62 credit to
the FEB70C/OCT65C, now a collateral position. RIGS is an older
diagonal spread, NOV15C/SEP20C, that we are closing at $4.25,
for a profit of $2.25. Zoltek (ZOLT) moved up on speculation of
an increase in product demand by the B.F. Goodrich Company. The
BFGoodrich has opened a new $66-million high tech manufacturing
process plant in Spokane, Washington, to produce carbon disk
braking components for the aircraft industry. The new facility
was built in response to strong demand for replacement brake
components, driven by increased acceptance of carbon technology
and aircraft fleet growth. It will be interesting to see if the
news can change the character of this issue.

Thursday, September 16

U.S. stocks closed lower on Thursday, as traders exited the area
with Hurricane Floyd nearing the New York. The Dow Jones average
was down 63 points at 10,737 after a volatile morning session.
The technology-driven Nasdaq composite index fared much better,
closing at 2,806, down only 7 points. Decliners outpaced gainers
2,065 to 891 on volume of 723,220,240.

Portfolio plays:

Although the broad market moved significantly, there wasn't much
excitement in our spreads portfolio. Most of the issues are now
consolidating after recent rallies while others are marooned on
on islands between support and resistance. Luckily, all three of
our new communications plays bounced back today. Sprint will be
the most interesting play in the coming days as investors decide
how long to hold their positions. Another communications issue;
Qualcomm (QCOM) appears to have weathered the recent sell-off and
is now back to its bullish ways. Motorola (MOT) is still licking
its wounds over the GIC buyout and it will take some time before
that aggressive act is accepted by its investors.

One of our current straddle plays; Allied Capital (ALLC) is now
trading at break-even on the November position and the technical
outlook is at a key moment. A break below the current range may
end at a significantly lower price while a rebound will signal a
new support level above $20. We  will watch this one closely for
the next few days. Our bearish debit spread on Sealed Air Corp.
(SEE) is now at a favorable profit ($1.00) with four weeks left.
You should consider closing this play to protect gains and limit
potential losses.

Good Luck!

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


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

IDTC - IDT Corporation  $22.62     *** More Telecom ***

IDT is a leading emerging multinational carrier that combines
its position as an international telecommunications operator,
its experience as an Internet service provider and its leading
position in Internet telephony to provide a broad range of
telecommunications services to its wholesale & retail customers
worldwide. The company provides its customers with integrated
and competitively priced international and domestic Internet
telephony services including Net2Phone Direct and Net2Fax.

The big news with IDT is still Net2Phone, one of the most
popular issues in communications stocks right now. Net2Phone's
strategy appears to be on track and daytraders are fueling the
current movement. Over the last two weeks, the stock traded an
average of 7 million shares, the equivalent of more than one
trade-a-day for each share. In that same period, the stock has
risen over 100% and IDT's ownership goes with it. The company
still controls 57% of Net2Phone. While IDT is valued at almost
$700 million, their stake in Net2Phone is worth $2.45 billion.

IDT is also poised for future growth with recent deals involving
Northpoint Communications (NPNT) and Spain's Telefonica de Espana
(TEF). Both of these agreements should help the company boost its
revenues in the months to come and the recent technicals appear
to support a long-term bullish outlook.

PLAY (conservative - bullish/debit spread):

BUY  CALL DEC-17.50 IQJ-LW OI=70  A=$7.12
SELL CALL DEC-25.00 IQJ-LE OI=535 B=$3.62
INITIAL NET DEBIT TARGET=$3.25 ROI(max)=130% B/E=$20.75

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

*****

NETA - Network Associates  $19.80  *** On The Rebound! ***

Network Associates (formerly known as McAfee Associates), is a
leading supplier of enterprise network security and management
solutions. Network Associates' product offering includes four
individual software suites, Total Virus Defense, Total Network
Security, Total Network Visibility and Total ServiceDesk.

NETA recently announced new strategy initiatives with Novell to
protect NetWare customers against the growing number of virus and
malicious code attacks. The launch of new anti-virus solutions
for NetWare evolves their relationship and boosts the mission to
protect customers against the dramatic rise in dangerous viruses.

They also unveiled a family of integrated software and hardware
appliances designed to make securing e-business environments
simpler and less expensive. The new WebShield E-ppliance family
of products delivers web-enabled, remotely manageable versions of
their award-winning anti-virus, firewall and VPN software. NETA's
software gives corporate customers and service providers an easy
way to ensure integrated network security for customers of all
sizes.

Their products are great and the fundamental outlook is favorable
but we really like the way the chart is shaping up. The recent
consolidation and the break above the long-term moving average
suggests a new interest from retail investors. The institutional
support is also excellent and the volume is more than adequate;
this issue should continue higher.

PLAY (conservative - bullish/debit spread):
BUY  CALL DEC-12.50 CQM-LV OI=390  A=$7.88
SELL CALL DEC-17.50 CQM-LW OI=1157 B=$4.12
INITIAL NET DEBIT TARGET=$3.50 ROI(max)=115% B/E=$16.00

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


********************
INDEX OPTION SPREADS
********************

As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time. The buyer has the rights and the seller
the obligations. With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
market industry or on the market as a whole. Spread strategies can
be made with index options similar to those made with individual
stock options. Many professional traders employ index spreads as a
hedge strategy. We favor debit positions on the SPX for momentum
and hedge or longer-term plays and OTM credit spreads on the OEX
when the risk/reward is favorable. Low ROI disparity spreads will
be listed (when available) for the conservative index trader.

*****

OEX - S&P 100 Index  $694.88     OTM Credit-Spreads

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

OBSERVATIONS:

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

One strategy that's popular right now is the buying of collars on
the major indexes. Traders are selling out-of-the-money calls in
January, taking that premium and buying puts in October, either at
the money or slightly out-of-the-money. The position benefits from
a short-term pullback because the value of the calls drops and the
puts rise on a downturn. We don't offer those types of plays (with
large margin/risk) but it's a viable strategy for advanced traders.

Very Conservative...

PLAY (bullish/low ROI):
BUY  PUT OCT-630 OEY-VF OI=2159 A=$3.88
SELL PUT COT-640 OEY-VH OI=6090 B=$4.62
NET CREDIT TARGET=$0.75 ROI=8% (4 weeks)

Conservative...

PLAY (Bullish):
BUY  PUT OCT-650 OEY-VJ OI=2766 A=$6.12
SELL PUT OCT-660 OEY-VL OI=1970 B=$7.25
NET CREDIT TARGET=$1.12 ROI=12%

Aggressive...

PLAY (Bearish):
BUY  CALL OCT-745 OEZ-JI OI=2805 A=$1.75
SELL CALL OCT-740 OEZ-JH OI=494  B=$2.50
NET CREDIT TARGET=$0.75 ROI=17%

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



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

*********************
Straddle Strategies..
*********************

Now you've learned that time decay is working against us in the
straddle. What other factors can help us to achieve our goal of
selling at a higher price in the future? Two components; Implied
Volatility and Intrinsic Value.

Implied volatility is a characteristic of an option's time value.
The higher the implied volatility, the higher the option's time
value is. When you find a situation where implied volatility is
statistically low (probability dictates that it should start to
move higher), you can make a profit by selling your straddle at
a higher price, even if the underlying stock price doesn't move.
Obviously, any increase in implied volatility will boost the time
value of your position and move your trade closer to a profitable
outcome.

Another basic component that can help us profit in a straddle is
Intrinsic Value. Once again, assume that the underlying price is
equal to the strike price; this means that our straddle does not
have any intrinsic value. When the stock starts moving in either
direction, one of our options will become in-the-money. This will
cause the intrinsic value to grow in that option. In contrast,
the time value of both of our positions begins to decrease as
the underlying moves away from the at-the-money strike. Remember,
the further the option is in or out-of-the-money, the less time
value it contains. 

The rate of change for both of these values is very important.
Intrinsic value has a rate of change equal to one; if the stock
price moves one point into the money, intrinsic value increases
by one point. Time value is much more complex. The rate of change
depends on how far away the option is from the strike price; the
further the option is in or out-of-the-money, the smaller the
rate of change on a one point move in the underlying issue. With
that concept in mind, it is easy to see that when the stock price
moves away from the strike price, we gain more in intrinsic value
than we lose in time value and that's one way a straddle profits.
The measurement of the underlying move is statistical volatility
and we look for straddle positions on issues where we expect that
component to increase.

To construct profitable straddle positions, it is important to be
aware of the effects of all these components. A theoretical edge
in one or two of these factors can make a position favorable but
it is better to have the majority of them on your side. The most
common mistake among new traders is the purchase of short-term
straddles. You can profit from these positions but usually that
occurs only when the underlying starts moving immediately after
the play is opened. Of course it appears attractive because the
straddle does not have a large amount of time value and the small
movement required for profit seems very probable. The problem is,
if the underlying doesn't move right away, time decay will start
to increase rapidly and your position will suffer regardless of
the eventual stock price movement. Most experienced traders agree
that three months should be the minimum time frame for (debit)
straddles. If you have a choice between two different series of
expirations and the implied volatility for the longer-term
options are lower, then you should probably go with the greater
time value because those options are theoretically cheaper.

Remember, we are always looking for volatility that is low with
respect to its historic levels. The reason is the tendency for
volatility to return to its historical trend or median. It is
sometimes called the "Rubber Band" effect and it basically means
there is a high probability that when it's pulled too far in one
direction, it will eventually reverse and start moving the other
way. This pattern of behavior is the main reason why experienced
traders use volatility based positions to make money. They will
construct plays that take advantage of the future volatility of
an issue, when the current value is high or low compared to its
recent history. Volatility a predictable and powerful component
for options traders and understanding this concept is a must for
consistent profits in the derivatives market.

Good Luck!

ray@OptionInvestor.com


More Strategy Guidelines..

Today we have a new position submitted by one our lead editors.
The underlying issue is Williams Companies (WMB) and its recent
technical history along with favorable option pricing and the
high probability of future news presents us with an excellent
straddle candidate.


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

WMB - Williams Companies  $40.75

Williams is engaged in the transportation and sale of natural
gas and related activities, natural gas gathering, processing
and production activities, the transportation of petroleum
products, natural gas trading, natural gas liquids marketing
and provides a variety of other products and services to the
energy industry and financial institutions. The company owns
and operates: four interstate natural gas pipeline systems;
a common carrier crude and petroleum products pipeline system;
and natural gas gathering and processing facilities and
production properties.

Williams plans to spin off their fiber optics business in a
tracking stock known as Williams Communications (WCG is the
proposed symbol). WCG, 30%-owned by Nortel Networks, supplies
communications equipment to various types of businesses. They
also offer telecom providers voice, data, Internet, and video 
transmission services on its packet-switched 20K-mile network,
which is being expanded to 32K miles. Unfortunately, there is
no SEC filing reflecting the initial trading date, but there
was a registration filed in April. SBC Communications agreed
to buy up to 10% of the company, about $500 million worth, but
The Williams Companies will maintain a controlling stake after
the planned IPO. Who knows when that will be?

PLAY (conservative - neutral/debit straddle):

BUY  CALL JAN-40 WMB-AH OI=498 A=$4.88
BUY  PUT  JAN-40 WMB-MH OI=488 A=$3.50
INITIAL NET DEBIT TARGET=$8.00 to $8.12 TARGET ROI=25%

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

*****

We had an excellent candidate in Ames Department Stores (AMES)
but today's move ($1.68 drop) increased the IV significantly for
our target options. Based on the current price of the underlying
issue and the recent technical history (trend), it could be an
excellent candidate. The probability of profit from the position
is higher than other plays in the same strategy but current news
and market sentiment will have an effect on this play so review
it carefully and make your own decision about the future outcome
of the stock price.

Here is the current play (for future reference):

*****

AMES - Ames Department Stores  $31.63

Ames and its subsidiaries are retail merchandisers. Their stores
are located in rural communities, some of which are not served
by other large retail stores, high-traffic suburban sites, small
cities and several major metropolitan areas. The stores largely
serve middle and lower-middle income customers.

PLAY (conservative - neutral/debit straddle):

BUY  CALL JAN-30 QAF-AF OI=8  A=$5.62
BUY  PUT  JAN-30 QAF-MF OI=56 A=$3.50
INITIAL NET DEBIT TARGET=$8.75 or better TARGET ROI=25%

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

*****

You might consider AMES again when the range consolidates, but
for now we will continue Tuesday's discussion of option pricing.




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**********
DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
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