Option Investor
Newsletter

Daily Newsletter, Thursday, 09/23/1999

HAVING TROUBLE PRINTING?
Printer friendly version

The Option Investor Newsletter         Thursday  9-23-99
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)
************************************************************
        9-23-99           High     Low    Volume  Advances Decline
DOW    10318.60 -205.48 10572.50 10302.10  878,659k    892   2,142
Nasdaq  2750.27 -107.89  2880.10  2741.94 1170,629k  1,222   2,622
S&P-100  674.62 - 16.59   694.52   671.99   Totals   2,114   4,764
S&P-500 1280.77 - 29.74  1315.31  1277.30            30.7%   69.3%
$RUT     420.21 -  7.32   429.23   420.21
$TRAN   2895.98 - 30.30  2961.35  2888.12
VIX       30.28 +  3.53    30.62    26.09
Put/Call Ratio      .61
*************************************************************

Barbecued words anyone? Please pass the ketchup.

Famous last words, "I think the market may have put in a near
term bottom here at 10550." So much for trading on a gut feeling.
I went out on a limb last Tuesday with speculation that the
bounce off 10550 and close at 10598 could have been a successful
retest of a previous low, in spite of strong market indicators
to the contrary. (Only those among you that have NOT broken
one of the Ten Rules of Option Trading this week are eligible to
send me an "I told you so" Email.) The market tried hard but 
finally was overwhelmed today by comments from a source you 
would not expect.


 

 

The Dow traded between 10500-10600 all day Wednesday but
the lack of market breadth was a telling sign. Today we
opened a little stronger as the most optimistic buyers
rushed into the market at the open. Unfortunately it
looked like Custer's last stand as the sellers arrived
in waves and the Dow dropped to a level not seen since 6/11.
Ah Ha! A buying opportunity for the hardcore bulls. The
rush in to pickup tech stocks and some Internets was on.
Another ambush was sprung and sellers again triumphed.
Once the Dow headed south and once 10500 was breached
again the carnage began. Maintenance men at the exchanges 
needed mops instead of brooms today to clean up from
the bleeding tech stocks. Support? What support? 10450,
10400, 10350, guess again, 10300! The Dow bottomed at 
10302, a number no one expected to see again until October.
Normally after a sharp drop like today, especially after
a protracted slump like we have been seeing, you will 
see a bounce back at the close. Not today! 


 

We did see a dead stop and level at just above 10300 but
there was NO LIFE SIGNS apparent. Several analysts said
they saw some buyers taking small positions in some of 
the hardest hit big names but NO large buyers. Futures
are down -1.80 as of 6:PM. Not a pretty picture developing
for tomorrow. 

So what was the final straw? We have a new applicant for
the post of Fed Chief if Alan Greenspan does not get 
reappointed next year. Steve Ballmer, President of Microsoft,
endeared himself to all investors today with some very bearish
comments. Saying "There is such an overvaluation of technology
stocks, it is absurd." Ballmer was speaking at a technology
conference given by the Society of American Business Editors 
and Writers. He also said that Microsoft could be put in 
that category. OOPS! In a market living on the edge of a
10,000 point cliff, this was not politically correct.  These
comments, coming from a multi-billionaire with an inside
track, and a lot at stake, seemed to be taken more seriously 
than dozens of like comments from analysts every month.

The Taiwan earthquake caused still more damage today as 
analysts for the chip sector downgraded earnings estimates
for several chip companies. Intel was the hardest hit with 
one analyst saying that deliveries of Intel motherboards 
could slide by one to two months. The chip sector and PC
sector were crushed by the domino impact of multiple
downgrades and decreased expectations. PC makers like 
DELL -3.06, GTW -5.19, MU -4.56, and AAPL -7.00 which already
had chip problems, were hardest hit. Intel gave up -5.31
on volume of 37 mln shares. In reality the PC sector was
the target but the entire tech sector took the hit. While
the PC sector may take sometime to recover, the rest of the
tech sector, including Internets, may have just gone on sale.
Many Internets, which had been up strongly this morning, did
give up some ground but looked like they were straining against
the ropes. YHOO for instance, closed -13 off it's highs but
was up from -15 just before the close. In after hours YHOO
was up another +1.50 at one time. Stocks like QCOM which had
a high of $199 after announcing a new deal with Lucent, fell
with the market to $182.88 but rebounded at the close to $186.63,
almost +4 from the low of the day. There are buyers but they
are going to be VERY selective with October just around the
corner. If you have a weak stomach just skip this Nasdaq chart.


  

The -108 point drop today was the fourth largest in Nasdaq
history. Chartists would probably be quick to point out that
any drop that sharp is just asking for a technical bounce.
The Nasdaq is still up +25% for the year. 

Some very bearish things happened today. Technically the
S&P-500 broke it's 200 day moving average. This is not a
good sign. Twice before the S&P bounced when this average
was hit but today there was no relief in sight. The 200DMA
was 1301 and the close today was 1280.77. Strike one.

The Dow dipped to only +40 points above it's 200DMA of
10257 and could touch it tomorrow. The real key number here
was 10466.93. This was the Dow theory floor and a close below
this number could cause a major correction according to Dow 
theory. Richard Russell of the Dow Theory Letters said a drop 
as low as 9733 was now possible. The Dow has not been this 
low since April 9th. Strike two.

The transports closed at yet another new low for the year
of 2895. Oil prices continue to rise and OPEC appears to
be holding the line against new production. The UTIL index
has rolled over and broke under 300 for the first time since
April. The utility index is closely watched as an indicator
for interest rates and the outlook is not good. Strike three.

The dollar is still weak against the Yen and Japan is still
unconcerned. Bonds were up today but more than likely as a
result of investors seeing the writing on the wall for next
three months and moving out of stocks. Fund outflows last week 
were reported today to have exceeded $600 mln as investors moved
into money markets. The real Taiwan effect is still not known
and analysts are just speculating about real delays. The market
breadth, as you can imagine, was very bad. The advance/decline
line was plummeting with a 3:7 ratio. The new high/new low
indicator is off the scale at 22 new highs to 248 new lows.
Top all this off with a Greenspan speech on Monday and Friday
is looking worse all the time. And on, and on, and on. Strike ??

So what is the good news? The good news is....all the bad news.
Really! The wall of worry that builds strong foundations for 
future rallies is assuming monumental proportions. The VIX has
rocketed to over 30, a number we have not seen since Aug 10th.
Take a look at these two charts, the VIX and the Dow for the
last six months. Notice the inverse relationship? Where was
the Dow when the VIX was high in August? In the tank at 10500.


 

 

It has been said that the VIX is only important at the
extremes but if we are not there now, we are real close.

The ideal situation would be another large drop at the open
on Friday to clean out the rest of the sellers and weak holders.
If that does happen you can bet I will be clicking away, looking
for good stocks on sale. My targets would be QCOM, YHOO, EXDS,
IBM, VOD, SNE and CMGI. There, I have done it again. Stuck my
foot in my mouth and implied that there might be a rebound in
the wings. I better quit before I say too much. I still have 
some words on the grill from last Tuesday. So pass the ketchup
and bring on the sellers! You are only beat when you quit and
Hell will freeze over before I quit taking advantage of major
market moves. 

Just in case, sell too soon!

Jim Brown
Editor


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

As of Market Close - Thursday, September 23, 1999 

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

DOW Industrials   10,500  11,320  10,319    BEARISH   9.23  *
SPX S&P 500        1,350   1,420   1,281    BEARISH   9.16
OEX S&P 100          675     735     675    Neutral   8.13
RUT Russell 2000     440     465     420    BEARISH   9.14
NDX NASD 100       2,320   2,400   2,403    BULLISH   9.03   
MSH High Tech      1,120   1,200   1,209    BULLISH   9.03

XCI Hardware       1,035   1,050   1,061    BULLISH   8.24
CWX Software         750     800     864    BULLISH   9.03
SOX Semiconductor    515     520     522    BULLISH   8.24
NWX Networking       555     585     588    BULLISH   9.17
INX Internet         500     580     456    BEARISH   7.20

BIX Banking          690     710     572    BEARISH   7.23
XBD Brokerage        410     440     361    BEARISH   7.23
IUX Insurance        645     660     568    BEARISH   7.23

RLX Retail           915     960     812    BEARISH   7.23
DRG Drug             365     390     350    BEARISH   9.16      
HCX Healthcare       745     785     703    BEARISH   9.16
XAL Airline          180     190     135    BEARISH   5.21
OIX Oil & Gas        285     310     295    Neutral   9.16


 
Posture Alert    
Steve Ballmer-span really socked it to the market this afternoon. 
CNBC didn't help either as they made many people panic into the 
sell-off. The posture board got lit-up light a Christmas tree, 
with the Semiconductor index leading the way down (-5.51%), 
followed by Internet (-5.41%), Hardware (-4.51%), and the Nasdaq 
100 (-4.41%). With Thursday's action, we have turned BEARISH on 
the DOW, while several other indexes are getting close to downward 
revisions as well.


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

/members/marketposture

 

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

Thursday, September 23, 1999

Did you get Drew Ballmerspaned?

On Tuesday, the highlight of the Market Sentiment article was 
called Breaking Down! We highlighted how several sectors were 
continuing with their downtrends, and how several others look due 
for a pullback. Boy, we couldn't have guessed that Steven Ballmer 
from Microsoft and S.G. Cohen analyst Drew Peck would have caused 
such a drop. Granted, we know that these two gentlemen are avid 
readers of our sentiment section, but we cannot believe that they 
took our article and waited 48 hours to put their own spin on it! 
Or did Ballmerspan have a side bet with Billy boy that he could 
knock of a few billion off Gates net worth with a single grasp-of-
breath.  Was the bet between the Bill & Steve for 1 dollar like 
Eddie Murphy's movie Trading Places? Or was all of this "noise" a 
smoke screen for some large institutional investors to clean 
house?

One thing that is going for this market that we haven't seen in 
months, is a short-term, confident-sentiment in the long bond. The 
sentiment is that the Fed will do nothing, and interest rates 
actually dropped slightly today, which is positive. The volatility 
index closed above 30 today, the first time since the beginning of 
August (which is where you wish you had margined yourself to the 
gills in tech stocks). The VIX did hang around 32-33 for a short 
period back in August, and should this level hold, it might only 
be a huge buying opportunity, if not, watch out below. Another 
positive sentiment that we witnessed was the Media. CNBC was 
touting the downdraft, as was every news radio program we turned 
on, as well as all the other TV programs. Their sentiment was so 
bearish, that much of the downfall could have been attributed to 
them. Here at Pinnacle Capital, we have been cautious on the 
market, and have had a bearish tone for some time now, but we even 
view today's action as a little overdone. We would not be 
surprised to see a bounce tomorrow, that is, unless Gates and 
Greenspan read our sentiment articles and make their own 
comments tomorrow.   

    
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: 

Interest Rates:
The yield on the 30-yr Treasury is above the 6% benchmark and 
nearing the 6.272% high. It has shown signs of basing, however, 
any negative economic indicator can easily knock the long bond 
into new highs.


BEARISH Signs:

Miscellaneous Uncertainty:
Y2K, inflation, higher interest rates, slowing corporate earnings, 
earthquakes, are all leading to an abundance of uncertainty for 
professionals and investors alike.

Market Posture:
Many sectors have and continue to trend lower. The bullish sectors 
have now rolled over, and are on the verge of breaking support.
  
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 several weeks, with Apple Computer being the latest 
casualty.

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

Volatility Index:
The VIX is above the 25 benchmark, which may indicate further 
weakness. However, should it hit the 30-32 level and hold, it may 
prove to be a good buying opportunity. 

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.


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%
Friday, September 10     144,711        +249.9%


October Expiration Cycle
OEX OTM Call Analysis (Open Interest October 710-800)
Date                 Open Interest     Change %    Alert

Friday, September 17      34,361          - 


Market Sentiment at a Glance     Friday     Tues      Thurs  
Indicator                        (9/17)     (9/21)    (9/23)  Alert

Pinnacle Index (OEX):          

Underlying Support  (710-730)      2.4       2.5       4.5
Underlying Support  (660-690)      1.6       2.0       2.2
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7        .5        .7
CBOE Equity P/C Ratio               .6        .4        .6
OEX P/C Ratio                      1.2        .9        .8


Peak Open Interest (OEX):

Puts                              640         640       640  
Calls                             680         680       700
P/C Ratio                         1.02        1.07      0.95

Market Volatility Index (VIX):	

CBOE VIX                         30.45


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                       (9/17)      (9/21)     (9/23)

Overhead Resistance (710-730)     2.38        2.52      4.45

OEX Close                       704.96      689.82    674.62

Underlying Support  (660-690)     1.62        2.01      2.16

 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Underlying support is light (660-690) with decent temporary 
support @ 665.


Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (9/17)     (9/21)     (9/23)

CBOE Total P/C Ratio             .69       .52        .67
CBOE Equity P/C Ratio            .57       .43        .59
OEX P/C Ratio                   1.18       .90        .83


Peak Open Interest   Friday           Tues            Thurs
Strike/Contracts     (9/17)           (9/21)          (9/23)

Puts                 640 / 6,356      640 / 7,952     640 / 7,567
Calls                680 / 6,234      680 / 6,272     700 / 8,581
Put/Call Ratio         1.02              1.07            0.95


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 23, 1999                      30.45 


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
 
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

Daily Results

Index     Last    Mon     Tue   Wed     Thu    Week
Dow    10318.59  20.27 -225.43-74.40 -205.48 -485.04
Nasdaq  2749.83  16.53  -65.05 37.06 -108.33 -119.79
$OEX     674.62  -0.04  -15.10  1.39  -16.59  -30.34
$SPX    1280.77   0.11  -27.95  2.93  -29.74  -54.65
$RUT     420.21  -1.25   -6.70  1.03   -7.32  -14.24
$TRAN   2895.98 -20.49  -41.66-11.36  -30.30 -103.81
$VIX      30.28   0.11    2.61 -0.19    3.53    6.06

Calls             Mon     Tue   Wed     Thu    Week

VOD      225.00   3.43    4.63  3.44    4.94   16.44 The leader
YHOO     173.75   5.25    1.19  9.94   -5.75   10.63 Entry point
SNE      152.19   8.19    2.00 -0.50   -4.69    5.00 New
SUNW      89.63   5.88   -2.00  0.81   -3.75    0.94 Its poised
INKT     131.00   0.50   -2.44  9.06   -7.31   -0.19 Hanging on
CKFR      40.88   1.94   -2.19  1.25   -1.75   -0.75 Holding up
EMC       69.50   3.63   -2.69  0.56   -3.00   -1.50 Bottomed?
CTXS      65.31  -0.50   -0.22  2.72   -3.94   -1.94 Tug of war
NT        47.81  -0.75   -0.94 -0.25    0.00   -1.94 Partnering
INTU     100.56   1.06   -1.13  0.31   -2.69   -2.44 Dropped
NTAP      72.25   2.31   -2.12  0.56   -3.44   -2.69 Crossroads
GE       116.75   2.00   -2.75 -0.25   -2.25   -3.25 Supported
QCOM     186.63  -1.94   -5.69  7.81   -3.50   -3.31 New
BGEN      83.06   0.97   -2.47  0.44   -2.31   -3.38 Dropped
CSCO      69.38  -0.31   -2.06  1.13   -2.88   -4.13 Stalling
DCLK     111.75  -2.25   -5.50 10.38   -7.13   -4.50 Slumping
ADI       55.50  -2.69   -2.19  2.38   -2.44   -4.94 In S&P 500
ETYS      55.66   0.31    1.63 -0.94   -6.84   -5.84 Dropped
AMAT      78.88  -1.00   -2.50  2.38   -4.81   -5.94 Dropped
TXN       83.00  -1.37   -1.63 -0.25   -3.63   -6.88 Dropped
NXTL      67.84  -1.19   -3.94  1.44   -3.66   -7.35 Dropped
AAPL      63.31   2.12   -9.81  1.06   -7.00  -13.63 Dropped

Puts

JNJ       91.13   0.44   -2.50 -0.75   -2.13   -4.94 Go Ballmer
WLP       65.00  -0.56   -2.44 -0.19   -0.56   -3.75 Right on!
KO        50.94   0.25   -0.50 -1.31   -1.50   -3.06 New
LLY       65.06   0.12   -1.50  1.06   -1.63   -1.94 Weakening
GPS       31.88  -1.25    0.63 -1.00   -0.13   -1.75 Sell-off
ELNK      42.38  -0.62   -0.69  4.69   -1.13    2.25 Dropped
COST      70.31  -1.38    0.63  1.69    1.88    2.81 Dropped



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:
*****

TXN $83.00 -3.63 (-6.88) Its been a complete turnaround for 
the semiconductor sector that was riding its high horse just 
a week ago.  TXN has been no exception, the stock has fallen 
below its 10-dma showing signs of increased weakness.  A 
combination of profit-taking, a weakening dollar and the 
earthquake in Taiwan has fueled the decline in the stock this 
week.  A Merrill Lynch researcher mentioned that semiconductor 
firms dependent on Taiwan fabrication plants for output could 
see two weeks' less production as a result of damage from 
Tuesday's earthquake.  Because of the overall reversal of the 
market and the recent weakness in the stock we decided to end 
this play and concentrate our efforts elsewhere.

AAPL $63.31 -7.00 (-13.63) Did anyone see today's sell-off 
coming?  Sure market conditions are volatile but was today's 
reaction really justified?  The best way to describe today's 
activities simply put, it was the domino effect.  A continuing 
weak dollar set the tone for the day, comments from MSFT's 
Steve Ballmer that techs are overvalued kept it going, and the 
S&P 500 breaking its 200-dma was the final straw.  AAPL was 
no exception to the rule losing almost 10 percent of its 
value in today's session.  We were expecting a dead cat bounce 
after Tuesday's sell-off but unfortunately it only lasted for 
one day due to market conditions.  With market conditions 
weakening and recent troubles with AAPL uncertain, we decided 
it was time to end this play and look for greener pastures.

INTU $100.56 -2.69 (-2.44) If the sell-off on Wall Street was
not enough, after the market close today the Chief Executive 
Bill Harris resigned after the board and the CEO both decided it
needed a more seasoned manager to lead the company as revenues
for the worlds largest maker of personal finance software 
approaches $1 billion dollars.  In after market trading the
shares were selling at $96 after closing the day at $100.56.
With today's major sell-off in the market, it is time for us to 
take our money and position it elsewhere.  Yesterday if you had 
entered the stock at the $103 level you should have been able to 
execute the intraday strategy for a quick profit when the shares 
rose to a high for the day of $106.  Monday's price action was 
very similar and if you were able to follow the recommendations
from Tuesday's newsletter, you made some money and got out.  
Going forward we no longer like the price pattern that has formed
5 days away from the payment date of the stock split.

ETYS $55.66 -6.84 (-5.84) In a major market sell-off the stocks
that have recently hit new highs and recent IPO's will normally
get hit the hardest.  This was the case today with this 
relatively new issue.  Although Etoys is positioned very well 
going forward as the leader in the toys e-commerce space, we 
were unable to get a position going in this market.  We were 
looking to enter the shares after the first hour of trading to 
give it a chance to settle down from the amateur hour price moves 
but it never moved forward.  Waiting the first hour also gives 
us an opportunity to determine whether the smart money is buying 
or selling at the current price levels.  The smart money was 
selling yesterday and today.  If you were watching the shares 
closely you would see that ETYS bounced off of the fore-mentioned 
support levels, but going forward the risk reward is against us.  
Avoid fighting the market sentiment at all costs is the wiser 
play so we are dropping ETYS.

NXTL $67.84 -3.66 (-7.35) Sometimes competition stinks.  The
Bell Atlantic and Vodafone deal is proving too much for NXTL.  
If we had to go one-on-one with the merger news, we might be 
all right but, combined with the force of the negative market 
and negative tech news, we're out for the count.  NXTL is a 
drop.  Today we fell significantly below our 10-dma of $72 and 
are gasping for air.  Daniel Akerson has been appointed as the 
new CEO for NXTL and it appears he'll have his hands full.  
This was the only news other than the titanic merger deal.

AMAT $78.88 -4.81 (-5.94) Today our necks hurt from major market
whiplash!  Ultimately we got a wrenched neck with a major sell 
off below support.  AMAT pretty much followed suit with a 
majority of the loss in the last hour of trading and so we must 
say good bye to AMAT.  Some thanks to Steve Fortuna of Merrill 
Lynch.  Expressing doubt that Gateway could keep up sales as 
expected.  This unleashed a tech slide as hardware and chip 
stocks slid on the news.  AMAT was one of those affected.  This 
just after Wednesday's renewed strength in the semiconductor 
sector from Taiwan's quake disaster.  News has come in that 
some companies may be hindered in production for at least 2 
weeks.  This is what is causing the sector to roll over.  We 
may see AMAT again as the sector and market turn more positive, 
For now the risk is to great so we'll move your money elsewhere!

*************************
DROPS CONTINUED IN SECTION 2
*************************



FREE TRIAL READERS
******************
If you like the results you have been receiving we 
would welcome you as a permanent subscriber.

The monthly subscription price is 39.95. The quarterly
price is 99.95 which is $20 off the monthly rate.


We would like to have you as a subscriber. You may 
subscribe at any time but your subscription will not 
start until your free trial is over.

To subscribe you may go to our website at 

www.OptionInvestor.com

and click on "subscribe" to use our secure credit 
card server or you may simply send an Email to

 "subscribe@OptionInvestor.com" 

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

You may also fax the information to: 303-797-1333


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






The Option Investor Newsletter         Thursday 9-23-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


*****************
DROPS - CONTINUED
*****************

BGEN $83.06 -2.31 (-3.38) The reprieve is over and we're 
dropping BGEN tonight.  The sizzle has subsided on this hot 
biotech stock and we're aren't going against the stock's 
current inclination.  Yesterday while the Nasdaq mounted a 
positive campaign, BGEN stayed south of its 10-dma ($86.09) 
and today it slithered down a couple more points.  These 
are not good signs for a call play.  And yet, keep in mind 
BGEN will report strong earnings on October 7th, after the 
bell, and this leaves a couple weeks for the possibility of 
another run-up.  Then of course there's the potential for a 
split announcement around that time - BGEN is in split 
territory above the $80 mark.  So for the interim we're 
cutting BGEN from our list but still keep this one on your 
radar screen.

PUTS:
*****

COST $70.31 +1.88 (+2.81) Well, we found out that Tuesday's 
rise in COST while the rest of the markets were down was no 
head fake.  We were expecting a slight rise in the stock to 
establish a new lower-high around $67, turning at this point 
and heading once again to lower ground.  Unfortunately the 
stock paid no attention to this resistance point and blew 
right by.  While the markets were lower this morning, COST 
showed us that past trading sessions were no fluke by 
starting the day on the upside and continuing higher 
throughout the day.  Because COST failed to turn lower at 
$67 and is showing continued strength we decided its time 
to call it quits and put this play to bed.    

ELNK $42.38 -1.13 (+2.25) Ok "officially" the news of the 
definitive merger agreement between EarthLink and MindSpring 
only hit the press today but remember that cliché "loose lips 
sink ships"?  Well in this case it sunk our ELNK ship swiftly 
and without remorse.  Share prices, of both companies mind you, 
surged YESTERDAY.  ELNK rose $4.69, or 12% and MSPG rose an 
improbable $6.50, or 25%!  Obviously the current has changed 
direction and we must drop ELNK tonight as likely shares may 
climb in the near-term as a result of this unexpected merger 
announcement.  For those interested in the logistics of the 
deal, both companies will merge into a newly formed public 
company to be named EarthLink (ELNK).  Combined they will 
boast 3+ mln subscribers making them the 2nd largest ISP only 
behind America Online (AOL).  From a geographical stand point, 
the merger is optimal since MSPG is based in Atlanta, GA and 
ELNK is from Pasadena, CA.  This stock deal still requires 
regulatory and stockholders approval, but if it goes through 
MSPG shareholders will receive a 1:1 ratio of shares and ELNK 
shareholders will receive 1.615:1 ratio of shares of the new 
company.  In today's news, Jeffries & Co started coverage on 
ELNK with a Buy rating.



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

I've Fallen and I Can't Get Up!

As long as the writers here at the newsletter are referring to 
old TV comercials (Where's the Beef?), let me make reference to 
another annoying commercial from my childhood in which a lady 
trips and has to summon assistance. With the volatile September 
option series behind us, and October just ahead, many traders 
probably feel like this. Let me offer a few words of consolation 
and advice. First of all, we have all been there in some way. 
In February, I doubled my financial assets then gave it right
back to Mr. Market because of my faith in DELL. I've talked to 
a lot of traders with similar experiences. There are really two 
routes to dealing with a significant financial set back. 

1. Share The Pain. Talk about it. In my case, I wrote Jim Brown 
an Email, saying I had broken the 10 rules (see the sidebar at 
the left), but that the newsletter made good picks. He was 
encouraging. Now, I am a member of a local Optioninvestor club, 
and we meet once a month, usually in the week following expiration. 
Seek out people that you can talk to. Almost everyone has suffered 
significant trading losses at some point. That is the bad judgment 
that leads to experience that leads to expertise. Talking to
people both in person and electronically is better because you 
need the real emotional support of another person, but you may 
also be able to correspond with other traders on the web or by 
Email during the trading day.

2. Pick Yourself Up. I have two very important rules: A) Take 
10 - 25% profits on all your trades for a few weeks, and be very, 
very careful about trading only when profitable, ie, rising OEX, 
DOW, NASDAQ; rising ticks & advance/ decline line; rising sector; 
rising stock. Make sure that when you enter a trade, you have 
everything going in your direction. Don't worry if you only make 
one trade a week, or not at all. But MAKE THE TRADE. If you
trade 3 contracts, net 15%, and put it back into your "option 
trading portfolio," good for you. You have started to rebuild 
your capital and your confidence. B) Trade only what you can 
afford to lose. Do NOT add... money from a "safe" mutual fund 
or stock brokerage account... the kid's tuition. I get Emails 
from people saying that trading is interfering with family life.
I must admit that trading sometimes interferes with my personal 
life. But you need to look at the people you love in your life 
and realize that you are increasing your wealth to benefit THEM. 
What have you gained if you destroy the relationship because 
you've risked too much capital?

Here is the 25% rule in action:

YHOO Oct 160 Call. Bought at 16 1/4 on Tuesday morning. The market 
was weak, but YHOO was strong, and I know that earnings are in 
early Oct. I immediately set a limit sell order at 25% profit for 
half of my position. I set a limit sell order at 75% profit for the
other half of my position. Two hours later, I checked the market, 
which was still down, but my 25% limit sell had already executed. 
I am still in the rest of the play. This is what Jim & his staff 
mean by Cash Flow is King. I equate it to water flowing over a 
swimmer's body with each stroke, which moves the swimmer forward,
and sets him up for the next stroke. I will take those 25%, two-
hour profits all day long! 

Janar Wasito
janar@OptionInvestor.com



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

CKFR $40.88 -1.75 (-0.75) In an internet sector that sold off 
late in the day today, CheckFree was able to remain above 
support levels.  Although shares pulled back to as low as $40.63,
it held up well relative to the market and the sector overall. 
Today's weakness was on very low volume, only one-third of the
daily average volume.  If we have reached a short-term bottom 
after this major overall sell-off, we should see Checkfree 
continue to rise higher from these current levels with some
overhead resistance at the $44.25 level.  Support remains strong
at the 10-dma at the $39.50 level.  Going forward look for the 
shares to hold above the current support levels and look for any 
intraday weakness for a possible entry point.  Confirm market 
and sector direction before entering into any new plays, the
current sell-off in the market might not have reached a bottom.  

ADI $55.50 -2.44 (-4.94) No one can predict earthquakes in 
Taiwan and no one can predict earthquakes in New York.  After
today's market action some traders might have felt like we had 
an earthquake on Wall Street.  As for ADI it remained consistent 
with its normal trading pattern.  In a weak market with the 
PHLX semiconductor Index down -5.5% to close at $521.70, ADI 
once again was able to hold the major support levels that had 
been tested last week.  Once again it hit a intraday low of $55 
before closing at $55.50.  The current technical pattern keeps 
our bullish sentiments intact going forward.  Also in after hours 
news it was reported that ADI would be added to the S&P 500 
Electronics (Semi-conductors) industry group.  This means that 
every money manager that manages a S&P 500 Index Fund must add 
shares of ADI to its portfolio, look for an immediate run up in
the shares.  If you look towards tomorrow for an entry point, 
look to take a position on any intraday weakness.  This stock 
should be moving higher on strong volume.   

GE $116.75 -2.25 (-3.25) As an intricate part of the Dow 30, 
General Electric was hurt by today's decline but critical 
support was not broken.  This may be a case of "if you liked 
it yesterday, you'll love it today."  GE has been one of the 
stronger stocks in the Dow.  It has shown the ability to out-
perform on both rally and declines relative to the Dow.  We 
like GE in a rebounding market which should come tomorrow 
after an early morning capitulation.  One concern though is 
the negative outlook for the Dow.  Some analysts, us included, 
concede that Dow looks weak over the short-term.  This would 
obviously continue to hinder any upside on GE.  So use caution 
on the declines but look for new entry points on the bounces.  
There is no stock-moving news to announce during the past two 
sessions.    

INKT $131.00 -7.31 (-0.19) Like many of the technology and 
Internet stocks, today INKT gave back the previous days 
gains and more.  Just when the sector as a whole looked 
like it was ready to make a move to higher ground, confused 
investors stepped forward and relinquished their positions 
once again.  Despite INKT being down today, the stock has 
managed to stay above its 10-dma at $129.50.  This is the 
nearest support level and is our next entry point for new 
trades.  Because of the continuing weakness in the dollar, 
unknown actions by the Fed in October, and Microsoft's 
president stating that he feels technology stocks are 
overvalued, look forward to more volatile markets ahead.  
Make sure that you confirm the direction of the stock and 
broader markets before placing these new trades. 

EMC $69.50 -3.00 (-1.50) Many of you were praying for a 
pullback to support on EMC and today you got it.  EMC felt 
sorry for the tech sector woes and followed suit.  We're now 
smack dab on our 10-dma support at $69.  A possible entry point 
but (and you knew this was coming), be very careful!  Our bottom 
literally fell out of the market as the Dow dropped below support,
and it could be down from here until the Fed meeting.  Don't be
tempted and jump in this too soon.  Wait for the advance/decline
ratio, tick, market, sector, and stock to be positive, if you 
are a conservative investor.  The tech retreat was news based 
and sympathetic, so shortly EMC should rebound as analysts are 
touting this stock as a "buy and fairly valued".  This and the 
Internet growth will continue to fuel the trend.  Our trend is 
approaching a 45 degree growth, indicating momentum however, the 
next few sessions will be critical as to whether we will sustain 
the trend or break it.  Do not try to out guess it, the market 
will win!  Nothing exciting to report in the news, other than 
updates on the pending deal with Data General Corp which is 
still on.  

NT $47.81 +0.00 (-1.94) NT was literally saved by the bell today!
The market bell.  The last 15 minutes saved us from the day low
and we finished even.  Pretty unusual considering the massive 
tech selloff we experienced.  The market is below support of 
10,500 now so we may see continued moves down.  Mainly Gateway 
however, the whole sector was hurt due to sympathy and fear.  
NT is poised to trend higher in the next seven days based on 
technical momentum but, only if the market cooperates.  At this 
level it is extremely doubtful that the market will help.  Be 
very cautious!  Outlooks for NT continue to improve, as many 
companies are partnering with Nortel for the new IP telephony 
trend.  It is expected that the switch from conventional LAN 
systems to the new Internet protocol will grow 138% over the 
next 5 years!  IXC joined with NT to offer new products in this 
area, along with Spain's Airtel.  Airtel's contract alone is 
$50 million and will provide the world's first wireless/wireline 
package.  Growth is the keyword here!  NT has also committed 
to use IBM's new 550 megahertz chip in their network.  The high 
performance, small platform is characteristic of NT's commitment 
to new technology and growth.  We are just below the stocks 
10-dma at $48, so do not start any new positions until we see 
a sustained break through $48 is confirmed.  Use stops to 
protect your capital in this rocky market we tread.

CTXS $65.31 -3.94 (-1.94)  Trading volume has continued to 
be strong irrelevant of which direction the momentum is 
moving CTXS and this makes for a sporting game of "tug of 
war" between buyers and sellers.  Shares rose sharply 
during the second half of trading yesterday peaking just a 
fraction below the record high ($69.94) hit on Monday. 
Then today the bears came out of hibernation and another 
powerful sell-off ensued.  This volatility has placed CTXS 
right on the 10-dma ($64.87).  Even though this could be 
considered a prime buying opportunity, be careful.  More 
weakness in the overall market could easily take CTXS down 
to firm support at $61.  In the news on Wednesday, James 
Felcyn, Jr., the company's CFO, announced that he plans to 
resign by the end of the year to pursue other interests.  
Beyond that there was no other company specific news event 
that would affect the share price.   The earnings' date 
however is confirmed for October 18th, after the bell.   

SUNW $89.63 -3.75 (+0.94)  The bears pumped up some more iron 
today to once again show the bulls just how strong they can be.  
Yet technically, even with the recent profit-taking SUNW has 
still held firm above its 10-dma at $88.26, demonstrating 
there is no major weakness in the shares.  Plus you've got to 
recognize that the bears have had an unstable market and 
negative sentiment in their corner today.  If the broader 
markets cooperate, then SUNW is poised to reach higher price 
levels in the near-term.  The earnings' date has been confirmed 
for October 14th, after the bell, so there is plenty of time 
for this earnings/split play to regain its momentum.  Plus 
we're betting that split happy investors will give SUNW an 
extra shot of adrenaline.  These pullbacks are providing 
excellent opportunities to enter new trades but still be 
cautious of a dissenting market and heads up - the formidable 
Greenspan speaks on Monday.  So pick your entry carefully and 
pay close attention to your positions. 

VOD $225.00 +4.94 (+16.44) VOD was one of the few stocks that 
didn't finish the day in the red on Thursday.  After making a
high of $234 in the first two hours of trading, VOD began to
consolidate.  After the broader markets fell apart in the last
two hours of trading, shares of VOD held up pretty well closing
up $4.94 for the session.  Yes it gave away the $9.00 it had
gained earlier in the session but it did manage to end the
day higher, which is positive going into Friday.  The upcoming
split has certainly helped drive the price of VOD higher, as 
shares are in short supply and a few institutions are still 
wanting to buy.  Investors approved of the joint venture with
Bel Atlantic announced Tuesday.  Several analyst suggested VOD
may be poised to make a bid for Germany's Mannesmann, which 
also helped propel VOD to new highs.  Lehman Brothers raised 
it's rating of VOD today from an Outperform to a Buy.  Where 
do we go from here?  Barring any catastrophe's in the broader
markets, we would look for VOD to continue higher.  Should we
get a pullback, there is solid support in the $220 area, and 
would view a pullback and a bounce as an opportunity to join
in on the split run.  Remember VOD splits 5:1 on October 4th.

DCLK $111.75 -7.13 (-4.50) DCLK had a great two days until the
last two hours of trading today.  DCLK was named to Merrill 
Lynch's new security called "Internet Holders", a basket of 
the largest twenty Internet stocks by market capitalization.
Internet Holders, started trading today on the American Stock 
Exchange under the ticker HHH.  Investors showed their approval
by driving the price of DCLK to a high of $123.50 in the first
fifteen minutes of the session this morning.  Profit-taking and 
consolidation occurred until the broader markets began to fall
apart in the last two hours, after Microsoft President Steve
Ballmer announced that valuations on technology stocks have
reach "absurd" levels.  Shortly after shares of the internet
advertising company began to slide along with the major indices.
DCLK ended the day down $7.13, on volume of 4.6 mln. shares, 
in what we believe is probably a bump in the road rather than
a major change of trend for DCLK.  We may still see more selling
in the internet stocks but at this point, would look further
weakness as an opportunity to buy calls, once the markets shakes
off Mr. Ballmer's comments.  We would be cautious about entering
a new play at this point though.  Wait for a positive move in 
DCLK and the Internet sector supported by strong volume.

NTAP $72.25 -3.44 (-2.69) NTAP could be at somewhat of a 
crossroads as profit-taking continued Wednesday in the opening 
hour of trading.  By the end of the session NTAP had repaired 
the days losses climbing out of the hole ending up $0.56 for 
the day.  NTAP traded in a narrow range for most of the day 
today until the broader markets began to slide.  NTAP closed 
down $3.44 for the day but the volume was light at 709K, which 
suggests the fall was more in sympathy with the broader markets 
rather than shareholders of NTAP bailing out.  If you haven't 
been stopped out yet, please get you stops tight as their may 
be more selling ahead.  NTAP did close just below its 10-dma 
at $72.41.  We feel at this point NTAP will regain its footing 
and begin to make its way higher.  Support for NTAP is in the 
$71 area and again near $69.  We would suggest letting the market 
dictate our next move.  Wait for a bounce accompanied by solid 
volume before entering a new play in NTAP.

YHOO $173.75 -5.75 (+10.63)  Henry Blodget, Merrill Lynch's 
Internet analyst sang the praises of YHOO yesterday and the crowd 
went wild, tacking $10 on to YHOO.  Today, YHOO again took off 
strong out of the gate, blasting to over $186 only to be shown 
the basement (no stairs leading there) along with everything else 
by day's end.  So after falling as much as $15 from its daily 
high, why's it on the list?  Answer: Earnings to be announced 
after the close on October 6, the day after the FOMC meeting, 
wherein YHOO is again expected to top analyst estimates of $0.09 
by a significant margin.  Blodget said it yesterday too and 
reiterated that YHOO remains one of his core holdings.  There's 
more: BBRS analyst Lowell Singer said he was more bullish than 
ever on YHOO, citing an increase in advertising rates following 
a meeting with management.  That's why YHOO seemed to go crazy 
yesterday and this morning.  Notice on chart that even with 
today's setback, YHOO still closed above yesterday's opening 
on almost twice its ADV.  Translation: strong upward sentiment 
despite market jitters.  However, don't let earnings blindness 
cloud your judgement.  When we saw the market head south in a 
severe way, that trailing stop we all had set (wink, wink) should 
have taken us out in the low $180's.  Strong buying activity in 
the last 15 minutes of trading sent YHOO up $2.50 from the low, 
which makes us think that if the market shows any strength 
tomorrow, YHOO will single-mindedly march up again toward 
earnings.  Support = $171.  Resistance = $189.  As we noted 
Tuesday, don't play this one if you suffer from motion sickness.

CSCO $69.38 -2.88 (-4.13) Merrily skipping along at $71 support 
for most of the day, CSCO tripped and bruised its bottom at 
$68.75 before recovering $0.63 in the final 15 minutes of trade 
today.  Were it not for the final hour of panic, then 
reconsideration, which sent the volume 5% over the ADV, CSCO 
would have another very low volume day, while continuing to show 
good support at $71.  If there is any consolation in today's 
NASDAQ meltdown, it's that MSFT and INTC got hit with most of the 
damage, sparing CSCO from carnage.  Usually when a drastic drop 
(or gain) occurs, there's a technical recoil or retracement of 
former ground.  Despite the doom and gloom, we think this bit of 
capitulation is healthy, signaling perhaps a reversal to the 
upside in the very near future.  However, don't bet the ranch.  
If the market doesn't cooperate, you'll have a big hat but no 
cattle.  Why take a position in the first place?  The play first 
began as a technical one, signaled by new highs and consistent 
strong bounces off its 10-dma ($71), which made us think it was 
going higher.  Today it made a nice bounce off its 30-dma ($69), 
but by definition violated its 10-dma.  We're now watching with 
a keen eye to see if CSCO will make a move back up.  Wait for 
the market to give the signal. (don't just wear the hat but 
preserve the cattle)



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

WLP $65.00 -0.56 (-3.75) Continuing problems in the long-term 
health care industry has haunted the sector all summer.  Not 
excluded from the problem is our very own WLP.  Tack on two 
more trading sessions in negative territory bringing us to a 
grand total of nine consecutive sessions in the red.  Just as 
we expected, once WLP broke its support at $70 it has been 
nothing but down hill.  This has not been the fastest moving 
put for us but it has been a consistent play.  WLP continues 
to trade well below all its moving averages, showing just how 
technically weak the stock is.  The next support level for the 
stock is $60, which should be obtainable considering recent 
depressed market conditions.  With all the volatility in the 
broader markets, watch for slight spikes in the stock for new 
entry points.  Just a side note, on Tuesday WLP said that it 
was unaware of any developments in its business operations 
that would explain the recent decline in its stock price. 

LLY $65.06 -1.63 (-1.94) Goldman Sachs put shares of Lilly on 
the recommended list but that failed to spark a meaningful 
rally.  The news from Goldman occurred on Wednesday as they 
announced ratings on 8 drug stocks but the effects were short 
lived.  LLY pushed up to resistance at $67 but was quickly 
repelled and has since drifted lower.  We have the makings 
of range-bound trading between support at $65 and resistance 
at $67.  We mentioned the support at $65 on Tuesday and we 
still feel that LLY is more likely to head lower before an 
move to the upside.  Especially with the back drop of a 
weakening market.  Any bounce off $67 looks like an entry 
point if you are expecting a break of $65 but conservative 
players would want the break to occur first.  Next support 
target is at $62.  

GPS $31.88 -0.13 (-1.75) Mixed analysts comments = a mixed 
performance for GPS on Thursday.  It started before the open 
when BancBoston Robertson Stephens reiterated their Buy rating 
on Gap citing an over-reaction in the recent selloff.  They 
said that despite tough comparisons, GPS will outperform and 
provide investors the stellar returns of recent years from 
this level.  GPS originally rallied to $33 where it was met 
by resistance and that is when CSFB came out their rating at 
about noon ET.  They gave GPS the 'kiss of death' Hold rating.  
This is as low as analysts will go without alienating the 
company and this is why we saw a midday stall in Gap's stock 
price.  It is hard to judge stocks when the market makes 
such a volatile move.  It is likely that both the markets 
and GPS will bounce back tomorrow so tighten your stops.

JNJ $91.13 -2.13 (-4.94) The timing of Steve Ballmer's comments 
concerning valuations of technology stocks, couldn't have been
better for our put play on JNJ.  After making a low of $91.75 
early in session today, JNJ seemed to begin a bounce and a 
possible consolidation.  It was shortly after 2:00 EST when
Mr. Ballmer suggested that valuations on technology stocks have
reached "absurd" levels and even his own company, Microsoft, 
may be overvalued.  The broader markets began to fall apart and 
took just about everything else with them.  By then JNJ had 
climbed back to $93.38, when it followed the sentiment in the
broader markets falling over $2 in the last two hours of the 
session, finishing the day down $2.13 at $91.13, the low of the 
day.  For those interested, the 200-dma is at 91.24.  Technically
the chart looks ugly, however there is support in the $89-$90
area.  Will the decline continue?  At this point there is nothing
in the news that would change the short-term outlook for the 
drug maker or its industry.  We would tighten down the stops
in case we get a bounce tomorrow but we would look for shares
of JNJ to continue to slide at least to their current support 
levels.  We would be cautious when considering a new play in 
JNJ, unless we saw a bounce followed by further weakness.


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

SNE - Sony Corporation $152.19 -4.69 (+5.00 this week)

Sony is one of the world leaders providing electronic equipment 
such as video, televisions, information and communication 
devices and other electronic components.  In fact you can find 
Sony's signature on almost any type of electronic device you 
use.  Their world growth and market penetration has allowed them 
to diversify into a true conglomerate, now with interests in 
software, finance and insurance.  Despite Japan's challenges, 
the company managed to increase revenues by 1% in the fiscal 
year ending 3/99.  As Japans recover continues, SNE is poised 
to benefit from the turnaround.

When the U.S. markets worry about inflation, interest, and
Fed decisions here at home, where does all the money go?  Well
Japan's not looking to bad right now and indications are that
the their recovery is well under way.  One of the reasons we 
like SNE as a current play.  The stock has pulled back to a 
very buyable level near support thanks to today's selloff.  As 
Japan continues to recover and the U.S. market bumps along, one 
can expect Japan based Sony to look attractive to investors.  
On September 10th the stock broke out of a very narrow range 
and is forging a new steady trend to the upside.  Momentum of 
this new trend is significant showing 70% greater strength than 
the average stock.  This is confirmation of the interest in 
Japanese investments.  Also, the stock provides us with nice 
intraday swings.  A result of Sony's small float of $406 mln 
shares in comparison to demand.  This offers investors to catch 
some good profit on upside movement.  The sector has also been 
on a climb, as consumers continue to indulge in new technology.  
Even though SNE is a Japanese investment, we still need to 
advise caution, as it is traded on the NYSE.  Anticipated further 
weakness could effect our movement, so confirm positive stock 
direction before making a play. 

Sony has news to spare, so we'll highlight the main issues. 
CD Now is merging with Sony's Columbia House to prevent it's
recent stock slide.  A positive move to capture more share.
Mainstay International equity fund confirms the positive
outlook for companies in Europe and Japan, listing SNE as
one of the stars.  Also, keeping in tune with our opening
paragraph, the Walkman is celebrating it's 20th Anniversary.
Sony will allow the new Walkman to play music from Internet
downloads, as well as traditional.  A big move into acceptance
of the new technology.

BUY CALL OCT-150*SNE-JJ OI=160 at $11.00 SL=8.75
BUY CALL OCT-155 SNE-JK OI= 90 at $ 7.88 SL=5.75
BUY CALL OCT-160 SNE-JL OI= 50 at $ 3.25 SL=1.50 low OI

Picked on Sep 23rd at $152.19    P/E = 52
Change since picked     +0.00    52 week high=$160.50
Analysts Ratings    0-1-0-0-0    52 week low =$ 60.25
Last earnings 07/99   est= ??    actual= 0.65 
Next earnings 10-19   est= ??    versus= ??
Average daily volume =  201 K
Chart = http://quote.yahoo.com/q?s=SNE&d=3m



****************************
CALLS CONTINUED IN SECTION 3
****************************

SEE DISCLAIMER IN SECTION ONE



The Option Investor Newsletter         Thursday 9-23-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

*****************
CALLS - CONTINUED
*****************

QCOM - Qualcomm Inc $186.63 -3.50 (-3.31 for the week)

Qualcomm develops and manufactures communications technologies 
and products.  It's best known for its CDMA (code division 
multiple access) technology which is the industry standard 
for mobile communications.  This technology and is used in 
cellular phones, wireless telephone system equipment, and 
satellite ground stations.  QCOM also provides the trucking 
industry with a monitoring system call OnmiTRACS and is 
currently in a joint venture to develop a low-earth-orbit 
satellite communication system call Globalstar.  They are 
also the #2 supplier of digital cell phones following Nokia.  

This new addition to our list of calls is directed towards 
the momentum players.  QCOM first sprung into new territory 
on September 14th after the company announced it was proactively 
seeking a buyer for its mobile phone manufacturing unit.  
Simultaneously Qualcomm reported that it would meet or beat 
4Q estimates - a nice plus!  All this news was icing on the 
cake to shareholders of the best-performing stock in the 
S&P 500 index this year.  Shares of QCOM rose $17.12, or 11% 
that day alone.  Since then the momentum has certainly 
persevered and also has confirmed the stock's place as a split 
candidate since it soared above $155 and hasn't looked back.  
Recently QCOM split 2:1 on May 11th and at this time doesn't 
have enough shares authorized for another split.  There are 
only 300 mln authorized and about 161 mln issued, but however 
it'd be easy enough for the Directors to hold a Special Meeting 
and request shareholders' approval to increase the number of 
authorized shares.  This momentum play could even pick up 
more speed as it approaches its earnings date expected to 
report on October 21st (not yet confirmed).   The stock's 
pullback today offers players a solid entry point into this 
high-flying Internet.  But be warned this play is not for 
everyone.  QCOM is a HIGH RISK INTERNET play because of its 
rapid volatility

In other news, Qualcomm and Lucent entered into an alliance
to commercialize wireless network equipment using CDMA 
technology on Lucent's base station equipment.  This team 
effort will create faster speeds and increase capacity on a 
network.

BUY CALL OCT-180 AAO-JP OI=2830 at $15.13 SL=11.75
BUY CALL OCT-185 AAO-JQ OI=1333 at $12.38 SL=10.00
BUY CALL OCT-190*AAO=JR OI=2464 at $ 9.88 SL= 7.50
BUY CALL NOV-185 AAO-KQ OI=  72 at $19.50 SL=15.25 low OI
BUY CALL NOV-190 AAO-KR OI=  92 at $17.13 SL=13.25

Picked on Sep 23rd at   $186.63   P/E = 98
Change since picked       +0.00   52 week high=$199.00
Analysts Ratings      8-8-2-0-0   52 week low =$ 18.87
Last earnings 06/99   est= 0.63   actual= 0.75 surprise +19.1%
Next earnings 10-21   est= 0.88   versus= 0.27
Average daily volume = 8.94 mln
Chart = http://quote.yahoo.com/q?s=QCOM&d=3m



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

KO - Coca Cola, Inc. $50.94 -1.50 (-3.06 this wk)

Anybody not know what Coca-Cola is or does?  Good.  But just 
in case you've been in a cave for the last 100 years, they are 
the world's largest manufacturer of soft drinks including Coke, 
Diet Coke, Cherry Coke, Mr. Pibb and Sprite.  They also own 
the brand name called Birds Eye, who produces that frozen juice 
concentrate in your freezer.

Despite having the world's most popular recipe for carbonated 
water and sugar, KO's stock price has been sucking canal water 
lately.  It's summed up in this comment in a Reuter's article 
released today.  "Beverage industry analysts said investors were 
concerned about the Atlanta-based company's earnings potential 
in 2000 and unit case volume numbers that have failed to bounce 
back after the contamination episodes.  The company saw unit 
case volume and concentrate volume sales figures slump in the 
first 2 quarters of 1999 from the effects of the contamination 
crisis and depressed global economies, as well as increased 
marketing expense."  They use these numbers to anticipate sales, 
which aren't looking to good right now.  Technically, KO fell 
to a new 52-week low and trades below every daily moving average 
imaginable, from the 10-dma to the 200-dma.  Actually it hasn't 
closed here since December of 1996, although it touched this 
level in the October 1997 sell-off.  Back on September 9, there 
was a report published that S&P might lower KO's Aa-minus senior 
unsecured debt and corporate credit.  We haven't seen many 
downgrades yet either.  Though it may get a technical bounce 
tomorrow, the trend is down; the graph is downright ugly.  
Confirm the downward direction before taking a position.  
careful.  There's some support at $50, based on open interests.

BUY PUT OCT-55*KO-VK OI=5883 at $4.38 SL=2.75
BUY PUT OCT-50 KO-VJ OI=4619 at $1.25 SL=0.00 High Risk!
BUY PUT NOV-55 KO-WK OI=6882 at $5.00 SL=3.25
BUY PUT NOV-50 KO-WJ OI=6153 at $2.13 SL=1.00

Picked on Sep 23rd at    $50.94    P/E = 41
Change since picked        0.00    52 week high=$75.44
Analysts Ratings      2-7-6-1-0    52 week low =$50.81
Last earnings 07/99   est= 0.39    actual= 0.38 surprise -2.6%
Next earnings 10-14   est= 0.32    versus= 0.35
Average daily volume = 3.72 mln 
Chart = http://quote.yahoo.com/q?s=KO&d=3m



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

ADI - Analog Devices Inc. $55.50 -2.44 (-4.94 this week)

Analog Devices, Inc. is a semiconductor company that designs, 
manufactures, and markets high-performance circuits used in 
analog and digital signal applications.  Its normal linear ICs 
translates pressures, temperatures and sound into digital as 
well as analog signals.  The chips are used in communications 
equipment and  computers.  Other arenas where the chips are 
implemented are in engineering, medical and scientific 
instruments.  

Sunday's Write Up

Once again ADI had another positive performance, despite it 
being a Triple witching Friday and the uncertainty during the 
week in the semiconductor sector.  Friday the sector continued 
the uptrend and the stock was up $3.38 to close at $60.44 on 
just about average volume.  With Friday's gain, ADI has now 
once again hit a new all-time-high $60.44.  The stock continues 
to look strong technically and is in a sector that has momentum 
on its side.  The PHLX semiconductor Index continued higher and 
was up strong 13.29 points to close at 565.22.  Gauging sector 
performance once again we see that Texas Instruments, Applied 
Materials and National Semiconductor were also bullish again on 
Friday as the NASDAQ took off.  ADI once again bounced nicely 
off of its 10-dma, which has provided the stock with good 
support. 

If you are looking to enter this play, it looks as though a 
short-term bottom has been reached and we could see higher 
prices from here, including the possibility of a new high.  
As always, watch the market direction on Monday before picking 
your entry point.  Tight stops are always a good idea at new 
high levels.

Tuesday's Write Up

Stocks that continue to hit new highs have to be monitored and 
tight stops are always a good idea, as we requested in Sunday's 
update.  Such was the case with ADI, we had a nice round of 
profit-taking in ADI after it had soared to record highs, in 
a high flying sector.  Watching the market direction and sector 
momentum should have kept you from entering a new position in 
this high flier on Monday.  After the earthquake in Taiwan, 
there definitely wasn't much for entry points today.  This is 
a good example of why you should have stops.  No one can 
predict earthquakes.  The overall sector performance was weak 
as the high fliers came down to earth.  The PHLX semi-conductor
Index was down to 543.17 and is down over 20 points in two days.
Although the shares were downgraded today by "ABN AMRO" from an
Outperform to a Hold, going forward from a technical standpoint 
at this time we are cautiously bullish on ADI, as well as the 
semi-conductor sector.  Conservative traders should take there 
profits and park them until all the news is out concerning the 
earthquake's damage to the plants in Taiwan.  As always confirm 
market direction and momentum before entering a new position 
and in this case, look for news to drive the sector.

Thursday's Write Up

No one can predict earthquakes in Taiwan and no one can predict 
earthquakes in New York.  After today's market action some 
traders might have felt like we had an earthquake on Wall Street.  
As for ADI it remained consistent with its normal trading 
pattern.  In a weak market with the PHLX semiconductor Index 
down -5.5% to close at $521.70, ADI once again was able to hold 
the major support levels that had been tested last week.  Once 
again it hit a intraday low of $55 before closing at $55.50.  
The current technical pattern keeps our bullish sentiments 
intact going forward.  Also in after hours news it was reported 
that ADI would be added to the S&P 500 Electronics (Semi-
conductors) industry group.  This means that every money manager 
that manages a S&P 500 Index Fund must add shares of ADI to its 
portfolio, look for an immediate run up in the shares.  If you 
look towards tomorrow for an entry point, look to take a 
position on any intraday weakness.  This stock should be moving 
higher on strong volume.

BUY CALL OCT-55*ADI-JK OI=4362 at $4.13  SL=2.50
BUY CALL OCT-60 ADI-JL OI= 768 at $1.75  SL=0.75
BUY CALL NOV-55 ADI-KK OI=  40 at $6.00  SL=4.25
BUY CALL NOV-60 ADI-KL OI=  80 at $4.75  SL=2.75

Picked on Aug 28th at    $51.31    P/E = 61
Change since picked       +4.19    52-week high=$60.44
Analyst Ratings       8-6-1-0-0    52-week low =$12.00
Last earnings 08/99   est= 0.29    actual= 0.30
Next earnings 12/02   est= 0.35    versus= 0.16
Average daily volume = 1.08 mln
Chart = http://quote.yahoo.com/q?s=ADI&d=3m 



************************
COMBOS/SPREADS/STRADDLES   
************************

Did Somebody Yell Fire?

Stocks tumbled on Thursday as big-cap technology issues finally
gave way under the growing weight of pessimism in equity markets.

Wednesday, September 22

The markets were mixed today as investors considered a plethora
of uncertainties, including the dollar's continued weakness, a
widening trade gap and the outside chance of another interest
rate increase. The Dow Jones industrials continued lower, down
74 points at 10,524, just one day after its biggest drop since
late May. The Nasdaq index rebounded 37 points to 2,858 on new
strength in technology stocks. In the broader market, declines
led advances 1,721 to 1,216 on volume of 808 million shares on
the New York Stock Exchange.


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

Barrick Gold    ABX  JAN12C/JAN20C  $2.50  debit  bull-call
Newmont Mining  NEM  DEC17C/DEC22C  $1.93  debit  bull-call

Both positions opened higher and stayed in positive territory
for most of the morning. ABX remained in the green for the whole
session we did not see any opportunity to open the play for the
target debit. The best observed price was $2.50 debit. NEM was
slightly more cooperative, falling $0.50 in the afternoon to a
low of $19.31. The target entry of $1.93 was available and the
position traded as low as $1.88. There was some other activity
in Barrick as the January 25 calls included a single trade of
3,000 contracts.

Portfolio plays:

New concerns on the bearish technicals of the market are now the
focus of analyst's discussions. The trade gap, weakness in the
dollar, and higher interest rates are all concerns but most
experts are concentrating on the key technical support levels.
The Dow bottom appears to be near 10400 and the S&P 500 index,
which slipped briefly below the 1,300-point level, has support
near 1275. Of course, market breadth isn't helping either as
decliners continue to lead advancers on a daily basis and one
analyst referred to our condition as a "parade of horribles".

There were some bright spots today. 3Com Corp (COMS) moved up
after the company turned in a positive earnings surprise. For
the quarter, the company reported EPS of $0.33, up 38% from the
last quarter. Analysts had been expecting $0.24 and the stock
took off for a $2.12 rise on the news. The bullish debit spread
was closed on the rally near maximum profit. Bell Atlantic (BEL)
was higher today as analysts gave the "thumbs up" to its joint
venture with Vodaphone Airtouch (VOD). On Tuesday, they agreed
to merge operations and create a $70 billion cell-phone giant.
Another of our recent slumping issues, Tuts systems (TUTS) was
up $2.25. after testing support near $25. Broadcom (BRCM) and
Doubleclick (DCLK), our two combination straddles, were also
higher, up over $10 each. We are going to close both positions,
one at profit and the other at break-even, while the technology
issues are at a high. Indications of the Nasdaq rally were also
seen in Qualcomm (QCOM), up $6, Electronics for Imaging (EFII),
which was $3.50 higher and Microchip (MCHP), up $2.25 to $58.
MCHP is an early exit candidate with a $9.50 credit against a
cost of $8.31, and should now be closed to protect profits.

On the downside, tobacco stocks were in the news as the Justice
Department filed its long-expected lawsuit against the cigarette
makers. The federal government said it will seek to recover much
of the $20 billion it spends every year on smoking-related costs.
Shares in the world's largest tobacco company, Philip Morris (MO)
fell $1.12 after it said it will mount a vigorous defense to the
suit.        

Thursday, September 23

Stocks tumbled on Thursday as big-cap technology issues finally
gave way under the growing weight of pessimism in equity markets.
The Dow Jones industrial average fell 205 points to its lowest
closing level in more than five months and the Nasdaq suffered
one of its biggest losses ever, sliding 108 points to 2,749. The
S&P 500 index skidded 30 points to 1280, well below a level many
analysts said was a key support area for the stock market. The
30-year treasury rose more than a full point to yield 6.00%.

Portfolio plays:

Another terrible day in the market as increasing concerns about
the weakening dollar, growing trade deficit and higher interest
rates have all but brought the house down. Most of the issues in
our portfolio moved lower and the majority of the bullish plays
are in negative territory. Now is the time when you will have to
make some decisions about risk/reward and capital conservation,
based on your current outlook for the market.

One interesting observation, Sunday's credit-strangles were very
active during the first few days of the new expiration period and
already, the signs of premium decay are evident. All three of the
positions could have been closed this morning for favorable short
term returns; Hewlett Packard (HWP) at $0.50, Johnson & Johnson
(JNJ) at $0.43 and Merrill Lynch (MER) at $0.38.

Philip Morris (MO) rebounded in morning trading and that was a
good opportunity to close the long option in the bullish debit
spread. The position was bid at $3.25 for most of the first hour
and traded as high as $3.38. With the new market outlook and the
recent filing from the justice department, it's hard to imagine
MO making any kind of a significant rally in the next few weeks.

We will discuss this week's adjustments in the Sunday edition.

Good Luck!

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


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

With today's crash and the uncertain direction of the market, we
would prefer to stay comfortably on the sidelines while the new
trend or destiny is established. For those of you that still want
to participate, we found two (relatively) low risk plays based on 
disparities from recent speculation in the options market. Please 
research these plays thoroughly before opening any positions as
current sentiment and news will have an effect on the eventual
outcome of each issue.


FON - Sprint  $51.12     *** Still A Takeover Target? ***

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 in options increased again, just a day after
the stock finished at a recent high near $55. In the afternoon,
the issue fell lower with the market sell-off but speculation
was still running rampant after the New York Times reported that
Sprint had been in talks with German telecommunications giant
Deutsche Telekom AG. The volume also remained above average but
much of the interest has moved to Put. This follows a recent call
option order of over 11,000 contracts in the OCT-$50 series.

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 20% over the
past two weeks and the bullish trend appears intact even with
today's severe market correction. In addition, ABN AMRO said it
initiated coverage of Sprint today with an "outperform" rating.

The new interest in put options and the high volatility of this
issue has produced a very conservative combination position for
those of you who like FON in the long-term.

PLAY (very conservative - bullish/covered-combo):

BUY  STOCK - FON  A=$51.25
SELL CALL  NOV-40 FON-KH OI=651 B=$12.25
SELL PUT   NOV-40 FON-WH OI=236 B=$1.12
OVERALL INITIAL NET DEBIT TARGET=$38.88
COMBINED ROI=9%(margin required)

Note: The return on this position can be increased through the
simultaneous purchase of a bull-call (debit) spread. Our most
conservative suggestion would be the NOV40C/NOV45C at a debit
of $3.75.

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

****

RNB - Republic National Bank  $58.56

Republic New York is holding company whose principal subsidiary
is Republic National Bank of New York. The Bank provides a full
range of domestic banking services including commercial and
consumer installment and mortgage loans to individuals and
businesses. The Bank is also active in international banking
where it operates principally as a wholesale bank. The Bank
trades gold and silver bullion, both for immediate delivery
and for delivery in the future, buys and sells options on
precious metals and engages in various arbitrage activities
in the precious metals markets.

This is a very unique issue that requires far more explanation
than can possibly be listed in this play summary. In short, the
company is currently awaiting the closure of a merger deal in
which Britain's HSBC Holdings is expected to pay them $72 for
each share. The problem is the company has been plagued with a
slew of recent accusations and allegations concerning some of
their past banking practices and its securities unit's dealings
with U.S. fund manager Princeton Economics International. HSBC
Holdings recently said it had not changed its stance on the
takeover of Republic New York but most analysts believe they
will be able to re-negotiate its bid price to a lower amount.

Regardless of all the news, it appears that the merger will
eventually occur and it's very unrealistic to think that RNB
could be worth less than the cost basis of this combination
position.

PLAY (conservative - bullish/covered-combo):

BUY STOCK - RNB  A=$58.75
SELL CALL OCT-50 RNB-JJ OI=0   B=$9.62
SELL PUT  OCT-50 RNB-VJ OI=608 B=$1.43
OVERALL INITIAL NET DEBIT TARGET=$48.75
COMBINED ROI=7%(margin required)

Note: The return on this position can be increased through the
simultaneous purchase of a bull-call (debit) spread. Our most
conservative suggestion would be the OCT50C/OCT55C at a debit
of $3.50

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


****************
STRADDLES
****************
A withering market has helped many of the straddle issues move to
break-even exits (on the downside) but so far, none of them have
become profitable positions. Of course, they are all fairly new
plays and the recent market move could be a signal of even bigger
fluctuations over the coming weeks. The most favorable candidate
for an early profit appears to be Donaldson, Lufkin and Jenrette
(DLJ) as the stock is now down $10 from our original pick price
and the debit straddle was actually in the black for a short time
today. Another issue that we had hopes for was Phelps Dodge (PD)
after Monday's announcement that the company raised its hostile
bid for merging rivals Asarco and Cyprus Amax Minerals. PD and
the other copper stocks rallied on the news but Thursday's drop
took the stock right back to the $56-$57 range. Other plays that
appear to be moving in the right direction today are Avis (AVI),
down $1.50 to $19.50 and Williams Brothers (WMB), down $2.06 and
well below recent support near $40.

The problem now is that the market may endure some sort of small
(oversold) technical rally and that's when we have to decide if
we are going to trade against the straddle to avoid losing time
value (or potential). As the stocks rebound to previous trading
ranges, the potential for future volatility will decrease and
that can erode the value of your positions. It's very important
to monitor your plays on a daily basis for changes in technical
character so you can adjust your exit strategy when necessary to
fit the market fluctuations. One of our readers asked about that
problem (and many straddle traders face it) in this weeks Email.
Here is the narrative on the subject of technical trading with
straddles:

Trading the trend in straddles can be a profitable technique for
directional traders but it involves additional risk and requires
knowledge of basic technical analysis. The most common approach
to this method is to monitor the underlying issue for a breakout
or key reversal through a known support or resistance level. If
the new trend has been positively identified, the lower priced
options (losing side) are sold along with one-half of the higher
priced options (profitable side). The remaining position is held
until a reasonable profit target is met and downside protection
is maintained with a trailing stop. Advanced traders favor this
follow-up technique because it is based on known technical trends
and the action generally occurs near the position's break-even
points. When one of these points is reached, two simple trades
lower the overall cost basis while retaining a high probability
of eventual profit.

New plays:

With the market volatility (and our portfolio to manage), we have
been unable to find any truly favorable positions for new straddle
plays. If the market cooperates, we hope to offer a new group of
candidates this weekend.

Good Luck!



************
See Disclaimer in section one
************

DISCLAIMER

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

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

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives