Option Investor
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Daily Newsletter, Sunday, 09/26/1999

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The Option Investor Newsletter            Sunday  9-26-99  1 of 7
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com

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*******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
*******************************************************************
         WE 9-24          WE 9-17          WE 9-10           WE 9-3
DOW     10279.33 -524.30 10803.63 -224.80 11028.43 - 50.02  - 11.72
Nasdaq   2740.41 -129.23  2869.64 - 17.32  2886.96 + 43.85  + 84.21
S&P-100   672.80 - 32.16   704.96 -  7.83   712.79 -  1.10  +  5.92
S&P-500  1277.36 - 58.06  1335.42 - 16.23  1351.65 -  5.59  +  8.97
RUT       417.09 - 17.37   434.46 -  6.73   441.19 +  5.22  +  3.52
TRAN     2878.72 -121.07  2999.79 - 91.04  3090.83 - 66.07  - 14.45
VIX        29.54 +  5.32    24.22 +  1.87    22.35 -   .96  -  1.82
Put/Call     .74              .67              .52              .57
*******************************************************************

Be careful what you wish for, you might get it!

On Thursday I said the ideal situation would be another big drop
on Friday to clear out the remaining sellers and make buyers feel 
safe to open new positions. It would have been hard to script the
trading day Friday any better. Of course it depends on what side
of the table you were on when the market opened but I was happy
as new puppy in a house full of kids.


  

We got a little bump right after the open that let traders with
open positions to sell into strength. And there must have been
a bunch of them because the next two hours were all down hill.
After breaking all the way down to 10190 at 11:30, the bullish
sentiment gave the few brave buyers still in denial of the sell off
a buying opportunity. Those with experience held back with the
feeling that there was more to come. There had to be more to come.
With G7 this weekend and Greenspan on Monday, there were still
holders that wanted out. Right after lunch the real carnage began
again. Check out the chart above and observe how much steeper
the drop at 1:40 and the recovery at 3:PM were than the morning
sell off. Morning holders still had hope, afternoon sellers just
wanted out. The afternoon low of 10187 was a strong retest of the
morning low and gave us a firm rebound. The second dip was buyable 
and in retrospect the first dip was also but I think the word 
"lucky" would apply to them.

Are we there yet? Was that a double bottom at 10190 twice today
or was it just a coincidence? Does it matter? Analysts are split
over reading the technicals at this point. Technically we are in
deep trouble. The Dow broke it's 200 day moving average, 10252,
but rallied at the close to end back above it at 10279. Too 
close for comfort. Traders are holding their breath and consoling
themselves with the last hope that it didn't "close" under the
200 DMA and therefore they are still clinging to hope that the
market will recover. Most traders are still in denial of the facts
while technicians just keep checking off the facts. The S&P broke
it's 200 DMA at 1301, AND DID NOT RECOVER, closing today at 1277.
The S&P danced with the bear today as it dropped below the August
low of 1267 but was rescued by the tech rally just before the close.
A close below the previous 1267 low would have produced strong
sell technical sell signals.

The Russell-2000 broke it's 200 DMA of 425 on Thursday AND DID
NOT RECOVER, closing today at 417. The Dow Utility Index broke
it's 200 DMA on 9/20 at 311 and DID NOT RECOVER closing today at
295. The transports broke their 200 DMA of 3264 back on August
6th and DID NOT RECOVER closing today at 2879. The transports
are down over -30% since their high of 3800 in May. Remember the
transports are supposed to confirm Dow direction not diverge
from it.

Bored yet? The advance/decline line, negative again today by a
2:3 margin, is at the lowest level in three years. But you say
it has been negative for a long time and the Dow set new highs.
True. Historically the advance/decline line peaks 12-18 months
before the start of a bear market.


 

Take a look at the chart and you will see the A/D line
peaked in April of 1998. Using the outside range of 18
months then October would be the start of a bear market.
In reality we could be late to the party already and our
start could have been last week. ACTUALLY, if the truth
be known, we are already in a bear market. Confused? This
is a phenomenon we have reported on before. The recent
market highs have been solely on the backs of the large
cap stocks. Investors have been reluctant to put money
into small cap stocks with Y2K in the headlights. Money
in blue chips can be moved to the sidelines much quicker
and easier because of the volume and liquidity. Now the
real killer. Only 31% of the stocks on the NYSE are above
their 200 DMA. Most are down between 25-40% from their
52 week highs. If a bear market is defined as a -20% drop
in price then 69% of the market is already in a bear market.
The stealth correction as it has been called is being
disguised by the money moving into the large caps and
holding up the major indexes, S&P, NASDAQ and DOW.

Now I know you are confused. Did I get struck by a lightning
bolt somewhere between "I am expecting a rebound" and "look
out for October." I hope not. I have been calling for a
down market by the second week in October for nine months
now and anyone reading the letter faithfully will know this.
Am I talking out of both sides of my mouth? No, just 
different time lines. I AM expecting a rally next week.
Actually I am praying for a rally next week. After Friday
I have a couple hundred contracts of ITM call options and
I am expecting a sizeable profit for my efforts. It is very
seldom that the market gives us this type of opportunity.

Cut to the chase. The Dow is down -524 points for the week.
Depending on your outlook the Dow was down at the low Friday
-8.5% from the intraday high of 11142 just ten days ago. A
huge short term drop that is bound to have at least a small
technical bounce. In technical analyst terms the Dow was
down -10.5% from the recent high of 11365 on August 24th.
Is there a difference? Yes in some circles. The latter
number would qualify as a short term correction and signal
an OK to go back into the market. Personally it is just
words and the market could care less which view you have.
The only action/reaction we should care about is a rebound
from a -955 point intraday drop in the last ten days. Nothing 
moves in a straight line and the drop from 11142 has been 
pretty straight. This chart needs a serious bump to equalize 
the pressure. 


 

The Nasdaq shows a better picture of the double bottom
and also shows the danger of a big cap led rally.
The Nasdaq Index was holding just under it's recent high
of 2880+ until the big cap leaders were hit by the Ballmer
bomb on Thursday. The Internets were still up and some 
with big gains for the week but the Nasdaq dropped -160
intraday on Thr/Fri solely on the big cap slaughter. 
Indexes do lie.


 

Where do we go from here? I think the Nasdaq will rebound
first since tech stocks are the strongest sectors. The Ballmer
bomb was just an excuse for profit taking. The real worry
here is the Taiwan earthquake impact on the chip/PC sector.
If the damage was greater than expected then chips and mother
boards will be delayed and there will be a component shortage
for the big fall selling season. This will impact earnings
outlooks and therefore stock prices. Dell, CPQ, GTW, HWP,
AAPL have already tanked on the possibility. The chip
sector has already tanked as well but stands a good chance
to rally on better than expected damage reports. Even if
the Nasdaq rallies back from the drop, the Nasdaq will
eventually follow the Dow. What is really important is
the Dow. It is amazing how much of our future is tied to
the fortunes of just 30 stocks.

Where is the Dow going next week? To analyze the Dow you
have to analyze the stocks in the Dow. This is one of the
reasons we have the "Dow 30" chart link on the website.
It is critical to investors to have some idea of Dow
direction before putting their hard earned capital at risk.

Here is my analysis of the prospects of the Dow stocks next
week. This is a quick and dirty snapshot and of course could
bear no relation to reality. For the Dow to go up it simply
requires the rising stocks to go up more than the declining
stocks go down. (I know this seems overly simplistic but bear
with me)

Dow stocks expected to be basically flat = no material influence.

AA - Alcoa
CAT - Caterpillar
IP - International Paper
MCD - McDonalds
WMT - Walmart

Dow stocks expected to go down.

UK - Union carbide (earnings warning)
S - Sears (dropping sales)
ALD - Allied Signal (Takeover by Honeywell, HON dropping)
T - AT&T (increased competition by MCI/Sprint, BEL/VOD, etc)
CHV - Chevron (oil sector tanking)
KO - Coca Cola (earnings warning)
DD - Dupont (rising oil impacting earnings -16 since August)
XON - Exxon (oil sector tanking)
GM - General Motors ($5 billion judgement in CA. -32 since May)
GT - Goodyear (earnings warning)
JNJ - Johnson & Johnson (at support but -15 since August)
MRK - Merck (flat to down since May -20)
MMM - 3M (earnings worries -10 in ten days, could bounce)
MO - Phillip Morris (new legal problems - no hope)
BA - Boeing (aerospace slowdown)
DIS - Disney (trending down since 8/24)

Dow stocks expected to go up.

AXP - American Express (financials starting to recover)
C - Citcorp (financials recovering)
EK - Eastman Kodak (flat to up, worst is over, upgraded)
GE - General Electric (good upward pattern, close to new high)
HWP - Hewlett-Packard (technical rebound from oversold condition)
IBM - IBM (bounced off support at $120, technical rebound)
JPM - JP Morgan (earnings warning candidate but improving)

Possible bounces

PG - Proctor Gamble (trending down but possible ST bounce)
UTX - United Technology (trending down but possible bounce off $56)

So out of 30 Dow stocks only nine are expected to go up and
two of those are questionable. Can the seven stronger possibles
go up more than the 23 flat to down stocks will drop? If each of
the seven went up +5 and the sixteen weak stocks only dropped -3
in the next two days then we would be net -13 dollars. Now each
Dow stock is not created equal and a $1 move in each stock will
equate to a different move in the average. AXP for instance 
carries the largest weighting with a 6.72 and Sears is the 
lightest at 1.481. Our best hope for next week lies in the
weighting of the seven stocks most likely to go up. The
combined weight of the seven is 34.99. This means that they
control 35% of the change in the Dow. Here are some links
that explain the Dow in more detail.

http://averages.dowjones.com/abtdjia.html 
http://averages.dowjones.com/djia_cos.html 

Here are some links to the Dow 30 charts on our website.

/members/misc/dow30.asp 
/members/misc/10dayhrly.asp 

What does all this mean? It means that with any luck on
Monday we could see a decent jump in the best seven and some
follow on by the other 23. The G7 meeting, however, may have put 
a crimp in a Monday rally possibility. Long term, by the end of 
the week, it is a very good possibility that the 23 dogs will 
drag us down again and set the stage for another market event. 
I think any rebound rally next week would be a good opportunity 
to sell any outstanding open positions and get ready for a 
possible October decline. I will remind you that the bottom of the 
market this time last year was October 8th. The defining factor
this year will be the lingering Y2K cloud and that could prevent
any major upside any time soon. 

The G7 meeting was this weekend and it appears that it was 
left up to Japan to put a lid on the rising Yen. While everyone
expressed concern, the problem was left to Japan to correct. 
In a nutshell, this is not what the markets want to hear. The 
markets wanted something more concrete and leaving any economic 
moves up to Japan is like waiting for tax cuts in the U.S. 
Everybody talks about it but nobody ever does anything. 
This could be a market mover on Monday DEPENDING on the final
news reports from the meeting and the SPIN applied to those
reports. 

As if we did not have enough to worry about there are some
important events on the calendar. Greenspan is scheduled to 
talk on Monday, and there is a whole list of economic reports
out later in the week. The next major milestone is the FOMC
meeting on interest rates on the following Tuesday. The closer
we get to the end of the week the more traders are likely to
pull back and adopt a wait and see attitude before opening
any new positions. There is about an 85% chance the Fed will
raise rates again but the market drop, some recent weak
reports and impending Y2K could cause them to reconsider.
Some feel a rate hike is already priced in and a failure to
raise would ease any October crash worries. Fortunately or
?? the September Jobs numbers will not be out until Oct 8th,
after the FOMC meeting. They will have to go on the info at
hand and we will not be tortured by waiting for a bad jobs
report and having them raise rates in a knee jerk reaction
the next week.

The bottom line: If you have open call positions, close them
in any rally. You can always open new ones after the Fed
meeting if the market rallies. If you have the capability
to write calls then any failed rally on Monday/Tuesday would
be an excellent opportunity to write October calls. Since
Oct 1st is a Friday, we are only three weeks from the October
expirations. 

BOLD IN ENGLISH: EVEN THOUGH THERE ARE CALLS LISTED IN THIS
NEWSLETTER I STRONGLY ADVISE AGAINST OPENING ANY NEW CALL
POSITIONS UNTIL AFTER THE FED MEETING AND MARKET DIRECTION
IS ESTABLISHED. Use the recommended call plays as suggestions
to play AFTER the Fed meeting. Put them on your watch list
and see which ones act the best over the next week. Those
are the ones to play after the Fed meeting.  

WAIT FOR AN ENTRY POINT and sell too soon.


Jim Brown
Editor


*******************
FALL SEMINAR SERIES
*******************

WOW! What a response! The seminar comments in the commentary
last week must have touched a sore spot in many of you. The
number of applicants for the Fall Seminars jumped exponentially.
It was a clear indication that many were paying for lack of
options trading education one trade at a time. This is the
painful way and the most expensive. The cost of the seminar
is about what you would lose on one trade. How much do you
have to lose before you decide to do it right? Check out the
seminar dates below and decide what is right for you. Remember,
you can bring a friend for free and retake the seminar as many
times as you want for free. 

Here are the fall dates:

Oct 17/18 Chicago
Oct 24/25 New York
Nov 8/9   Miami
Nov 14/15 San Francisco

For complete details http://www.OptionInvestor.com/seminar/

There is a 100% money back guarantee and you can take a friend
for free. What else could you ask for?


Jim Brown


***********
JIM'S PLAYS
***********

Week ending 9/24/99

The Dow dropped -524 points and I still had several trades
of +25% profit or more. All in all it was a good week but
mostly because of the great entry point Mr. Ballmer gave us.

SFA - Oct-50 Calls @5.88
 


The bounce from the previous Thursday's sell off was short
lived and I closed the position midday Monday for $7.00 and
was glad to get it. I watched SFA the rest of the week but
it appears that it's moment of fame is over. Not a current
target.

AMZN - Previous target of $60 
 


I had removed AMZN as a target last week when it continued
to trend down but the sector revival on Wednesday and the
big gains to $66 put it back on my radar screen. When I heard
on CNBC right at the close on Wednesday that Merrill Lynch had
created a new Internet unit trust containing the top five
stocks and AMZN was of course one of them, I jumped in right
at the close and bought the stock. I got filled at $65.50 after
the close. I did not have AMZN options on my quote screen and
at one minute to close I did not want to spend the time deciding
which one to buy only to miss out on getting filled. I held
through the opening spike the next day and was feeling pretty
stupid for holding. The market was going nowhere until around
noon and we got a brief rally. I thought the ticks looked
bad and suspected it was going to roll over. I sold AMZN at 
67.63 for a small profit. Immediately after the market did turn
and AMZN fell back to $61.50. I put it on my quote screen for
Friday as a target if the market recovered. Friday the morning
drop was not convincing and I wanted to wait until afternoon
to see which way the market would turn into the close. With
YHOO still strong into the afternoon drop I decided to load
up on Internets. When the bounce came off 10189 the second time
I was ready and bought a large quantity of AMZN OCT-60 calls
YZZ-JL at $6.50-$7.00. I plan to sell on Monday. Because of
the market instability and CMGI earnings on Monday night I
have no confidence in Internet direction the rest of the week.  

SUNW - OCT-80 CALLS @ $6.25
 


It just does not get any better than this. The SUNW split
announcement set fire to this stock and I was taken out at
my sell limit of $13 on Monday. I watched them go on up to
over $15 but I could not complain about a 100% profit. We 
preach that there is a post-announce depression cycle and I
resolved to wait for a new entry point. The Ballmer bomb
on Thursday knocked SUNW back down to a low of $86.75 on
Friday and when the market rebounded the second time I
loaded up on SUNW OCT-85 calls SUQ-JQ at $6.50. Now if
I can just get that relief rally on Monday I hope SUNW
will hit $94 again. I would be happy with just 50% this
time and plan to sell on Monday on any market weakness.

QCOM - Previous week
 


QCOM - This week
 


Remember my previous missed target of $160 on QCOM the 
previous week. I was out of the office and did not get it
when I should have. I watched it move up for the entire week
and kicked myself black and blue. I was determined to get
in on the next buying opportunity. I was almost ready to 
pull the trigger on Wednesday but did not notice the run
starting until it was too late. When They announced the
deal with Lucent the next day I was really blue. My $160
target was now almost $200. Thank you Steve Ballmer. The
drop at the end of the day was a miracle in my mind. When 
I saw it coming I target shot some OCT-180 calls at $14.
When it blew through me at $14, I set a big limit order for
$13 and got filled at exactly the low of the day. Yeehawww!
The high for the day was $23.81. I sold on the opening
bounce on Friday for $18.00! Unfortunately the story is
not over. I was so thrilled at the big score and remembering
the QCOM strength from Thursday I tried to get back in the
same position later when I saw it moving up again. Bad idea.
I bought back in at $16 and then sold on a downdraft at $15.
I decided to wait for an end of day opportunity and try again.
I bought back in at $17, after waiting to be sure of the rebound,
and QCOM then wimped out at the end of the day with only a +2.88. 
The option closed at $16 but I am holding for my expected rally 
on Monday. I will sell on Monday on any stock or market weakness.  

YHOO - I was a buyer above $166.
 


Last week I said I was a buyer of YHOO if it could trade and
hold above $166. On Monday YHOO spiked over $166 in the morning
but came right back down. When it crossed again midday I took
the plunge. I bought the OCT-150 calls at $22.25 and sold them
when YHOO rolled over on Tuesday for $26.50. A decent deal
and I can't complain, at least until YHOO continued up again
on Wednesday with an upgrade. Again, thank you Mr. Ballmer.
I was able to re-enter YHOO on the second Friday drop with
OCT-160 calls YHV-JL at $21.00. They closed at $26.25 on the
incredible YHOO +9.50 run. I will also sell these on Monday.
I have a limit sell at $30 already placed. We are less than
ten days from YHOO earnings and if YHOO stays true to form
it will drop like a rock afterwards. My next play on YHOO
is to try and pick a top and sell calls and buy puts. If the
market really tanks then YHOO could drop -$50 from it's $200
anticipated high after earnings.

NXTL - Target - hold above $75
 



TXN - Target - Above $91 and hold
 


Never hit it and sold off with the chip sector. No longer
a target.


OEX - impulse buy on Tuesday
 


 

Never a good idea to buy on impulse. The OEX-700 calls
I bought on the dip Tuesday for $13 could have been sold
several times for a profit but my market view was tainted.
I thought 10500 would provide more support than it did
and I closed the position on Thursday for a loss @ 10.50.
Hindsight is 20:20 and I am really glad I closed the position.

VOD - Another target of opportunity missed, almost.
 


As you know I have been following Vodaphone for sometime
looking for an entry point for the 5:1 split that is
coming. I was hoping for something under $200 the prior
week but was out of the office when it touched it. It
was just like the energizer bunny, it just kept going
and going and going. On Thursday they announced the deal
with Bell Atlantic and I was looking for a window to
jump out. My $200 target was trading at $235! Thank you
Mr. Ballmer. The bomb dropped VOD back to $223 and I did 
not waste any time jumping into a bunch of OCT-210 calls
at $18.00. They closed Friday at $23.25 and I expect another
$10 from Vodaphone, market permitting, on Monday. VOD splits
on Friday so I plan to close the position on any market or
stock weakness Monday/Tuesday.

TARGETS FOR THIS WEEK

YHOO over $200 to sell naked calls and buy puts.
DOW over 10500 to buy OEX puts

This is a real simple week. I plan to hold nothing and
look for an opportunity to take positions to profit
from any Dow drop related to the FOMC meeting and October
Crash Scare.

To keep me busy I plan to day trade the following while
I watch the markets. Just pick a direction, buy/short the
stock and set a stop order to take you out if it turns
against you. 

ARBA, PHCM, JNPR, ICGE, CMRC, CMTN

Good luck, sell too soon.

Jim


**************
MARKET SENTIMENT in section two
**************


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

As of Market Close - Friday, September 24, 1999 

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

DOW Industrials   10,500  11,320  10,279    BEARISH   9.23      
SPX S&P 500        1,350   1,420   1,277    BEARISH   9.16       
OEX S&P 100          675     735     673    BEARISH   9.24  *  
RUT Russell 2000     440     465     417    BEARISH   9.14       
NDX NASD 100       2,320   2,380   2,400    BULLISH   9.03   
MSH High Tech      1,120   1,180   1,218    BULLISH   9.03   

XCI Hardware       1,035   1,050   1,060    BULLISH   8.24    
CWX Software         750     800     851    BULLISH   9.03         
SOX Semiconductor    480     525     516    Neutral   9.24  *      
NWX Networking       555     585     587    BULLISH   9.17       
INX Internet         450     510     476    Neutral   9.24  *    

BIX Banking          690     710     584    BEARISH   7.23    
XBD Brokerage        410     440     364    BEARISH   7.23    
IUX Insurance        645     660     553    BEARISH   7.23         

RLX Retail           915     960     814    BEARISH   7.23     
DRG Drug             365     390     345    BEARISH   9.16      
HCX Healthcare       745     785     690    BEARISH   9.16   
XAL Airline          180     190     135    BEARISH   5.21      
OIX Oil & Gas        285     305     290    Neutral   9.16       

 
Posture Alert    
The battle between the bulls and bears continue, with the latter 
winning another day. Leaders Friday included the Internet sector, 
which was up 4.39%, followed by Banking (+1.93%), and Brokerage 
(+1.0%). With Friday's action, we have lowered the Semiconductor 
index from BULLISH to Neutral, and the S&P 100 from Neutral to 
BEARISH. On the positive side, we have upped the Internet sector 
from BEARISH to Neutral. 

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

/members/marketposture


*************
COMING EVENTS   
*************

Monday: 

none scheduled

Tuesday:

Consumer Confidence    Sept   Forecast:  136.5  Previous:  135.8
BTM Schroders          9/25   Forecast:   --    Previous: -0.1%
LJR Redbook            9/25   Forecast:   --    Previous: -0.1%
API Oil Stocks         9/24   Forecast:   --    Previous: -799,000

Wednesday:

Durable Goods Orders   Aug    Forecast:  -0.7%  Previous: 3.6%

Thursday:

Jobless Claims         9/25   Forecast:  295k   Previous: 272K 
GDP                    Q2-F   Forecast:  1.8%   Previous:  1.8%  
Money Supply           9/20   Forecast:  --     Previous: $11.7B
APICS Survey           Sept   Forecast:  --     Previous: 56.7 
New Home Sales         Aug    Forecast:  950K   Previous: 980K 
Chicago PMI            Sept   Forecast:  56.0%  Previous: 56.1%
Help Wanted Index      Aug    Forecast:  --     Previous: 85   

Friday:

Personal Income        Aug    Forecast:  0.4%   Previous: 0.2% 
Personal Spending      Aug    Forecast:  0.6%   Previous: 0.4% 
NAPM                   Sept   Forecast:  54.3%  Previous: 54.2%
Construction Spending  Aug    Forecast:  0.4%   Previous:-0.5% 
Univ of Michigan Sent. Sept-F Forecast:  107.0  Previous: 104.5

Next week's economic releases (preliminary)

October 5 FOMC meeting on interest rates
October 5 Leading Indicators - August
October 6 Factory Orders - August
October 7 Consumer Credit - August
October 8 Average Workweek - September
October 8 Hourly Earnings - September
October 8 Nonfarm payrolls - September
October 8 Unemployment Rate - September
October 8 Wholesale Inventories - August


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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              9-26-99
Sunday                        2 of 7


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

Good Decision Lead to More Good Decisions

But Bad Decisions can put you on a downward spiral. Contrary 
to what you might have guessed by the topic of my Thursday column, 
I was actually having a pretty good week. On each of the first 
4 days I made a profit. I played YHOO twice for gains, and SUNW, 
on which I took a 10% loss. On Thursday afternoon, I was sitting 
in a student cafeteria in Palo Alto with half of my YHOO position 
open, having already sold half at 25% earlier in the day. On my 
qcharts program, I was watching a mildly negative close, when the 
action started to pick up on the averages. When YHOO started to
break down under 180, I sold my remaining calls for a slight 
profit. Good decision. I also priced OEX 680 Puts, and loaded 
them into my quote sheet of active option plays. When the 
averages started rolling over hard, I bought the puts with 
market orders and got filled at 14.5. I immediately set limit 
sells at 17 and 20. Good discipline. I went to class. 

By the time I fired up my wireless modem, I had a fill on the 
first limit sell. A Email correspondent on our Silicon Valley 
club said, this is where you should hold for the deep sell off. 
But I let the OEX Put order fill at 20. Good decision. 25% gain 
in 35 minutes. I'll take that all day. The DOW was down -220 
and the NASDAQ was down -115, but they were creeping back up.
I reasoned that even if the averages continued to sell off, 
this was screaming for a technical bounce, especially on the 
NASDAQ. I scanned my qcharts radar for good NASDAQ generals 
to play on the upside. I had 10 minutes to the close. I settled
on MSFT. I bought a boatload of MSFT Oct 90 calls at the close. 
Bad Decision. I bought on impulse, thus violating one of the 
10 trading rules. I bought a play that I had not previously 
put into my play list (OEX puts are always on my list, but I 
had not yet entered the 680s), thus violating one my personal 
trading rules: only play the options I have loaded into qcharts 
during non market hours. 

By now, you know the rest of the story: MSFT President says 
tech stocks, including his company, are overvalued. As I sat 
in a class on valuing stocks, I was horrified as I scrolled 
through the stories. I spent the rest of the night looking 
for some sure sign that the market, including MSFT, were 
headed for a bounce. This turned me from a market agnostic 
into a pilgrim on the road to worship the Eternal Bull. It 
hindered my judgment. The next morning, I continued to make 
mistakes. During amateur hour (mistake one), I bought too 
many different calls (mistake two), sold the MSFT calls when 
MSFT gapped down a point, then sold the other calls when
those stocks too started going down, thus triggering my stop 
loss points. Near midday, after confirming the general markets
were headed up, after confirming an improving A/D line, and 
after confirming improvement in the sector, I bought calls on 
SUNW and IBM, which continued to improve into the close. 

What's the point of this story? 

1) Make your own trading rules and use the ten rules, but 
then stick to them, despite your emotions. 

2) Don't expect stop orders to protect you if your entry/exit 
discipline is bad. If you do use good entry discipline, then 
it is probably preferable to have limit sell order in place 
to catch any upside moves rather than to have stop orders. 

3) As Jim says, Sell Too Soon. The real beauty of this approach
is that you put cash back into your account more quickly, which 
protects you from unpredictable market events. Also, by selling 
too soon, you can remain above the fray, as a market agnostic, 
ready to move in both directions. My bad decision to buy those 
MSFT calls on Thursday afternoon turned me from a market 
agnostic into a dedicated Bull. But the good news is that my
personal trading rules -- especially taking 25% profits on half
of the position -- are working like a charm. On the whole, I 
suffered a very slight loss in my option trading capital this 
week (maybe 2%), and I attribute it to my 25% sell rule.

Janar Wasito
janar@OptionInvestor.com



*************
READERS WRITE
*************

Dear Janar;

After reading your write-up in Sundays' newsletter I was solely 
tempted to write you, but figured you get enough gooey responses
from other readers that you didn't need anymore from me. However, 
after reading the newsletter for 9/23 I really felt the need to 
respond, probably more for my mental therapy than for anything. 
After a TERRIBLE week last week I was feeling pretty low and 
stupid. I lost over 1/3 of my portfolio, one option went to 
expiration with a 0 value! Alas, this loss did not represent a 
major money loss overall since I've only been trading less than 
two months, starting out with the funds from a mutual fund of 
$2500.00. In six weeks of trading I had built this up to over
$10,000.00! Not bad would you say.......I was feeling pretty 
cocky to say the least and invisioning luncheons with Mr. Buffet! 
Starting two weeks ago the world of option trading decided to 
bring me back to earth. Since everyone is coining phrases this 
week, mine comes from the movie Animal House, where the character 
played by Kevin Bacon is getting spanked in a fraternity ritual 
and saying, "thank you sir may I have another!". I spent my money 
on a seminar, but yet ignored advise and made trades on my own 
new found intuition, not to mention breaking alot of very basic 
rules for option trading. My optimisim could be related to a 
blackjack player who splits two face cards with the dealer showing 
an ace! Well, over last weekend I was feeling pretty humble. 
I wasn't quite sure how to go forward at first. I then decided 
to look back and see what was I doing right when things were
going so well. Granted, the market had been mixed up during 
that time, but I realized that I was following a strategy that 
I was not aware I had developed, but one that you were spelling 
out for me in your letter! Your baring of your sole, i.e. losses, 
believe it or not made me feel I wasn't alone and not a complete 
idiot. Not saying you were, but I mean that my actions weren't 
totally wrong, just much to aggressive. I needed to refresh and 
reinforce my basic principles for trading, especially the 
principle of not getting greedy. For instance......"hey, if 5 
contracts netted me $1000.00, then 10 contracts would net me 
twice as much". This is irregardless that my risk factor has 
doubled and an unhealthy % of my portfolio is placed on one trade!
Also, trading during the first hour......in a word......DON"T!!!
Right? What a painful lesson, one I will never forget and one I 
will never repeat, no matter what the temptation. Also, I see 
the phrase, "don't try to catch a falling knife" in the newsletter 
often. Did I listen?.......Noooooooo! I thought, "well, if Jim 
says sell to soon, maybe I shouldn't buy to late". What an ass 
backwards theory I just came up with! Another painful lesson. 
Anyway, this week I'm back in the fray and doing better, much 
more sound and calculated actions, and doing better for it. Yes 
the market is screwy right now, but the semi-conductors I hold 
now I'm comfortable with.......bought them low when the market 
was going up and they have reasonable good chances of going up 
some more(really excited about my ADI option, having ADI added
to S&P after close). Most importantly, it's the options I didn't 
buy that has me ahead.......options I put on my radar screen, 
watching and waiting.....with this monitoring approach instead 
of jumping in head first has saved me alot of heartache this 
week. Still watching them thou, maybe some entries tomorrow or 
Monday. I've become much better at watching trading volume. 
Thus, I'm a much better trader today than I was 2 weeks ago, 
but my confidence was boosted by your letters. I enjoy them 
very much although I must admit your first letters were hard
to follow.....your a college student.....law school, but an 
x-marine and you eat sushi? Just kidding.

Your letters are a welcomed addition to the newsletter....I 
hope your editors recognize this. I don't read everything I 
see and certainly don't believe everything I read, but will 
continue to look forward to reading your input. Todays' letter, 
9/23 has made me reconsider starting a trading club here in 
Kansas City. As you said.....just talking to someone of like 
mind has some good healing effects. My wife cares little about 
what I'm doing, doesn't want to here about it expect the bottom 
line, "are you making more than your losing?" She doesn't
realize how I sweat blood over some of these trades! When I 
kicked YHOO butt on Tuesdays' high I wanted to talk about it.
....it was a great trade with all the right moves and I wanted 
to puff out my chest and talk......but no one there. I do 
believe I'll look into starting a club again, at least being 
the ignition for one. Thank you again Janar ( no disrespect 
intended for calling you by your first name) for your thoughts 
and sharing of your own strengths and weaknesses, I for one
appreciate them. I won't say 'Good Luck' because we shouldn't 
be hinging on luck, like gamblers which we are not, but I will 
wish you the best.

Sincerely,
Tom H.

 

*******************
TRADING CLUB UPDATE
*******************

Sunday, September 26, 1999

THE OPTION INVESTOR TRADING CLUBS ARE WHAT YOU NEED TO 
BECOME A SUCESSFUL INVESTOR!!

If you would like to join contact us at Visit@OptionInvestor.com 
and Organize@OptionInvestor.com.

UPDATE FROM SALT LAKE CITY, UT:
******************************

Six persons attended our meeting. Callean presented us with a 
straddle trade that she is doing on DELL and showed us how she 
was using some Gamma scalping techniques.

Taking some cues from other club meetings as reported in the
newsletter, we reviewed several possible straddle plays for the 
upcoming Earnings season. I used Option Station 2000i to review 
the Deltas on each trade and then we drew risk profile charts. We 
looked at CMGI, DELL, MSFT, and YHOO. We finally decided that 
there might not be enough upside to cover the cost of the 
straddle for these four trades and that we might want to look at 
doing spread strategies instead.

Ron presented a bull put spread he was looking at for RFMD and 
Boyd suggested we look at a stock that I didn't have loading into 
Option Station so we weren't able to figure the Deltas on his 
suggestion.

We meet on the second Thursday of every month and hope to have a 
better turn out as vacation time is over. It is helpful to read 
the minutes of other meetings to get ideas that will help us to 
learn from one another. Thanks to everyone else for sending their 
information for others to read.

Carol Mortensen, Sandy, UT - cm538@concentric.net



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

Sunday, September 26, 1999

Be Patient?

October earnings season is just around the corner! Will the market
hold up in time for earnings to rescue us, or will a 4-digit Dow 
beat us to the punch? With several weeks before the onslaught of 
earnings, now is a good time to evaluate your portfolio or your 
potential portfolio. Being prepared going into earnings season is 
one of the most important things you can do. It is duly important 
to do your research now and have a game plan in tact for the 
month! Have your game plan now, that way you avoid the emotional 
trades that many people do during the earnings run. Some 
questions you should ask yourself now would include: Do you know 
when your favorite companies are coming out with their earnings, 
what they are expecting, the whisper numbers, or their when their 
competitors are coming out with earnings? How about the sentiment
going into their earnings (which Pinnacle will highlight in 
upcoming issues).  There are many things that can affect the 
outcome of your favorite stock and underlying option, and with the 
volatility of earnings season, preparation is a must. Those who 
are prepared for the quarterly earnings run and have a game plan 
intact can stand to make a very good return on their investments!

This last week was not the best of weeks, unless you are an OEX 
Skybox follower and took advantage of the 2 different put 
positions we bought into. This last week, we witnessed the bears 
coming out of the woodwork (surprise, surprise). However, this 
could prove to be a positive event heading into earnings season. 
Looking at the OEX, we are seeing support building in the 650-670 
range. Rampant speculation is leading to a Pinnacle Index number 
that is off the charts (22). We would view this area as a good 
support level, however, this can change very quickly, so we will 
continue to monitor this number and keep you posted. Overhead 
resistance is relatively light (up to 700), so to see a nice 
bounce this week would not be surprising. Another positive sign 
was that the Volatility Index (VIX) held ground, and bounced off 
of 32.33 on Friday.  This was the range that we have mentioned 
numerous times (this level held up back in early August, and 
proved to be a very profitable entry point for all of technology 
across the board). We continue to view this area for the VIX as 
major support, however, should it break we would look for 38-39 as 
the next stop. Also, did anyone notice that the 30-yr bond is back 
below 6%? That sure didn't get much airtime on CNBC, but it could 
prove to be a thorn-in-the-side for the bears this upcoming week. 
Have a good trading week.
    
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.

Interest Rates:
The yield on the 30-yr Treasury is below the 6% benchmark, which 
is a bullish sign for stocks.

Mixed Signs: 

Volatility Index:
The VIX is in the danger zone; however, it has shown good support 
in the past around 32, so should this level hold, it may be a good 
buying opportunity.

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 AllState being the latest casualty.

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

Russell 2000:
The RUT continues to break support, and looks to heading lower, 
which is a poor sign for the overall market.


OTM Call Analysis

As we move through the October expiration cycle, Pinnacle is 
tracking the level of call buying (OTM) between 690-780 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 %    

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 %    

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 690-780)
Date                 Open Interest     Change %    Alert

Friday, September 17      34,361          - 
Friday, September 24      84,724        +146.5%


Market Sentiment at a Glance     Friday     
Indicator                        (9/24)     

Pinnacle Index (OEX):          

Underlying Support  (680-700)      1.1 
Underlying Support  (650-670)     22.6

Put/Call Ratios:

CBOE Total P/C Ratio                .6
CBOE Equity P/C Ratio               .5
OEX P/C Ratio                       .9

Peak Open Interest (OEX):

Puts                              640 
Calls                             700         
P/C Ratio                         .93

Market Volatility Index (VIX):	

CBOE VIX                         29.54

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
Benchmark                       (9/24) 

Overhead Resistance (680-700)     1.12 

OEX Close                       672.80

Underlying Support  (650-670)    22.56

Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
From a contrarian standpoint, underlying support has explode 
(650-670) and overhead resistance is light (680-700).


Put/Call Ratio                  Friday
Strike/Contracts                (9/24)

CBOE Total P/C Ratio             .61
CBOE Equity P/C Ratio            .53
OEX P/C Ratio                    .90


Peak Open Interest
(OEX)                Friday
Strike/Contracts     (9/24)

Puts                 640 /  7,676
Calls                700 / 10,340
Put/Call Ratio         0.93


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 24, 1999                      29.54 


 

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  *



*************
PICK SUMMARY
*************
SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
MTD = Move to double - amount stock must move to double option price
                         in one week. ONE WEEK MOVE ONLY !

Numbers within ( ) are the amount of change for the week.
Numbers within ( ) may be designated with PxW, like P3W, prior 3
weeks

The options with a "*" by the strike price are our choices from the 
group. If the stock moves as expected we feel they have the best 
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5 
Analysts who follow each stock rate it and these rating are 
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell" 

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.


LAST WEEKS CHANGE FOR THIS WEEKS PICKS:
***************************************

Dow    10279.33 -524.30
Nasdaq  2740.41 -129.21
$OEX     672.80   32.16
$SPX    1277.36  -32.16
$RUT     417.09  -17.36
$TRAN   2878.72 -121.07
$VIX      29.54    5.32

Calls             Week

VOD      230.50   21.94  5:1 split is just around the corner
YHOO     183.31   20.19  Upgrades added fuel to the momentum
ELNK      47.56    7.44  New, merger creates 2nd largest ISP
CSCO      69.00    5.50  Appears to be bottomed and turning
RNWK      99.63    5.38  New, this one's a buying opportunity
EBAY     145.25    5.06  New, participating in the tech rally
ITVU      34.25    4.88  New, earnings run cleared for take off
SNE      148.94    1.75  Stock price is magnified by the float
SUNW      90.19    1.50  Sheer momentum is driving the stock
DCLK     116.75    0.50  Penetrated and bounced off its 10-dma
QCOM     189.50   -0.44  Announced it would meet or beat earnings
INKT     130.00   -1.19  The stock closed at its 10-dma or $130
EMC       69.06   -1.94  It's positioned for a technical bounce
GE       118.00   -2.00  Closed above resistance ready to climb
CKFR      39.19   -2.44  Dropped, did not recover with sector
NTAP      72.50   -2.44  Expecting recovery and higher movement
NT        46.94   -2.81  Dropped, the stock is a falling star
ADI       56.31   -4.13  The stock was added to the S&P 500
CTXS      62.00   -5.25  Dropped, followed Friday's slaughter

Puts

DOW      106.88   -8.75  New, materials cost squeezing profits
JNJ       90.00   -6.06  Losing ground due to market conditions
WPI       29.81   -3.44  New, third quarter will miss forecasts
WLP       65.63   -3.13  Nine consecutive losses comes to an end
KO        51.13   -2.88  Earnings potential concern lingers
LLY       65.19   -1.81  Knocked down for three straight weeks
GPS       32.00   -1.63  Losses mount in weak performing market


STOCKS ADDED TO THE PICK LIST
*****************************

Yes, there are new calls tonight but Jim strongly
recommends not opening a new call position until
after the FOMC meeting 10/8. See commentary.


Calls:

ELNK - Earthlink
EBAY - Ebay
RNWK - Realnetwork
ITVU - Intervu

Puts:

WPI  - Watson Pharma
DOW  - Dow Chemical



***************************
PICKS WE DROPPED THIS WEEK
***************************
Remember that historically, when we drop a pick it will go up 
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.

Calls

CTXS $62.00 (-5.25)  Shares of CTXS held up well in this 
week's rocky market however, what appeared to be an excellent 
buying opportunity by Thursday ended up foreshadowing Friday's 
slaughter.  CTXS lost $3.31 on strong volume as it slid deep 
under the 10-dma ($65.09).  This was the clincher for us and 
we're dropping CTXS.   We admit this play was a quickie but 
still the beginning of the week offered prime entry points to 
catch the stock's dramatic upswing of 4+ points on Wednesday 
afternoon.  However, in all fairness the spoils of this victory 
go to the bears.

(drops continued in section three)


****************************
SEE DISCLAIMER IN SECTION ONE
****************************
The Option Investor Newsletter          9-26-99
Sunday                        3 of 7

***************************
PICKS WE DROPPED THIS WEEK
(continued)
***************************

Calls

CKFR $39.18 (-2.44) The internet sector made a recovery on 
Friday, recovering from a late day sell-off on Thursday. 
Checkfree unfortunately did not participate in that recovery.  
On lower than average volume shares traded as low as $37.88 
before bouncing off of the lows of the day to close at $39.18.  
This was the 2nd consecutive day that the shares had a lack 
luster day of trading, without any new news the shares have 
taken a breather.  From a technical standpoint, CKFR is also 
looking weak, after closing the day below the 10-dma at the 
$39.50 level, our support level had been broken and our stops 
had been hit.  We are recommending closing the play out at these 
levels, we do not want to take a chance of giving back profits 
after support levels have been violated.

NT $46.94 (-2.81) Despite the positive outlook of NT helping 
to bring the world up to date on new communication technology, 
the market has doused our technical star.  The chart patterns 
indicate that the stock is behaving as it did on April 16th, 
July 20th, and August 30th of this year.  What behavior you 
say?  Well in each case NT has dropped below support, usually 
the 10-dma, and then continued down on a post support dip.  
After the dip the stock shows only slight recovery and then 
becomes range-bound until a new trend forms.  Considering the 
market outlook, we're not willing to wait for that new trend.  
With the last five trading sessions being down for NT, a slight 
technical bounce is in store but, the outlook is not good for 
the long run.  The momentum indicator has dropped 12% since 
our pick and this has caused the risk profile to become lower 
than average for our play intentions.  More importantly the 
underlying sector momentum has dropped 20%, reflecting the turn 
in the trend due to recent overvaluation comments from Microsoft.  
Friday the news touted the success of the telecom industry, 
stating that NT is the only one that has fallen in value from 
failure to capture the Internet market.  Enough said, NT is 
a drop. Protect your capital for better days.

Puts

No Dropped Puts this week.


STOCK SPLIT CANDIDATES 
***********************

JDSU - JDS Uniphase
QCOM - Qualcom
INKT - Inktomi
DCLK - DoubleClick
RNWK - RealNetworks



STOCKS WITH UPCOMING SPLITS 
****************************

We don't list all splits available, only those we 
feel may have play possibilities. 

Symbol - Stock         Splits/Date  

INTU - Intuit          3:1 09-30-99 ex-date 10-01
VOD  - Vodaphone       5:1 10-01-99 ex-date 10-04
HLIT - Harmonic        2:1 10-14-99 ex-date 10-15
TYC  - Tyco            2:1 10-21-99 ex-date 10-22
VTSS - Vitesse Semi    2:1 10-21-99 ex-date 10-22
ADBE - Adobe Systems   2:1 10-26-99 ex-date 10-27
CNXT - Conexant        2:1 10-29-99 ex-date 11-01
SEBL - Siebel Systems  2:1 11-12-99 ex-date 11-15
SUNW - SunMicro        2:1 12-07-99 ex-date 12-08


For a complete list of all the coming splits check out the
"split calendar" on the side of the online edition newsletter
page.



********************
THE PLAYS OF THE DAY 
********************

With all the great plays each week we can never decide
on just one so take your pick. 

Call plays of the day:
**********************

ADI - Analog Devices Inc. $56.31 (-4.13)(+4.19)

See details in sector list

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

****

DCLK - Doubleclick Inc, $116.75 (+0.50)(+8.50)

See details in sector list

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


Put play of the day:
*******************

DOW - The Dow Chemical Company $106.78 (-8.75)

See details in put list

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



***********
CALLS PLAYS
***********
Software
***********

INKT - Inktomi Corp. $130.00 (-1.19)(+3.00)(+12.44) 

Inktomi develops and markets software applications designed to 
increase performance of large-scale networks.  Products consist 
of network cache application, Internet search engines and Internet 
shopping engines.  Inktomi's software applications are used 
by Yahoo and also by Hotbot.  For the first nine months of 1999, 
revenues totaled $45 mln.  This was an increase from $12.2 mln 
in 1998.  Also, net loss rose 21% to $19.3 mln during the same 
time period.

It was two rough trading sessions to end the week for our play 
on INKT.  Thursday's carnage carried into Friday leaving our 
play in dire straits.  We originally picked INKT as a momentum 
play but due to unforeseen circumstances, our momentum has 
stalled and reversed for the time being.  Despite these grim 
circumstances the stock managed to close at its support level 
or $130.  At this level we expect the stock to bounce and once 
again head to higher levels.  This would be an entry point if 
the market direction turns to the upside, which needs to be 
confirmed prior to placing a trade.  Expect more volatile 
market conditions this week as investors wait for reasons to 
send the market back into rally mode.  The G-7 meeting this 
weekend will give us indications of what measures will be 
taken to stabilize the dollar, which has fueled the negativity 
in the market.  Alan Greenspan is the other piece of the puzzle 
and is scheduled to speak on Monday.  Whether he will say 
something of importance remains to be seen, never the less 
investors will heed to every word.  Use caution with this play 
and take advantage of the recommended stops for protection, if 
INKT drops below its support, let your stops end the play. 

There was no additional news on INKT this weekend that would I
influence movement in the stock.

BUY CALL OCT-125*QYK-JE OI=1997 at $12.25 SL= 9.50
BUY CALL OCT-130 KYQ-JF OI= 826 at $ 9.25 SL= 6.75 
BUY CALL OCT-135 KYQ-JG OI= 161 at $ 7.00 SL= 5.25
BUY CALL NOV-125 QYK-KE OI=  12 at $18.50 SL=15.00 low OI
BUY CALL NOV-130 KYQ-KF OI=  73 at $16.13 SL=12.50 low OI

Picked on Sep 10th at   $128.19     P/E = N/A 
Change since picked       +1.81     52 week high=$159.13             
Analysts Ratings      6-6-3-0-0     52 week low =$ 26.56                 
Last earning 07/14   est= -0.11     actual= -0.10                            
Next earning 10-22   est= -0.09     versus= -0.16                            
Average Daily Volume = 2.08 mln 
Chart = http://quote.yahoo.com/q?s=INKT&d=3m

****

NTAP - Network Appliance Corp. $72.50 (-2.44)(+7.19)(-0.75)

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.  

Is NTAP ready for a rebound?  After making a new high Monday, 
NTAP spent the next three days drifting lower.  Shares of NTAP
gapped down over $1 at the open Friday.  Volume in the first
hour of trading was a brisk 254K shares.  The support area of 
$69-$70 seem to hold until shortly after 2:00 EST, when traders
decided to knock the legs out from underneath the computer
networking company.  NTAP dropped over $5 per share in less
than five minutes.  There were no large block orders in that 
time period, no news or announcements to indicate the drop had
any substance, nor was there any real volume supporting the
decline. It was probably a bunch of stop losses being triggered 
at once.  If you hadn't been stopped out earlier in the week
and you still owned calls going into Friday, we would hope
you were stopped out early in the session and didn't get
whip-sawed in the afternoon.  What's in store for next week?
NTAP did close just below its 10-dma at $72.88, on its high
of the day at $72.50.  We may see one more push to the down 
side early in the week but at this time would expect NTAP
to recover and move higher.  We would need to see new buyers
enter at these levels and would wait for a bounce confirmed
with by solid volume.  A bounce in the broader markets to
help support the networking sector wouldn't hurt either.  

Tuesday Network Appliance did introduce NetCache 4.0, their
high performance architecture to deliver Internet traffic.
NetCache 4.0 is designed to support Network News Transfer
Protocol and provides a platform to integrate Microsoft
Windows Media Technologies and other emerging Internet 
protocols natively into NetCache appliance. 

BUY CALL OCT-65 NJQ-JM OI= 135 at $9.00 SL=$6.75
BUY CALL OCT-70*NJQ-JN OI=1422 at $5.75 SL=$4.00
BUY CALL OCT-75 NJQ-JO OI= 231 at $3.25 SL=$1.75
BUY CALL DEC-70 NJQ-LN OI=  75 at $9.88 SL=$7.50 low OI
BUY CALL DEC-75 NJQ-LO OI= 207 at $7.75 SL=$6.00

Picked on Sep 11th at    $67.75    P/E = 138
Change since picked       +4.75    52 week high=$77.88
Analysts Ratings      6-3-1-0-0    52 week low =$16.00
Last earnings 07/99   est=-0.14    actual= 0.16 surprise +14.3%
Next earnings 11-17   est= 0.17    versus=-0.11
Average daily volume = 1.06 mln
Chart = http://quote.yahoo.com/q?s=NTAP&d=3m


*************** 
Semi-Conductor
***************

ADI - Analog Devices Inc. $56.31 (-4.13)(+4.19)

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.  

Early on Friday ADI remained unphased by the fact that its being 
added to the S&P 500 index, while fellow semiconductor stocks 
continued to slide lead by Lam Research, Vitesse, Micron, and 
Novellus, all had weak mornings.  By the close the PHLX semi-
conductor Index had bounced back to positive territory before 
closing down by only 5.30 points.  Standard & Poor's said it 
plans to add ADI to the index replacing Ameritech, which is being
acquired by fellow Baby Bell SBC Communications.  In the day's 
trading session ADI traded almost 1 million shares greater than 
average volume but in the midst of a confused day on Wall Street 
only managed to gain 13/16.  This week we should continue to see
the shares hold up strong, every money manager that manages a 
S&P 500 Index Fund must add shares of ADI to its portfolio, and 
judging by the volume on Friday, that process has begun but has 
not finished.  Look for an entry point on Monday if you have not 
already entered the shares, the first hour of trading should  
determine market momentum and direction.  

Look for the volume and moneystream in the shares to pick up 
substantially this week.  With any rebound in the Semiconductor 
sector, ADI should be the first company to initiate a rally.  

BUY CALL OCT-55*ADI-JK OI=4340  at $4.38  SL=3.00
BUY CALL OCT-60 ADI-JL OI= 768  at $2.19  SL=1.06
BUY CALL DEC-55 ADI-LK OI= 426  at $7.38  SL=5.88
BUY CALL DEC-60 ADI-LL OI= 448  at $5.13  SL=3.38

Picked on Aug 28th at    $51.31     P/E = 65
Change since picked       +5.00     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 = 1.09 mln
Chart = http://quote.yahoo.com/q?s=ADI&d=3m

******** 
Hardware
********

CSCO - Cisco Systems $69.00 (-4.50)(+2.75)

Cisco builds 85% of the routers and switches that make the 
Internet work.  They are the leading supplier of products that 
link local and wide area networks.  The company's other products 
include dial-up access servers and network management software.  
Cisco has been on an acquisition binge (about 37 since 1993) to 
broaden its product line.  It also derives revenue by licensing 
products as it seeks to widen the influence of its Cisco 
Internetwork Operating System (Cisco IOS) software, in hopes of 
making it an industry standard.  Strategic relationships with the 
industry's biggest players (including Alcatel, Microsoft, Qwest, 
and U S WEST) are boosting Cisco's influence on the networking 
industry.  In short, Cisco Systems is the worldwide leader in 
networking for the Internet.

Let's face it, CSCO had a crummy week and would otherwise hit the 
drop list for a severe violation of its 10-dma ($71), which it 
failed to close above Thursday and Friday.  We keep it on the 
list for 2 reasons.  First we think most of the selling is over 
based on the huge price tumble to $66.69 and $67 with huge volume 
(capitulation) on two occasions Friday, both followed by strong 
rebounds.  $67 appears to be a really solid bottom.  Second, 
here's one of the agenda items from their DEF 14A filed Friday 
morning announcing their shareholders meeting to be held November 
10, 1999:  "To approve a Certificate of Amendment to the 
Company's Restated Articles of Incorporation to increase the 
authorized number of shares of Common Stock from 5,400,000,000 to 
10,000,000,000".  There are 3.22 bln shares outstanding.  They 
could announce a 3:2 split without having to go through this 
exercise, but that would leave them no currency shares available 
to make those huge acquisitions (Cerent) requiring a 100 mln 
shares at a crack.  Conversely, they could keep the status quo 
and still make acquisitions, but have no split.  So then, why the 
agenda item?  While part of the reason for the share increase may 
be for future acquisitions, but a 3:2 split is not out of the 
question.  Historically, the splits have been announced in the 
$70-$80 range.  While we're not making the prediction, we are 
noting the possibility, despite a few e-mails we've received from 
people close to CSCO telling us it won't happen because CSCO had 
a 2:1 split just 4 months ago (CSCO has never split their stock 
more than once in any calendar year since going public in 1990).  
We report it, you decide.  Earnings are November 9.

In the news, CSCO received clearance from the FTC to purchase 
Cerent, while earlier in the week, they agreed to buy Webline 
for $325 mln in stock.  Webline is a software company that can 
synchronize multiple users on the same web page.  This will 
allow a customer to be on a web page, open an online voice 
discussion with a vendor and have the vendor automatically see 
the same page.

***Traders holding January 2000 strikes need not exit the play.  
We just don't list them since November strikes are now 
available.***

BUY CALL OCT-65*CYQ-JM OI=13192 at $5.63 SL=3.75
BUY CALL OCT-70 CYQ-JN OI=37629 at $2.50 SL=1.25
BUY CALL OCT-75 CYQ-JO OI=30722 at $0.81 SL=0.00 High Risk!
BUY CALL NOV-70 CYQ-KN OI=  758 at $4.38 SL=2.75
BUY CALL NOV-75 CYQ-KO OI= 2158 at $2.38 SL=1.25

Picked on Sep 19th at     $73.50    P/E = 112
Change since picked        -4.50    52 week high=$73.56
Analysts Ratings     21-12-0-0-1    52 week low =$20.56
Last earnings 08/99    est= 0.20    actual= 0.21 surprise +5.0%
Next earnings 11-09    est= 0.22    versus= 0.16
Average daily volume = 18.27 mln 
Chart = http://quote.yahoo.com/q?s=CSCO&d=3m


****

EMC - EMC Corporation $69.06 (-1.94)(+0.88)

At times, we all need someone to back us up.  Well EMC makes it 
their business to back us up.  They focus solely on providing 
the world with leading solutions on information storage and
retrieval systems.  They are literally the world leaders in this 
area on every platform.  Because of their focus and dedication,
they have obtained significant customers in banking, 
telecommunications, airline, manufacturing, Internet and other
industries where the management of massive information is
critical.  There's a good chance that your information is 
handled by an EMC system somewhere.  They're managed well also 
with a 52% return in net income. 

Despite the recent computer hardware downgrades, technology
weakness and overvaluation warnings, EMC has faired quite
well.  Showing resilience after Friday's opening gap down, 
EMC climbed ahead to close just below our support of $70.
This is a very bullish move and confirms the underlying 
reason for our play.  That of momentum and outlook.  Remember
the Internet is helping EMC forge ahead as the need for
storing overwhelming amounts of data become critical.  EMC is
the preferred source for this need.  The Internet's did quite
well Friday and for the week as momentum continues to build
ahead of earnings.  In any case, we are in a good position to 
take advantage of a technical bounce next week.  We could see 
more gains next week with a market recovery.  Do use caution 
however, as EMC didn't participate in the last hour rebound 
that some tech stocks had Friday.  As stated, outlook and 
fundamentals are helping lift EMC.  It's historical trend and 
price deviation rank it as above average in safety.  Despite 
the good outlook, we must advise caution in this unpredictable 
market.  We are hoping for a bounce but, a hope is just that.  
Confirm positive movement in the market and stock before playing.

CBS MarketWatch confirmed the PC Hardware resilience on 
Friday.  No confirmed reason however.  EMC has qualified the
Emulex Fibre Channel host adapter for it's LP8000 NT storage
devices.  This offers a better operation in the new Fibre
Channel technology.

BUY CALL OCT-65 EMB-JM OI= 7209 at $5.75 SL=4.25
BUY CALL OCT-70*EMB-JN OI=14326 at $2.81 SL=1.25
BUY CALL NOV-70 EMB-KN OI=  520 at $5.00 SL=3.25
BUY CALL NOV-75 EMB-KO OI= 1060 at $3.00 SL=1.50

Picked on Sept 12th at  $68.13    P/E = 78
Change since picked      +0.94    52 week high=$75.63
Analysts Ratings    14-9-1-0-0    52 week low =$20.81
Last earnings 07/99  est= 0.24    actual= 0.27 
Next earnings 10-19  est= 0.27    versus= 0.19
Average daily volume = 5.5 mln
Chart = http://quote.yahoo.com/q?s=EMC&d=3m

****

SNE - Sony Corporation $148.94 (+1.75)

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.

We are still promoting SNE as a play, where investors will 
want to be as the Japanese recovery continues to progress.  As
stated in Thursday's update, SNE will experience some swings
with the market as it trades on the NYSE.  Also, given that
SNE is so diverse, and involved in the technology sector, it
participated in the sell off spurred by Microsoft's comments
of overvaluation.  The movement in Sony's stock price is
magnified due to the float we talked about.  It's a supply and
demand issue.  Supply is limited, so traders can see greater
swings in price as volume increases.  Volume was very close to
double the average for Sony on Friday.  Our support is at $150
right now so we are within acceptable limits and consider
SNE resting on support at this level (it typically rests right 
under support).  As we are sitting on support, it necessitates 
caution as we could go one way or the other.  The market sold 
off significantly last week and Friday's end of day trading 
showed signs of bargain hunters re-entering some plays.  SNE 
however stayed pretty flat through the close of the session.
This is both a fundamental and capital rotation play.  Keep 
this in mind and wait for the stock to move positive on volume, 
indicating investors interest in the Japanese recovery. 

Topping the news is the 20th anniversary of the Sony Walkman.
Sony has introduced four new digital Walkman's that have the 
memory stick and mini disk.  Allowing users to record CD's in 
short time and play conventional media, the units are setting 
the trend into the next revolution of digital music.  An article
stating that music sales have been hurt this last year and
SNE has a large stack in this industry.  Asia's music sales
grew 5% despite the rest of the worlds slumber.  Also, exciting
news as SNE transitions from providing game console upgrades,
to using the broadband technology to get upgrades to users in
real time.  Sony is a powerhouse and trend setter.  Look for
this to help them weather the storms.

BUY CALL OCT-150*SNE-JJ OI=160 at $5.75 SL=3.75
BUY CALL OCT-155 SNE-JK OI= 90 at $3.75 SL=1.75
BUY CALL OCT-160 SNE-JL OI= 55 at $2.44 SL=1.25 low OI

Picked on Sep 23rd at $152.19    P/E = 52
Change since picked     -3.25    52 week high=$160.50
Analysts Ratings    0-1-0-0-0    52 week low =$ 60.25
Last earnings 07/99  est= N/A    actual= 0.65 
Next earnings 10-19  est= N/A    versus=  N/A
Average daily volume =  201 K
Chart = http://quote.yahoo.com/q?s=SNE&d=3m

****

SUNW - Sun Microsystems $90.19 (+1.50)(+3.00)(P5W +15.19)

Sun Microsystems is the largest computer maker that uses its 
own chips.  Probably their most talked about product is "JAVA", 
a programming language which is intended to create software 
that can run unchanged on any kind of computer.  SUNW is also 
a leading maker of UNIX-based workstation computers, storage 
devices and servers.  They compete with the biggest on the 
block in Microsoft, IBM and Compaq.  SUNW markets its hardware 
and software products to primarily in the telecommunications 
and financial industries.  General Electric is on of their 
better customers and accounts for approximately 14% of their 
sales.

Let's recap our play.  The sheer momentum of the stock's 
uptrend has carried it forward into earnings season priming 
it for a profitable run.  This driving force and energy 
further resulted in the recent announcement of another 2:1 
stock split.  On September 17th, the Board of Directors 
announced, for the second time this year, that SUNW would 
split 2:1 on December 7th.  Shareholders' approval to 
increase authorized shares to 3.6 bln is however required, 
but approval is expected at the Annual Meeting on November 
10th.  After the split the number of outstanding shares 
will be approximately 1.56 bln.  Overall, SUNW has made 
tremendous gains this year by more than tripling its share 
price!  In the near-term the earnings announcement is 
confirmed for October 14th, after the bell.  And as a 
reminder, recall that generally 7 out of 10 stocks tend to 
decline after an earnings report regardless of the numbers 
so never hold over the announcement.  It's not worth the 
added risk.

Volume has been exceptional this week with trading levels 
reaching 60-65% above normal.  The bullish excitement on 
Monday propelled SUNW upwards to $94.69 to set the latest 
52-week high.  Support remains firm at $82 but even with 
the bears flexing their muscles at times this week, SUNW has 
showed great strength at its recent price not dipping below 
$88.38 (Friday's open).  This is impressive considering the 
uncertainty of the broad market.  SUNW is poised both 
fundamentally and technically to stretch itself into new 
territory and old highs could easily be reached with a 
cooperating broad market.  So the current price levels may 
indeed be a bargain hunter's dream but only time will tell 
for sure.  Especially since next week could prove to be 
more volatile in front of the upcoming Fed Meeting.  If 
you're one of the riskier players and are in the game, hang 
onto your hat and sell too soon!  And conservative players 
be forewarned - the ride is likely to be quite turbulent so 
if you have a weak stomach stay on the sidelines.  

BUY CALL OCT-85 SUQ-JQ OI=8307 at $7.63 SL=6.00
BUY CALL OCT-90*SUQ-JR OI=7445 at $4.50 SL=2.75
BUY CALL OCT-95 SUQ-JB OI=5188 at $2.38 SL=1.25
BUY CALL NOV-90 SUQ-KR OI= 779 at $7.25 SL=5.50
BUY CALL NOV-95 SUQ-KB OI= 982 at $4.88 SL=3.25

Picked on Aug 28th at    $76.19    P/E = 71
Change since picked      +14.00    52 week high=$94.69
Analysts Ratings      9-8-3-0-0    52 week low =$19.19
Last earnings 07/99   est= 0.47    actual= 0.48 surprise +2.1%
Next earnings 10-14   est= 0.31    versus= 0.25
Average Daily Volume = 8.32 mln
Chart = http://quote.yahoo.com/q?s=SUNW&d=3m

*************** 
Internet
***************

ITVU - InterVU, Inc. $34.25 (+4.88)

InterVU gets Internet media from point A to B.  InterVU has 
become the leader in providing this management of streaming 
technology to their customers.  They are able to handle low 
bands of 28.8 to 100 Kbps, and broad-bands of 300 Kbps and 
higher.  Allowing providers to deliver near television quality 
at higher bands.  The formats are compatible with all the 
popular players such as RealPlayer and Windows Media Player.  
As popularity increases in viewing information online, ITVU's 
market increases.  

ITVU is in breakout mode!  Breakout mode for what you might 
ask?  Well it looks like earnings.  It appears that ITVU is 
developing a pattern of earning runs and the stock is ready 
to start that move.  After being stuck in a trading range, 
ITVU is breaking out despite the weakening market.  Although 
the stock is still in negative earnings, the pre-curser rise 
is becoming characteristic.  Notice the pattern on June 28th 
and how it compares to our recent position.  Friday's move 
broke us through resistance at $30.  This was due to news of 
a patent they have received on their audio and video technology.  
We also got a very strong turn to the positive side on our 
stochastic and MACD indicators.  Considering the lack of market 
help, we are inclined to think we are in run mode. The short-
term trend is also positive as shown on the interval chart on 
Friday.  Prudence dictates we must use caution however in this 
market.  Play this only on the historical run merits and use 
stops to protect your downside risk.  Make sure that the stock 
holds above $34 and is moving higher on volume. ITVU is a 
HIGH-RISK SPECULATIVE!!

ITVU received it's patent for delivery of large amounts of
data of a computer network on Sept. 21st.  This is a very
positive piece of news that will allow ITVU to protect it's
unique storage, organization, and management methods, and
protect it's market share now and in the future.  

BUY CALL OCT-30*QYU-JF OI=403 at $5.63 SL=3.75
BUY CALL OCT-35 QYU-JG OI=196 at $2.50 SL=1.25
BUY CALL OCT-40 QYU-JH OI=232 at $1.13 SL=0.25

Picked on Sep 26th at  $34.25    P/E = N/A
Change since picked     +0.00    52 week high=$82.00
Analysts Ratings    2-3-0-0-0    52 week low =$ 5.75
Last earnings 07/99 est=-0.48    actual=-0.34 
Next earnings 10-21 est=-0.52    versus=-0.32
Average daily volume =  260 K
Chart = http://quote.yahoo.com/q?s=ITVU&d=3m

*******************************
SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter             9-26-99
Sunday                        4 of 7

***************
CALLS CONTINUED
*************** 
Internet
***************

RNWK - RealNetworks, Inc. $99.06 (+5.38)

In our increasingly mobile society, convenience is a must, so
it is nice when you can turn on your computer and have all
the conveniences of TV, Radio, and CD's at your fingertips.
RealNetworks is a leader in providing real time streaming
media to users over the Internet.  Attracting most major
broadcasters, RNWK is growing fast as online users download
News, Sports, Music, at the rate of 175,000 new users a day.
These numbers confirm acceptance of their products and software, 
that's a 270% increase since 1997.  Along with multi-media comes 
advertising.  RNWK is benefiting greatly from it's unique niche 
and presentation. 

Up is the key word with RNWK.  Upgrades from brokers, up trend
in price and increases in the earnings estimates.  Friday's 
weak market looks to have given us a buying opportunity, in 
anticipation of a few more ups.  First, we may see a technical 
bounce due to last week's sell off in the markets.  Although 
the trend may not be rosy for the market, RNWK should benefit 
from any bounce provided.  Second, it appears that RNWK will 
provide investors with some positive earnings, which would add 
to the momentum of an earnings run.  Although earnings are not
until Oct. 20th, analysts are already positioning themselves
for the news with revisions to estimates and upgrades.  We 
don't anticipate an earnings run to start until after the
Fed meeting, so this week is mainly due to technical momentum 
and a possible bounce.  Just keep the earnings in mind.  On 
September 3rd, RNWK broke through it's resistance and started 
a new and current trend.  It has been following support nicely 
and currently support is at $95 from the 10-dma.  The stock 
recovered from it's low Friday and maintained support for most 
of the session.  The last hour showed buying interest as bargain 
hunters are anticipating the bounce.  RNWK experienced a 70% 
increase in stock price in anticipation of the last earnings 
report.  News, earnings and expectations have powered our RNWK 
recently.  This has allowed RNWK to resist the negative market 
pressures quite nicely.  Even though we are in the up and up 
with RNWK, use discretion.  Do not play until the market and 
stock bounce is confirmed.

As mentioned above, Volpe Brown Whelan upgraded RNWK to a
Buy from a Neutral position.  RNWK will also offer to
users the new music video from the group Nine Inch Nails.
This shows a change in attitude towards acceptance of the
new technology by the music industry and indicates the
direction and potential the online streaming technology
has.  MP3.com has selected RealNetworks as their preferred
source for hearing their MP3 files online.  

BUY CALL OCT- 95 RNW-JS OI= 661 at $10.63 SL= 7.50
BUY CALL OCT-100*RNW-JT OI=1419 at $ 8.38 SL= 6.50
BUY CALL OCT-105 RNW-JA OI= 207 at $ 6.00 SL= 4.25
BUY CALL NOV-100 RNW-KT OI=1038 at $13.38 SL=10.50 
BUY CALL NOV-105 RNW-KA OI= 520 at $11.25 SL= 8.75

Picked on Sep 26th at  $99.06    P/E = N/A
Change since picked     +0.00    52 week high=$131.88
Analysts Ratings    1-13-1-0-0   52 week low =$ 11.06
Last earnings 07/99  est=-0.01   actual= 0.00 
Next earnings 10-20  est= 0.04   versus=-0.03
Average daily volume = 1.9 mln
Chart = http://quote.yahoo.com/q?s=RNWK&d=3m

****

ELNK - EarthLink Inc $47.56 (+7.44)

Earthlink provides Internet access and other related 
services 1+ mln subscribers in the US and Canada.   The 
company provides Internet access through a network of 
leased high-speed dedicated data lines and over 1,700 dial-
up access sites.  Sprint owns 29.5% stake in EarthLink and 
the ISP services are co-branded as EarthLink Sprint 
Internet.  With the recent merger with Mindspring, ELNK 
and MSPG will be the #2 ISP provider behind AOL.

When we say we follow a stock's trend, we're not kidding and 
that's precisely why we're adding ELNK to our call list this 
weekend.  For the newcomers, ELNK was a recent put play that 
rapidly reversed direction last week on the news of a definitive 
merger agreement between EarthLink and MindSpring (MSPG) which 
will create the 2nd largest ISP company only behind the 
bellwether, America Online (AOL).  Thursday was the "official" 
release of the joint announcement but stanch hearsay was 
obviously leaking down the grapevine before the news hit the 
press.  The day before share prices, of both companies mind 
you, surged.  ELNK spiked up $4.69, or 12% and MSPG rose 
improbable $6.50, or 25% for no other apparent reason.  As a 
result of this abrupt merger agreement, shares prices are likely 
to continue to rise in the near-term and the added benefit of 
a leverage play is certainly a bonus.  The basic logistics of 
this merger are as follows.  EarthLink and MindSpring will 
merge into a newly formed public company to be named EarthLink 
and will trade on the Nasdaq under the symbol "ELNK".  Combined 
they will boast 3+ mln subscribers which is still about 17+ mln 
short of AOL.  Now 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.  However if it goes through, MSPG 
shareholders will receive 1 share of the new company for every 
1 share of MSPG, but (and this is the clincher) ELNK shareholders 
will receive 1.615 shares of the new company for every 1 share 
they presently own.  So in terms of the leverage, for every 
point MSPG moves ELNK will correspondingly move 1.615 points.  
Keep in mind that leverage is applicable to moves in either 
direction!  Technically bottom support is at $40 and the first 
barrier of resistance is at the 100-dma ($51.90).  After tacking 
on a substantial $5.19 on Friday you may have to look intraday 
for an entry unless we get a pullback in an uncertain market.

Earnings are also right around the bend, confirmed to report 
on October 13th after the bell.  And in the news, Jeffries & Co 
blessed the merger agreement on Thursday by starting coverage 
on ELNK with a Buy rating.  By Friday three more analysts joined 
the party.  First Union Capital Markets raised their rating to 
a Buy from an Outperform and issued a $66 price target.  MSDW 
also upgraded the stock's rating to a Strong Buy from an 
Outperform and issued their price target at $74.  Not to be 
left out, Sands Brothers reiterated their Buy rating on ELNK.  
If we choose to take any credence from the latter it appears 
ELNK should go full-steam ahead.

BUY CALL OCT-45*QKL-JI OI=1051 at $5.13 SL=3.50
BUY CALL OCT-50 QKL-JJ OI=1012 at $2.69 SL=1.25
BUY CALL OCT-55 QKL-JK OI= 735 at $1.44 SL=0.75 High Risk!
BUY CALL NOV-45 QKL-KI OI= 117 at $7.38 SL=5.75
BUY CALL NOV-50 QKL-KJ OI= 415 at $4.88 SL=3.25 

Picked on Sep 26th at    $47.56    P/E = N/A
Change since picked       +0.00    52 week high=$99.37
Analysts Ratings      4-6-2-0-0    52 week low =$29.50
Last earnings 07/99   est=-0.22    actual=-0.21 surprise +4.6%
Next earnings 10-13   est=-0.34    versus=-0.04
Average Daily Volume = 1.14 mln
Chart = http://quote.yahoo.com/q?s=ELNK&d=3m

****

EBAY - eBay, Inc. $146.06 (+5.06)

eBay pioneered person-to-person online auctions.  Founded in 
1995, eBay has developed an efficient and entertaining trading 
site on the Web that is available 24 hours a day, 7 days a week.  
eBay has more than 5.6 million registered users.  Currently, 
there are more than 2.5 million items listed for sale.  More 
than 300,000 items are added daily in more than 1,600 categories 
including: antiques; books, movies and music; coins and stamps; 
collectibles; computers; dolls and figures; jewelry and 
gemstones; photo and electronics; pottery and glass; sports 
memorabilia; and toys.  In April 1999, eBay acquired Butterfield 
& Butterfield, one of the largest auction houses in the world. 

What was that group of 100 tech companies forming their own on-
line consortium that was suppose to compete with eBay?. . .let's 
see. . .ummm - no matter, traders seem to have forgotten too, 
or at least relegated it to the back burner for now.  Despite a 
NASDAQ meltdown Thursday and Friday last week, EBAY found support 
in the $136-$138 all week long.  Look for that support level 
again if things get turbulent.  Otherwise, Friday's close was a 
hot one for the Internet sector.  EBAY participated by tacking 
on $9 in the final hour of trading as volume rushed in signifying 
big investor interest.  EBAY now rests at its 10-dma of $146.  
We like EBAY at $155 and think it can get there again quickly.  
At least with the Internet sector, we may have found a bottom, 
which makes EBAY, along with other Internet biggies including 
YHOO, AOL, INKT, etc., a prime target for appreciation this 
coming week.  Don't abandon caution though.  By nature, this is 
a volatile play and an earnings run isn't likely until we get 
closer to the announcement date of October 27 (Zack's).  Plus, 
the downdraft could decide to continue until EVERYBODY gives up.  
For now, if CMGI delivers good earnings on Monday and YHOO 
continues its earnings run, it's just plain momentum backed by 
volume that moves this play.

In the news, Prudential initiated coverage with a Strong buy.  
Merrill Lynch's Internet index (HHH), of which EBAY is 1 of 21 
issues, began trading last week.

BUY CALL OCT-150*QXB-JJ OI=2802 at $ 9.25 SL= 6.75
BUY CALL OCT-155 QXB-JK OI=1042 at $ 7.25 SL= 5.25
BUY CALL NOV-155 QXB-KK OI= 138 at $14.50 SL=11.50
BUY CALL NOV-160 QXB-KL OI=  33 at $12.88 SL=10.50 low OI
BUY CALL NOV-165 QXB-KU OI=  29 at $11.13 SL= 8.75 low OI

Picked on Sep 26 at     $146.06    P/E = N/A
Change since picked       +0.00    52 week high=$234.00
Analysts Ratings      5-9-4-0-0    52 week low =$  8.38
Last earnings 07/99   est= 0.03    actual = 0.03
Next earnings 10-27   est= 0.01    versus = 0.02
Average daily volume = 5.95 mln 
Chart = http://quote.yahoo.com/q?s=EBAY&d=3m

****

DCLK - Doubleclick Inc, $116.75 (+0.50)(+8.50)

Doubleclick provides comprehensive global Internet advertising 
solution.  With headquarters in New York, the online firm 
uses its DART technology that measures Web traffic and ad 
effectiveness and in turn provides data to both the Web 
publishers and the advertiser.  With over 1300 sites in its 
network Doubleclick delivers ads in such search engines as 
AltaVista, Egghead.com and U.S. News Online.  Two of its
bigger advertisers include AT&T and IBM.  Doubleclick has 
agreements to buy consumer-purchasing data information provider
Abacus Direct and software firm NetGravity.  DCLK competes
primarily with America Online, 24/7 Media and Flycast Comm.

Considering the negative action in the broader markets this week,
DCLK didn't end the week all that bad.  Monday saw shares of the
Internet advertising company explode to a high at $125.25 in the
first 90 minutes and then begin to fall out of bed making a low 
at $105.75 right out of the gate Tuesday morning.  DCLK managed 
to recover fairly well the rest of the week despite the comments
from Microsoft President, Steve Ballmer concerning the 
overvaluation of technology stocks and S.G. Cowen and Co.
speculating that it could take a couple of months for the
semiconductor industry to fully recover from the Taiwan 
earthquake.  Now for the other side, according to Forrester 
Research, the Internet ad market is about to take off.  The 
Internet Ad Bureau calculates that about $2.8 billion will be 
spent on Web ads, which means advertisers will spend more on Web 
ads than outdoor billboards.  We tend to believe we will see 
continued strength in Internet Advertising companies like DCLK 
and CMGI (CMGI reports earnings on Monday).  They will be 
volatile but should continue to grow.  For the week ahead we 
are looking for shares of DCLK to continue higher, barring any 
other bombs being dropped on the broader markets.  Technically 
DCLK has penetrated and bounced off its 10-dma for most of the 
week, which is currently sitting at $111.88.  Again we would 
point out that a play in DCLK is not for everyone, because of 
the volatility.  If you reentered a play keep your stops tight.  
If you are considering a new play examine your risk profile, 
consider the volatile nature of DCLK, look for a positive move 
and choose your entry points carefully.

Wednesday Banc of America Securities initiated coverage of DCLK
with a Buy rating and a price target of $140.  Friday Wit Capital
initiated coverage with an Outperform rating.

BUY CALL OCT-110 TDU-JB OI= 974 at $12.38 SL=$9.75
BUY CALL OCT-115*TDU-JC OI=1157 at $ 9.38 SL=$7.00
BUY CALL OCT-120 TDU-JD OI=1641 at $ 7.00 SL=$5.25 
BUY CALL OCT-125 TDU-JE OI=1296 at $ 5.25 SL=$3.50

Picked on Sep 18th at   $116.25   P/E = N/A
Change since picked       +0.50   52 week high=$176.00
Analysts' ratings     8-7-0-0-0   52 week low =$  6.75
Last earnings 07/99   est -0.13   actual -0.13 surprise=0% 
Next earnings 10-08   est -0.13   versus -0.14 
Average daily volume = 3.01 mln
Chart = http://quote.yahoo.com/q?s=DCLK&d=3m

****

YHOO - Yahoo! $183.31 (+20.19)(-7.38)(-5.31)

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

Earnings - earnings - earnings!  In typical YHOO earnings run 
fashion, this projectile is once again escaping NASDAQ's gravity.  
All the more impressive is that YHOO did it while most other 
technology rockets were burning up in on a forced re-entry, 
partly in thanks to the "overvalued" comments of Microsoft's 
President, Steve Ballmer.  Pure and simple, this is an earnings 
play with all candles lit.  YHOO is scheduled to report earnings 
after the close on October 6.  Analysts' upgrades and comments 
just added more fuel, particularly those of Henry Blodget of 
Merrill Lynch who noted to his clients that YHOO remains a core 
holding in his sector and that he expects YHOO to surprise 
the current $0.09 consensus estimate, big time once again.  
Technically in the positive, YHOO volume picked up to 55% over 
its ADV with a big surge at the close on Friday (generally 
unheard of), indicating investors' ravenous appetite for this 
stuff.  Keep the euphoria in check though.  YHOO is a volatile 
stock and can have big multiple price swings during the trading 
day.  To boot, the FOMC meeting is the day before earnings, the 
jitters of which could cause YHOO to sell off early.  That's not 
a prediction, just a possibility.  If you're feeling a bit more 
conservative, you may want to be out of the play by Friday, 
October 1.  With a big run-up last week and another big run-up 
anticipated this week, the exit may be crowded.  We just don't 
when.  You'll have to make you own determination according to 
your risk profile.

Who needs news. . .we've got earnings!  Just in case you're 
interested, YHOO launched its Yahoo! China web site last week 
with over 20 thousand pages of Chinese content.

***And you think these are expensive. . .we decided not to list 
the NOV strikes due to extreme inflated valuation.  We also don't 
list $5-odd strike prices since their current volume and thus 
liquidity will be much lower.***

BUY CALL OCT-170 YHV-JN OI=4946 at $19.25 SL=15.00
BUY CALL OCT-180*YHV-JP OI=5399 at $13.25 SL=10.50
BUY CALL OCT-190 YHV-JR OI=5003 at $ 8.75 SL= 6.50

Picked on Sep 14 at   $165.19    P/E = 424
Change since picked    +18.00    52 week high=$244.00
Analysts Ratings   9-17-5-0-0    52 week low =$ 40.81
Last earnings 07/99 est= 0.08    actual= 0.11
Next earnings 10-06 est= 0.09    versus= 0.05
Average daily volume = 9.05 mln
Chart = http://quote.yahoo.com/q?s=YHOO&d=3m



*******
Telecom
*******

VOD - Vodafone AirTouch $230.50 (+21.94)(+8.06)

Formed earlier this year when the UK's Vodophone group bought
AirTouch Communications, Vodafone AirTouch provides international
mobile telecommunications services.  VOD operates analog and 
digital cellular network services including voice communications,
messaging, paging, and mobile data services.  They serve over
28 million mobile phone customers in 23 countries, with over
nine million subscribers in the United States and more than six
million in the UK.  They take on the best, competing with AT&T,
BT, and Cable & Wireless.

Our split run continues.  With the decisively negative tone in
the broader markets this week, shares of VOD were able to move
higher on their own.  As we have mentioned VOD splits 5:1 at
the close of business October 4th, for shareholders of record 
on October 1st.  We are looking for VOD to continue higher this 
week.  Volume for the week has been strong averaging 2.1 mln 
shares in the past 5 sessions.  The news this week concerning 
the future of VOD has been positive as well, which we believe 
has helped strengthen our split run.  Tuesday Bel Atlantic(BEL) 
and Vodafone announced they had reached an agreement to create 
a new wireless business, that will serve 90 percent of the U.S. 
population.  The new business will be further strengthened by the
addition of the cellular and PCS assets of GTE Corp(GTE), which
is expected to complete its merger with Bell Atlantic, sometime
in the first quarter of 2000.  Investors also seemed to key in on
other news concerning VOD and Germany's Mannesmann.  Mannesmann 
said Thursday it will split its telecom and engineering units
into two separate companies to improve the company's focus and 
grow each business.  There apparently was speculation that VOD 
might have been bidding for Mannesmann.  The fact that shares of 
VOD are in tight supply and that institutions are wanting to buy
hasn't hurt our split run either.  We should remind you that even
though we expect VOD to continue higher, and although we doubt 
that there will be any serious profit-taking, keep your stops 
close.  Initial support for VOD lies between $224-$225 followed 
by $220.  Should we see a pullback, look for opportunities to 
buy calls once a you see VOD bounce with volume supporting it.
If you are considering a new play assess your risk profile and
remember you will want to exit the play by Friday or Monday at
the latest.

BUY CALL OCT-220 VOD-JD OI=1854 at $15.88 SL=$12.25
BUY CALL OCT-230*VOD-JF OI=1656 at $10.00 SL=$ 7.50
BUY CALL OCT-240 VOD-JH OI= 244 at $ 5.75 SL=$ 4.00

Picked on Sep 21st at   $216.63    P/E = 83
Change since picked      +13.88    52-week high=$234.00
Analysts Ratings      6-3-2-0-0    52-week low =$ 94.00
Last earnings 06/99  est=   N/A    actual= N/A
Next earnings 09/99  est=   N/A    versus= N/A
Average Daily Volume = 1.36 mln  
Chart = http://quote.yahoo.com/q?s=VOD&d=3m

****

QCOM - Qualcomm Inc $189.50 (-0.44)

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.  

For right now anyway, QCOM is a pure and simple momentum 
play.  The stock first sprung into new territory on September 
14th after the company announced it was proactively seeking a 
buyer for its mobile phone manufacturing unit.  Concurrently 
the company reported that it would meet or beat 4Q estimates - 
certainly a well timed announcement!  All this good 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.  The uptrend has also 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 presently 
doesn't have enough shares authorized for another split.  There 
are only 300 mln authorized and about 161 mln issued, 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 on October 
21st.  This date will be confirmed ASAP.  We added QCOM on 
Thursday evening as the stock's pullback provided players 
with 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 explosive behavior.

Shares rose on Friday responding to news that Qualcomm and 
Lucent entered into an alliance to commercialize wireless 
network equipment using CDMA technology on Lucent's wireless 
base-station equipment.  This team effort will create faster 
speeds and increase capacity on network equipment.

BUY CALL OCT-185 AAO-JQ OI=1299 at $13.38 SL=10.75
BUY CALL OCT-190*AAO-JR OI=2834 at $10.63 SL= 8.25
BUY CALL OCT-195 AAO-JS OI=1022 at $ 8.38 SL= 6.50
BUY CALL NOV-190 AAO-KR OI= 117 at $18.50 SL=14.50
BUY CALL NOV-195 AAO-KS OI=  74 at $16.13 SL=12.50 low OI

Picked on Sep 23rd at   $186.63   P/E = 97
Change since picked       +2.87   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 = 8.97 mln
Chart = http://quote.yahoo.com/q?s=QCOM&d=3m


*************
Miscellaneous
*************

GE - General Electric $118.00 (-2.00)

One of the most profitable companies in the world, General 
Electric has been able to make money in all kind of different 
industries.  The company is engaged in developing, marketing 
and manufacturing of a wide variety of products involved in 
generation, transmission, distribution and utilization of 
electricity and other goods.  It produces aircraft engines, 
transportation equipment such as locomotives, appliances (both 
kitchen and laundry equipment), lighting, generators and 
turbines, nuclear reactors, medical imaging equipment, and 
plastics.  With this diversity and reach, it is no wonder 
they count their profits in the billions.

Well, our giant conglomerate made it through a rough week of 
trading.  Unfortunately our play was not unscathed but 
considering the circumstances, managed to hold up quite well.  
Overshadowing our technical/earnings play has been a weakening 
dollar and technical breakdowns of the broader markets.  Just 
as GE broke through its resistance at $120 and set new highs 
for the stock, we were knocked back by these unforeseen 
circumstances.  GE ended the week on the downside, however 
managed to fight its way back closing at its 10-dma or $118.  
The stock had a nice surge at the end of the day, which 
hopefully will carry into next week.  This is a good technical 
sign for the stock indicating support exists at this price 
level.  If the markets cooperate on Monday, $118 may be the 
entry point were looking for.  However, before placing new 
trades confirm positive direction in the broader markets and 
GE.  With the G-7 meeting this weekend and Mr. Greenspan 
scheduled to speak on Monday, the conditions are ripe for 
another volatile week.  The stock has still shown potential 
to outperform the markets on the rally.        

In the news, on Friday, an article mentioned that earnings 
warnings from other Dow components (Coca-Cola, Sears, Union 
Carbide) have unfortunately overshadowed the success of 
companies like General Electric, which continue to report 
record profits.  In two weeks, GE reports their earnings 
and we'll see if their comments hold true.  On another note, 
on Friday, an announcement was made that GE Medical Systems, 
a unit of General Electric said its proposed acquisition of 
OEC Medical Systems has cleared U.S. antitrust review.  Last 
of all, don't forget about last weeks comments by Merrill 
Lynch stating that GE could reach $150 by the end of the year.

BUY CALL OCT-115*GE-JC OI=3340 at $5.38 SL=3.25
BUY CALL OCT-120 GE-JD OI=8552 at $2.69 SL=1.25
BUY CALL OCT-125 GE-JE OI=6553 at $0.94 SL=0.00 High Risk!
BUY CALL NOV-120 GE-KD OI= 574 at $5.00 SL=3.25
BUY CALL NOV-125 GE-KE OI=1182 at $2.88 SL=1.25

Picked on Sep 21st at   $119.00    P/E = 39
Change since picked       -1.00    52-week high=$122.50
Analysts Ratings     8-10-2-0-0    52-week low =$ 69.00
Last earnings 07/99   est= 0.84    actual= 0.85 
Next earnings 10-07   est= 0.79    versus= 0.69
Average daily volume = 4.40 mln
Chart = http://quote.yahoo.com/q?s=GE&d=3m



*****************
PUTS, PUTS, PUTS
*****************

Put plays can be very profitable but have a larger risk than call 
plays. When a stock is falling the entire investment community 
(except the shorts) is hoping it will reverse and start back up. 
The company management is also doing everything they can to shore 
up their stock price. The company issues press releases, brokers 
talk it up, analysts try to put a positive spin on everything. 
Then of course there is the death knell, the "buy recommendation" 
simply because the price has dropped to some level that analysts 
feel attractive again. Buyers who like the stock wait until it 
appears a bottom has been reached and then jump on it in a feeding 
frenzy. They may already have a large position and are averaging 
down. Many factors can stop a free falling stock in mid drop.

****

WLP - Wellpoint Health $65.63 (-3.13)(-8.00)

Wellpoint Health Networks serves about 32 million individuals 
in the U.S. through HMOs, PPOs, and special networks such as 
dental, vision and mental health plans.  The company operates 
as Blue Cross in California and UNICARE through the rest of 
the nation.  Wellpoint also sells life insurance and third 
party administration to self-employed businesses.  In 1997, 
they acquired the group health and related life business of
John Hancock Mutual. 

Could last week's market conditions been any better for our 
put play?  Considering the Dow was down 525 points and the 
Nasdaq 129 points, I think it would be hard to beat.  A 
weakening dollar and technical breakdowns of the Dow were to 
thank for the markets recent losses.  These events added salt 
to the wounds of an already weak healthcare sector and stock, 
which shows in its current track record.  WLP traded in 
negative territory for nine consecutive days, but on Friday 
managed to break the streak by closing the day fractionally 
higher.  Is this the beginning of the end for our play and 
some kind of sign for current investors that there is hope?  
We doubt it.  The next support level for WLP is $60, which 
should be obtainable considering current market conditions 
and the technical weakness of the stock.  There are events 
that may influence our play this week.  The G-7 meeting this 
weekend and Alan Greenspan's scheduled speech on Monday may 
add fuel to an already volatile market.  When placing new 
trades, wait for intraday spikes in the stock, there should 
be plenty considering these up coming events.  There was no 
additional news to report this weekend that would account 
for movement in the stock.         

BUY PUT OCT-70*WLP-VN OI=177 at $6.00 SL=4.25
BUY PUT OCT-65 WLP-VM OI=422 at $2.94 SL=1.50

Average Daily Volume = 403 K
Chart = http://quote.yahoo.com/q?s=WLP&d=3m 


*******************************
SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter             9-26-99
Sunday                        5 of 7

****************
PUTS - continued
****************

GPS - Gap Stores $32.00 (-1.63)(-2.06)(-3.19)

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

The losses continue for Gap stock this week under the backdrop 
of an excessively weak market.  We mentioned last week about 
the big increase in volume on the 35 contracts.  That turned 
out to be the play as you would have doubled them by Wednesday 
morning.  The volume is still coming in fairly strong and we 
have yet to see Gap bottom out at $30 where the stock has it's 
next support level.  We also had a contradiction among analysts 
on Thursday that kept GPS active.  BancBoston reiterated their 
Buy rating on GPS based on an attractive price.  This started 
a small rally taking GPS up to $33 when CS First Boston came 
out with their Hold rating and no further details but it was 
a poor rating comparable to other retailers they started with 
a Buy rating.  Going forward, we expect more weakness until 
the sentiment changes.  This drifting lower pattern is common 
among stocks that have lost investor interest.  We see more 
resistance at $33, which is strengthened by the 10-dma.  Any 
trades in GPS should be planned out with good entry and exits 
for a quick profit.  This is not a play with home run potential, 
barring some dramatic development.  So play smart and use 
your stops in case we get a reversal as we head into the 
beginning of the holiday shopping season.  

BUY PUT OCT-40 GPS-VH OI= 413 at $8.25 SL=6.25
BUT PUT OCT-35*GPS-VG OI=5402 at $3.63 SL=1.75 
BUY PUT OCT-30 GPS-VF OI=4345 at $0.81 SL=0.00 High Risk!

Average Daily Volume = 2.25 mln
Chart = http://quote.yahoo.com/q?s=GPS&d=3m

****

LLY - Eli Lilly and Company $65.19 (-1.81)(-5.38)

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

A wild week on Wall Street knocked LLY down for the third 
straight week.  The declines may not have been as pronounced 
as before but it is common for some attention to turn to more 
active issues during a decline.  Lilly hasn't generated a lot 
of interest from investors recently as it has been trending  
lower.  We have been successful opening plays off the rebounds 
and selling at support and we expect this pattern to continue.  
In the news this week, Goldman Sachs started coverage of Lilly 
on the Recommended List, which is their highest rating.  This 
may be the reason that the declines weren't as decisive as 
those of the general markets but the rating had little impact 
as far as reversing the current trend.  Right now we are getting 
support from $65 and will see more support at $62.  If we 
get a bounce back from the massive selloff in the market, LLY 
could rally to the 10-dma at $67.25.  That would make for a 
great entry point and stops would be prudent on the other side 
of the 10-dma, about where the stock would hit $68.25.  The 
sector has been very weak in the past few sessions and we 
are looking for more of the same to be a catalyst for in our 
play.  Timing of your entry and exit points are the key to a 
profitable play but an overall downward bias will help us along.      

BUY PUT OCT-70*LLY-VN OI=2117 at $5.63 SL=3.75
BUY PUT OCT-65 LLY-VM OI=4242 at $2.19 SL=1.00 

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

****

JNJ - Johnson and Johnson $90.00 (-6.06)(-3.47)

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.

Ballmer and S.G. Cowen,   What do these two have to do with
our current put play in JNJ.  Just when we thought JNJ may be
looking for a bottom earlier in the week, we had Microsoft 
President, Steve Ballmer and S.G. Cowen and Co. release their
opinions concerning the overall valuation of technology stocks
and the recovery of the tech sector following the Taiwan 
earthquake.  Those comments sent the major indices into a tail
spin and took shares of JNJ along with them.  Again we thought
will JNJ try to find a bottom?  Apparently not, shares of the
drug maker slid another $1.13 to close at $90.00 per share.
What's in store for JNJ this week?  Technically the sector is 
very weak and industry giants Pfizer, Amgen, and Merck all look
sick as well.  There does appear to be some support for JNJ in
the $89-$90 area and we could certainly see a bounce as the 
10-dma is up at $95.11.  JNJ closed Friday under its 200-dma at
$91.29 on volume of over 3.2 mln shares, which is better than 
average.  We will stick with our play on JNJ and allow the market
to dictate our next move.  The next area of support for JNJ is 
in the $87-$88 area.  If you are in a play on JNJ move your 
stops down.  If you are considering a new play remember JNJ is 
now in an area of support and could bounce or try to find a 
bottom.  If we do get a bounce followed by weakness would view
that as an opportunity to buy puts.  As always assess your risk 
profile and confirm market direction prior to enter a new play.

BUY PUT OCT-100 JNJ-VT OI= 979 at $10.13 SL=7.75
BUY PUT OCT- 95 JNJ-VS*OI=2157 at $ 5.63 SL=4.00
BUY PUT OCT- 90 JNJ-VR OI=1614 at $ 2.50 SL=1.25

Average Daily Volume = 2.15 mln
Chart = http://quote.yahoo.com/q?s=JNJ&d=3m

****

KO - Coca Cola, Inc. $51.13 (-2.88)

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.

One day didn't change this play much but it gave us a $0.25 
better buying opportunity.  We summed up the play in a Reuters 
comment from Thursday: "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 two 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.  Though 
the price has been under pressure lately, we think KO still has 
more to fall thanks to its high P/E of 40, relative to its peers.  
It still trades just pennies above its 52-week low and violated 
every moving average, from its 10-dma to its 200-dma.  KO has 
problems of its own that even a rising market can't solve.  
Though KO may hang out in this range for a bit, the overall 
technical trend is down.  Wait for downward direction in the 
stock (or the first downgrade) to take a position.

BUY PUT OCT-55*KO-VK OI=5853 at $4.25 SL=2.75
BUY PUT OCT-50 KO-VJ OI=5181 at $1.13 SL=0.00 High Risk!
BUY PUT NOV-55 KO-WK OI=6887 at $4.88 SL=3.25
BUY PUT NOV-50 KO-WJ OI=6639 at $1.94 SL=1.00

Average daily volume = 3.70 mln 
Chart = http://quote.yahoo.com/q?s=KO&d=3m

****

DOW - The Dow Chemical Company $106.78 (-8.75)

It is a plastic world, thanks in part to Dow Chemical.  A world
leader in the production of plastics, chemicals, hydrocarbons, 
and herbicides and pesticides, Dow is the #2 US chemical company 
after Dupont.  Dow also is the world's #1 maker of caustic soda, 
chlorine, ethylene, polyethylene and polystyrene, which are used
to process chemicals, treat water and refine petroleum.  Dow has 
entered the fast growing markets for polypropylene and 
polyethylene terephthalate, used by the automotive and packaging 
industries.  Dow has sold noncore pharmaceutical, consumer and 
engineering operations to focus on its chemical line and the 
biotechnology market.  Dow is buying Union Carbide.

The shares of Dow Chemical Co. fell after it was said that 
rising costs for petroleum-based raw material would hurt Q3
earnings.  Shares of Dow fell 3 15/16, or 3.5 percent, to 
$106.78.  Union Carbide shares fell 2 5/16, or 4.2 percent, to 
53 11/16.  Dow last month agreed to buy Union Carbide for $11.6 
billion in stock and debt.  Late yesterday it was reported that 
rising prices for raw materials such as ethane are squeezing 
profit.  "This appears to be a problem for the whole chemical 
industry, at least in the short term," said Brian Eisenbarth, 
an analyst at Collins & Co. who rates the shares a hold."  
Prices for oil and natural-gas derivatives jumped as much as 
55% during the quarter.  Oil is more expensive after OPEC 
decided to cut output, while natural-gas prices rose as 
utilities burned more to make electricity for air conditioning 
needed during an unusually hot summer across much of the U.S.  
"Usually companies can pass on the cost increases in the form 
of higher selling prices, but the increases haven't been able 
to keep up with cost," said Eisenbarth.  Technically speaking 
the shares are breaking to the downside with no short-term 
support in sight until the $101.50 level.  At current levels 
the shares are just beginning to slip and now looks like a good 
entry point.  We don't expect a turnaround anytime soon, but 
we always recommend using a stop loss to be safe.

BUY PUT OCT-110*DOW-VB OI=115 at $5.25 SL=3.50
BUY PUT OCT-105 DOW-VA OI= 62 at $2.69 SL=1.38 low OI

Average Daily Volume = 985 K
Chart = http://quote.yahoo.com/q?s=DOW&d=3m

****

WPI - Watson Pharmaceuticals, Inc. $39.56 (-3.44)

Watson Pharmaceuticals makes generic and branded drugs, which 
focus on niche pharmaceuticals.  It offers generic versions 
of brand-name products such as cardiovascular drugs Lopressor 
and Inderal, Analgesics Vicodin and Lortab, and asthma drugs 
Proventil and Ventolin.  Watson's branded drugs are focused 
primarily in dermatology (acne drugs), women's health for use 
as contraceptives and hormone regulators, and neuropsychiatry 
(epilepsy drugs), but it also makes antihypertensives Dilacor 
(the company's top seller) and Microzide.  Watson has grown 
its branded business through acquisitions and plans further 
expansion via joint ventures.  It owns half of Somerset 
Pharmaceuticals and ANCIRC Pharmaceuticals.

Watson Pharmaceuticals Inc., recently said third-quarter profit
will miss forecasts after a court order barred the generic drug
maker from distributing copyright protected educational materials 
with its new smoking-cessation gum.  The company will miss 
estimates by 6 cents to 7 cents a share, said Watson spokesman
Jim Byers.  Watson was expected to earn 45 cents, the average
estimate of nine analysts surveyed by First Call Corp.  Watson
was sued by SmithKline Beecham Plc for copyright infringement 
after it unveiled a generic equivalent of SmithKline's popular
non-prescription Nicorette gum.  SmithKline claims the user guide
and audio cassette included with Watson's gum infringes on its 
copyright.  The court ruled in favor of SmithKline, and Watson 
must stop selling the gum with a guide or tape that is similar
to SmithKline's.  Furthermore Watson must recall products it had
already shipped.  This may cost Watson as much as $10 million in 
lost sales and expenses.  Well, the stock has performed just as
bad as this case sounds for Watson and is now trading at a 52- 
week low, and getting weaker as it approaches the 200-dma, levels 
it has not seen since late 1998.  A downward trend is in full 
gear and the risk reward for a put play is definitely in our 
favor with current market conditions.  Any bounce up to the 
10-dma at $32 would be buyable or go with the momentum as WPI 
is hitting new lows.  Use stops to protect against a market 
rebound.  

BUY PUT OCT-30 WPI-VF OI=  26 at $1.69  SL=0.88 low OI
BUY PUT OCT-35 WPI-VG OI= 268 at $5.50  SL=3.75
BUY PUT NOV-30 WPI-WF OI= 718 at $2.50  SL=1.25
BUY PUT NOV-35*WPI-KG OI=2096 at $6.00  SL=4.25

Average Daily Volume = 908 K
Chart = http://quote.yahoo.com/q?s=WPI&d=3m  


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

Looking For The Bottom..

Friday, September 23

U.S. equity markets continued their downward spiral Friday as
investors searched for signs of direction and a new trading
range. The Dow Jones industrial average was down 39 points to
10,279 while the Nasdaq composite index fell 9 points to 2,740.
Market breadth was poor as declining stocks outpaced advancing
issues 1,815 to 1,136 on active volume of 870 million shares.
The long bond was up 9/32 with a yield of 5.97%.

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

Sprint         FON  NOV40C/NOV40P  $39.12  debit  covered-combo 
Republic Bank  RNB  OCT50C/OCT50P  $49.19  debit  covered-combo

The best we can say about our two new plays is that they appear
to be favorable positions. They both opened higher on positive
news announcements and neither play was available anywhere near
our suggested entry prices. FON moved higher after a new report
disclosed that they have been discussing a possible merger with
MCI Worldcom (WCOM). The Wall Street Journal said that Sprint
has held discussions with a handful of telecom companies, but
negotiations with MCI WorldCom have picked up recently and are
expected to continue. The stock finished $3 higher on the news.
Republic Bank opened higher after an announcement late Thursday
that an internal report into the $1.5 billion financial scandal
suggested the company's alleged fraud was limited and should
not prevent the takeover by HSBC Holdings. The report concludes
Republic became embroiled in the alleged securities fraud only
because of a rogue individual and there is little chance of a
material claim against it by the companies that lost money. In
any case, RNB opened significantly higher and never faltered.
We will monitor the plays for performance but there were no
new positions opened.

Portfolio plays:

The big concern for most investors is where will the correction
finally end. Will we see another rally before the Y2K menace or
should they simply exit and wait for the new year. Analysts are
busy looking for new support areas in the S&P 500 and the Dow
but most agree that there is further downside ahead. Optimists
believe the recent sell-off is a necessary step before the next
true upward move can begin. Only time can expose the true nature
of the current volatile market.

One indication that investors may be battening-down the hatches
is today's activity in precious metals. The Philadelphia Stock 
Exchange's gold and silver index gained over 3% as money moved
from equities to commodities. Our new gold (hedge) position in
Newmont mining benefitted from the rally and the play is now $1
ITM after only one week. That's a 50% profit in just a few days.

The majority of the spreads portfolio is performing as well as
could be expected, based on the recent slump. Most of our short
term calendar spreads are well within the expected range. Plays
on Bell Atlantic (BEL), 3Com Corp (COMS), Peoplesoft (PSFT) and
Occidental Petroleum (OXY) are holding comfortably at the sold
strikes. General Dynamics (GD) is close but not beyond hope and
Zoltek (ZOLT) our speculation play, is skirting the edge of the
profit zone near $8. CR Bard (BCR) is difficult to judge as it
tested $46 successfully and the overall play is only down $0.38.
The only position we have closed recently is Halliburton (HAL)
and that was simply to protect previous profits (a $2 credit).

The debit spreads portfolio is in reasonable shape considering
that most of the plays in it are bullish. Positions closed for
profit this week included 3Com Corp (COMS) and Microchip (MCHP).
Some of the issues that we are watching closely: Hambricht and
Quist (HQ), Qwest (QWST), and Unify (UNFY). One of the readers
request plays; Electronics for Imaging (EFII), also requires a
daily check as it is struggling to remain above water at $56.

Our three credit strangles are a unique group and as we said
when we offered the plays, they are positioned to the downside
in expectation of a bearish market. The object was to provide a
favorable entry point to own these issues if the puts were ever
assigned. Earlier this week, they could have been closed for
favorable profits but now they are all near break-even. The one
issue that worries us is Johnson & Johnson (JNJ), as it is now
at the bottom of a recent trading range and could slide much
further if it breaks below that range.

The long-term portfolio has probably suffered the worst of the
sell-off but most of the positions are still within rescue. The
large declines in the broad market are evident in Biogen (BGEN),
Johnson & Johnson (JNJ), Medtronics (MEDT), Motorola (MOT),
Solectron (SLR) and Exxon (XON). Cabletron (CS), General Motors
(GM) and Polaroid (PRD) endured minor corrections while Computer
Associates (CA) and Sun Micro (SUN) appear to have avoided the
carnage completely. The most difficult problem we face as long
term investors (LEAPS) is deciding when to fold-up the tent and
move on to new plays. In this case, all of the issues are large,
well-established companies with excellent institutional interest
and they will rebound quickly when the market recovers.

In the interim, it's very important to monitor the individual
technical characteristics of each issue and decide for yourself
which way to adjust the position near the end of the expiration
period. Occasionally there will be such a compelling change in
character that you will need to roll up or down long before the
short option expires. The laws of option pricing dictate that
time value is highest in the at-the-money (ATM) option. Time
value decreases as the strike prices move in and/or out of the
money (ITM or OTM) and strike prices deep in and/or out of the
money have the lowest time value of all options. That is why
the most theoretically correct technique in a calendar spread
is to sell ATM options, where the most premium exists.

Good Luck!

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


*****************************
Summary Of Monthly Positions:
*****************************

This month we decided to close the majority of our older plays to
reduce the workload in tracking the portfolio. Keep in mind that
many of the more profitable spreads have been open for months and
the positive returns are based on premium accumulated in a series
of trades occurring throughout the life of the position.



**********************
CREDIT SPREAD SUMMARY
**********************

Stock  Pick     Last     Position   Credit  Cost    G/L   Status

LIPO  $23.31   $8.63    SEP30C/27C  $0.25  $0.00   $0.25  Closed
RX    $28.19   $25.50   SEP35C/32C  $0.68  $0.00   $0.68  Closed

Credit spreads are profitable if both positions remain OTM until
expiration. The cost-to-close price can be used to compare the
initial opening credit to the current spread value.



***************************
CALENDAR SPREAD SUMMARY
***************************
Stock  Pick    Last      Position    Debit  Value   G/L    Status

BCR   $51.25  $48.75  JAN55C/OCT55C  $1.93  $1.75  $0.19    Open
BEL   $64.13  $64.50  APR65C/OCT65C  $4.25  $4.50  $0.25    Open
BHI   $33.50  $32.19  OCT35C/SEP35C  $0.12  $1.12  $1.00   Closed
CLTR  $30.68  $18.63  OCT25P/SEP25P  $0.62  $1.38  $0.75   Closed
COMS  $25.81  $27.56  OCT25C/SEP25C ($1.00) $0.88  $1.88   Closed
EMC   $62.31  $71.00  OCT65C/SEP65C ($0.88) $2.00  $2.88   Closed
FON   $51.00  $50.56  OCT55C/SEP55C  $2.38  $3.12  $0.75   Closed
IP    $53.56  $51.06  OCT55C/SEP55C  $0.38  $1.00  $0.62   Closed
MNTR  $23.38  $26.75      OCT25C     $1.81  $3.75  $1.93   Closed
NOVL  $27.25  $22.19  NOV30C/SEP30C  $1.00  $0.75 ($0.25)  Closed
PGEX  $22.88  $17.56  OCT25C/SEP25C  $0.68  $0.93  $0.25   Closed
RAD   $23.38  $17.88  OCT25C/SEP25C  $0.38  $0.38  $0.00   Closed
RNBO  $13.38  $14.88  OCT15C/SEP15C  $0.68  $0.50 ($0.18)  Closed
UCL   $44.38  $40.56  OCT45C/SEP45C ($2.25) $0.75  $3.00   Closed
ZOLT  $7.68   $8.50    APR7C/OCT7C   $1.06  $0.88 ($0.19)   Open


LONG-TERM POSITIONS

CATP  $17.00  $13.56  MAR20C/SEP20C  $2.50  $1.88 ($0.62)  Closed
CD    $19.93  $19.13  JAN20C/SEP20C ($0.75) $1.25  $2.00   Closed
COMS  $25.31  $27.56  JAN27C/OCT27C  $1.00  $2.00  $1.00    Open
CPQ   $24.62  $23.75  JAN25C/SEP25C  $0.12  $2.50  $2.38   Closed
DD    $71.25  $62.06  JAN70C/SEP70C ($0.50) $3.75  $4.25   Closed
GD    $67.31  $61.44  FEB70C/OCT65C  $1.75  $1.38 ($0.38)   Open
HAL   $47.69  $47.50  JAN50C/OCT50C ($0.12) $2.62  $2.75    Open
IGL   $18.55  $16.44  JAN20C/SEP20C  $1.00  $0.75 ($0.25)  Closed
LEH   $57.93  $54.69  JAN60C/SEP60C ($6.50) $5.75 $12.25   Closed
OXY   $21.69  $23.13  JAN22C/OCT22C  $0.62  $1.38  $0.75    Open
PG   $100.50  $101.13 JAN100/S100C  ($3.75) $0.00  $3.75   Closed
PSFT  $16.19  $17.19  JAN17C/OCT17C ($0.06) $1.50  $1.43    Open
RSLC  $20.81  $18.06  JAN22C/SEP22C  $3.00  $3.00  $0.00   Closed
SGP   $53.88  $50.25  JAN55C/SEP55C  $2.25  $3.50  $1.25   Closed
UAL   $65.38  $66.75  JAN65C/SEP65C  $1.88  $5.00  $3.12   Closed
UCL   $43.00  $40.56  JAN45C/SEP45C  $2.25  $2.62  $0.38   Closed
UCL   $40.06  $40.56  JAN40C/SEP40C  $1.50  $2.50  $1.00   Closed


YEAR-2001 LEAPS

BGEN  $83.81  $86.44  JAN90/OCT90C  $15.88  $15.00 ($0.88)  Open
CA    $53.56  $57.38  JAN60/OCT60C  $8.62   $11.12  $2.50   Open
CS    $16.80  $19.75  JAN15/OCT17C  $4.12   $5.00   $0.88   Open
GM    $71.68  $65.06  JAN75/OCT70C  $8.50   $6.62  ($1.88)  Open
GM    $71.68  $65.06  JAN75/OCT70C  $5.75   $6.62   $0.88   Open
JNJ   $95.68  $96.06  JAN100/O100C  $8.38   $11.50  $2.88   Open
LTD   $45.68  $37.81  JAN50/OCT40C  $4.50   $2.12  ($2.38)  Open
MO    $38.68  $35.94  JAN35/OCT40C  $6.38   $5.50  ($0.88)  Open
MOT  $100.00  $89.63  J105/OCT100C  $14.25  $12.25 ($2.00)  Open
MDT   $78.81  $77.75  JAN75/OCT75C  $11.00  $11.00  $0.00   Open
PRD   $25.37  $27.94  JAN25/OCT30C  $7.50   $7.12  ($0.38)  Open
SLR   $71.25  $74.63  JAN70/OCT70C  $10.88  $13.88  $3.00   Open
SUNW  $71.75  $90.13  JAN75/OCT80C  $11.75  $14.00  $2.25   Open
XON   $81.94  $79.88  JAN85/OCT85C  $9.12   $8.38  ($0.75)  Open


* New LEAPS/Covered-Calls plays are generally not profitable for
  at least two strike periods.

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis) at the end of
the expiration period for the long position. However, because we
track the plays based on the current closing cost/value, the gains
for time spreads will rarely be reflected until the play closes.
Each month, as we sell a new option against the long position, the
net cost should decline or the position value should increase.


************************
DIAGONAL SPREAD SUMMARY 
************************
Stock  Pick    Last      Position    Debit   Value    G/L   Status

ATHM  $43.38  $38.38  OCT52C/SEP50C  $1.12   $1.00  ($0.12) Closed
CHIR  $29.38  $35.94  OCT25C/SEP30C  $3.38   $4.88   $1.50  Closed
CS    $16.80  $19.75  OCT15C/SEP17C  $2.06   $2.50   $0.43  Closed
CSCO  $65.25  $71.31  OCT55C/SEP65C  $7.12  $10.00   $3.88  Closed
CSCO  $56.50  $71.31  OCT57C/SEP65C  $2.25   $7.50   $5.25  Closed
DISH  $72.50  $96.88  DEC65C/SEP75C  $8.12  $10.00   $1.88  Closed
DISH  $72.50  $96.88  DEC65C/SEP75C  $9.38  $10.00   $0.62  Closed
HAL   $31.00  $47.50  JAN30C/SEP50C $10.50  $19.75   $9.25  Closed
HD    $58.43  $67.25  JAN60C/SEP65C  $2.12   $7.75   $5.62  Closed
INTC  $63.88  $84.75  OCT65C/SEP75C  $8.50  $10.00   $1.50  Closed
JNJ   $86.63  $96.06  JAN85C/SEP95C  $4.38  $12.50   $8.12  Closed
MER   $97.00  $71.94  JAN100/SEP80C  $1.38   $1.50   $0.12  Closed
MOT   $83.00  $89.63  JAN85C/SEP90C  $2.00   $9.75   $7.75  Closed
NSM   $12.56  $34.94  NOV15C/SEP30C  $7.75  $15.00   $7.25  Closed
RIGS  $20.50  $18.19  NOV15C/OCT20C  $2.00   $4.25   $2.25  Closed
RSLC  $20.81  $18.06  OCT20C/SEP22C  $2.25   $2.00  ($0.25) Closed
SEPR  $99.63  $73.38  JAN100/SEP80C $10.25   $4.00  ($6.25) Closed
SLR   $69.56  $74.63  OCT60C/SEP70C  $6.38  $10.25   $3.88  Closed
SUNW  $47.25  $90.13  JAN50C/OCT80C  $0.50  $28.00  $27.50  Closed
TOM   $35.56  $31.06  JAN35C/SEP40C ($0.25)  $2.00   $1.75  Closed
WCOM  $74.25  $78.88  JAN75C/SEP85C  $2.50   $8.75   $6.25  Closed


The diagonal spread is profitable if the value of the position
exceeds the initial debit (or cost-basis) at the expiration of
the long position. However, because we track the plays based on
the current closing cost/value, the gains for diagonal spreads
will rarely be reflected until the play closes. Each month, as
we sell a new option against the long position, the net cost
should decline or the position value should increase.


*************
DEBIT SPREADS
************* 

Stock  Pick    Last      Position    Debit   Value   G/L   Status

BNBN  $18.00  $18.25    OCT15C/17C   $1.75   $1.62 ($0.12)  Open
CHV   $95.06  $93.06    SEP80C/90C   $9.00  $10.00  $1.00  Closed
COMS  $27.06  $27.56   OC17C/22/25C  $5.50   $6.00  $0.50   Open
COOL  $13.50  $8.25    SEP10CC/S10P  $8.50   $8.25 ($0.25) Closed
CSE   $49.31  $49.56   OCT45CC/45P  $43.50  $44.00  $0.50   Open
DO    $36.12  $37.94   SEP35CC/S35P $32.88  $35.00  $2.12  Closed
HAL   $50.56  $47.50    SEP40C/45C   $4.00   $5.00  $1.00  Closed
HQ    $42.25  $41.13    NOV25C/40C  $11.50  $11.75  $0.25   Open
HQ    $42.25  $41.13    SEP35C/40C   $4.00   $5.00  $1.00  Closed
JPM  $122.94  $122.94  SEP140P/130P  $8.00  $10.00  $2.00  Closed
MCHP  $52.32  $59.69    OCT35C/45C   $8.31   $9.00  $0.68   Open
MO    $38.68  $35.94    OCT32C/37C   $4.00   $3.00 ($1.00)  Open
NE    $22.00  $25.44    SEP17C/20C   $1.87   $2.50  $0.62  Closed
NMR   $32.00  $37.13    SEP25C/30C   $3.12   $5.00  $1.88  Closed
QWST  $30.00  $29.94    OCT22C/27C   $3.00   $2.88 ($0.12)  Open
RX    $27.81  $25.50    SEP35P/30P   $3.43   $5.00  $1.56  Closed
SEE   $60.68  $54.81    OCT70P/65P   $3.50   $4.50  $1.00   Open
TUTS  $29.75  $27.75    OCT22C/25C   $2.06   $1.56 ($0.50)  Open
UNFY  $19.88  $24.13    OCT12C/17C   $4.12   $4.12  $0.00   Open
USWB  $23.31  $29.44    SEP17C/22C   $4.12   $5.00  $0.88  Closed

READER'S REQUEST PLAYS

QCOM $183.75  $189.00  JAN140C/J150C $7.25   $8.00  $0.75   Open
CNXT  $71.25  $79.19   OCT60C/SEP70C $9.00  $10.00  $1.00  Closed
EFII  $61.60  $59.44   OCT45C/OCT55C $8.12   $7.88 ($0.25)  Open
INTU  $91.06  $103.00  OCT70C/OCT80C $8.50  $10.00  $1.50  Closed

* Many of these positions were closed early to protect profits
  or prevent (limit) potential losses.

A debit-spread is profitable if the value of the position exceeds
the initial cost of the spread when the play is closed. However,
because we track plays based on the current cost/value, potential
gains may not be reflected until both positions are closed.

Continued in section six

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

SEE DISCLAIMER IN SECTION ONE

**************
The Option Investor Newsletter             9-26-99
Sunday                        6 of 7


*******************
DEBIT STRADDLES
(summary continued)
*******************

Stock  Pick    Last     Position     Debit  Value    G/L   Status

ALLC  $22.50  $20.94      NOV22C     $0.50  $0.50   $0.00   Open
ESPI  $10.00  $8.00   MAR10C/MAR10P  $4.81  $4.12  ($0.68)  Open

STRADDLE - COMBINATIONS

BRCM $111.87  $113.50  NOV135C/140C  $1.38  $1.00  ($0.38)  Open
BRCM $111.87  $113.50   NOV90P/85P   $1.38  $1.00  ($0.38)  Open
DCLK  $74.50  $114.78  OCT90C/OCT97C $2.00  $5.75   $3.75   Open
DCLK  $74.70  $114.78  OCT60P/OCT52P $2.00  $0.00  ($2.00)  Open

* The combination positions will generally not reflect a profit
  (even when they have moved as expected) until expiration.

A debit-straddle is profitable when the value of the position
exceeds the initial cost of the spread.
******************************************************************
Note: We trade the "paper" portfolio just as we would trade in our
personal account and the ongoing narrative is a service we provide
to help novice traders understand how various positions might be
opened and closed. It is not intended as a substitute for your own
trading techniques nor does it replace your duty to manage the
positions in your portfolio. We post a list of the current plays
once a month (after expiration) and the summary is a reasonable
representation of the positions that we offered during the month.
We do NOT make any claims about the performance of the section
because there are just too many ways that each individual play
could be opened and closed.

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



*******
SPREADS
*******

More requests for straddles this week so we only have two spread
plays, both based on recent bullish speculation and favorable
option premiums.

****

SBUX - Starbucks  $23.88     *** Cheap Speculation ***

Starbucks Coffee Company is the leading retailer, roaster and
brand of specialty coffee in the world. In addition to its more
than 2,400 retail locations around the globe, Starbucks sells
whole bean coffees through its specialty sales group, direct
response business, supermarkets and online at www.starbucks.com.

Starbucks also produces and sells bottled Frappuccino coffee
drinks and a line of premium ice creams through its joint
venture partnerships and offers a line of innovative premium
teas produced by its wholly-owned subsidiary, Tazo Tea Company.

Last month, Starbucks posted an 8% increase in same-store sales
compared to a year ago. Total sales during the month rose 25% to
$135 million. An industry analyst supplemented the news with a
report that the company's core business is strong and noted the
stock is almost 50% off its yearly high since investors learned
of the planned Internet venture. They thought it would derail
the core business. The analyst disagreed and now estimates the
1999 earnings at $0.54. He also initiated coverage with a "buy"
rating.

Goldman Sachs followed the trend last week and raised Starbucks
to the recommended list causing a new influx of buyers. Volume
picked up modestly in call options and a small disparity exists
in the front-month positions for those who agree with a bullish
outlook.

PLAY (speculative - bullish/debit spread):

BUY  CALL OCT-22.50 SQX-JX OI=1764 A=$2.12
SELL CALL OCT-23.75 SQX-JU OI=301  B=$1.31
INITIAL NET DEBIT TARGET=$0.69 ROI(max)=82% B/E=$23.19

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

****

VYTL - Viatel Inc  $26.19     *** Bottom Fishing ***

Viatel is a facilities-based, integrated provider of telecom
services for a variety of users including individual consumers,
businesses and carriers in more than 230 countries worldwide.
The company provides high-speed, high-capacity and high-quality 
bandwidth to companies, carriers and Internet service providers.
 
Viatel's market focus is Western Europe and North America. They
are a licensed provider of telecom services all over Europe. It
currently operates the largest pan-European broadband network,
with international gateways in New York and England and has a
direct sales force in 12 Western European cities; and indirect
sales outlets in more than 180 locations throughout Europe.

The most significant news recently is Viatel's announcement that
they will purchase Destia Communications for about $1 billion in
stock and assumed debt, uniting two independent international
long-distance carriers. Both companies offer long-distance, data 
service, calling cards, prepaid cards and other services to small
and midsize business and some residential customers. Destia has a
strong retail and customer base while Viatel is well established
in its network. The tax-free merger is expected to boost earnings
and help reduce costs for both companies.

Goldman Sachs also likes this merger and they started coverage
of both telecommunications companies, adding Destia and Viatel
to its recommended list. This may have caused some of the recent
speculation in VYTL's options. If you like this issue in the
short-term, there is a small disparity in the OTM call options.
We will use a bullish calendar spread to minimize any possible
losses and there are also some favorable (long-term) diagonal
spreads for those who can risk more capital.

PLAY (aggressive - bullish/calendar spread):

BUY  CALL NOV-30 VQL-KF OI=20  A=$2.75
SELL CALL OCT-30 VQL-JF OI=600 B=$1.68
INITIAL NET DEBIT TARGET=$0.93 TARGET ROI=25%

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


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

A radical week for the market and yet most of the straddles are
still clamoring to their recent trading ranges. Some of them have
broken through support (WMB and PD) or changed character, but for
now we are still waiting for the first winner in the group. Here
are the current positions:

Long-term (probability) plays:

Stock	 Pick 	 Last	 Position	Debit	Value

AMES	$31.63 	$30.31 	JAN30C/30P	$8.88 	$8.12 	
AVI	$22.81 	$20.44 	DEC22C/22P	$4.38 	$4.12 	
CAL	$36.43 	$32.44 	MAR35C/35P	$8.62 	$7.75 	
DLJ	$50.13 	$39.94 	JAN50C/50P	$13.25 	$13.25 	
WMB	$40.75 	$35.81 	JAN40C/40P	$8.12 	$7.75 	
 
Short-term (Optionetics) plays:

Stock	   Pick 	Last	   Position	     Debit	 Value

EGRP	$22.43 	$22.50 	JAN22C/22P	$9.12 	$8.43 	
GM	$65.06 	$62.75 	JAN65C/65P	$10.00 	$9.62 	
LCOS	$44.43 	$46.94 	JAN45C/45P	$15.75 	$15.75 	
PD	$58.00 	$54.56 	JAN60C/60P	$9.38 	$9.88 	
UNH	$60.93 	$58.50 	DEC60C/60P	$10.50 	$9.88 	

With the incredible market volatility this week, we are still
finding a relatively small number of higher priced candidates
that meet our minimum straddle requirements.

However, Tom Gentile from the Optionetics group has provided
us with two plays and we have also have a couple of low cost
probability-based speculation positions. Tom is the strategy
instructor for the OIN's fall seminar schedule and he invites
you to come learn all about Optionetics trading methods. These
wealth building seminars are two day sessions designed to help
investors learn powerful trading techniques to help maximize
returns on investment strategies.

Learn more at:

http://www.OptionInvestor.com/seminar

****

XON - Exxon  $74.81

Exxon's principal business is energy, involving the exploration
for and the production of crude oil and natural gas in over 100
countries worldwide. Exxon manufactures, transports, and sells
crude oil, natural gas, and other petroleum products. Exxon's
chemical division is engaged in the exploration, mining, and
selling of basic petrochemicals, including olefins & aromatics,
and is a leading supplier of specialty rubbers and of additives
for fuels and lubricants. Exxon also has interests in electric
power generation facilities.

Forecasting the price of crude oil is pure speculation and with
favorable option premiums, this continues to be an excellent
straddle candidate.

PLAY (conservative - neutral/debit straddle):

BUY  CALL JAN-75 XON-AO OI=534  A=$4.75
BUY  PUT  JAN-75 XON-MO OI=1042 A=$4.75
INITIAL NET DEBIT TARGET=$9.25-$9.38

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

****

UK - Union Carbide  $52.69

Union Carbide is a worldwide chemicals company with advanced
process technologies and global chemical production facilities.

Dow Chemicals (DOW) and Union Carbide (UK) recently agreed to a
definitive merger agreement combining two of the industry's most
technologically advanced global companies, with overall annual
revenues of about $24 billion. The combined company will operate
in 168 countries, employ about 49,000 people and rank number 50
on the Fortune 500. Union Carbide said Wednesday it has called a
special meeting of shareholders for 12/1/99 to vote on the merger.

Salomon Smith Barney also said recently that analyst PJ Juvekar
cut the 1999 earnings estimate for Union Carbide. Salomon cut the
earnings per share estimate after UK cautioned that high prices
for raw materials prices would decrease revenues.

PLAY (conservative - bearish/debit straddle):

BUY  CALL JAN-50 UK-AJ OI=313 A=$5.62
BUY  PUT  JAN-55 UK-MJ OI=516 A=$5.00
INITIAL NET DEBIT TARGET=$10.38-$10.50

Note: You can play bullish or bearish straddle position by
purchasing both options at $50 or $55.

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


*****************
Probability Plays
*****************

These stocks have previously demonstrated the ability to move
to a profitable position in the required amount of time. The
options are undervalued and each underlying issue has at least
a brief history of movements through a sufficient range to
justify the overall risk/reward of the play.

****

MYL - Mylan Laboratories  $18.63

Mylan Laboratories is engaged in the development, manufacturing,
marketing & distribution of generic & proprietary pharmaceutical
and wound care products. Subsidiary Mylan Pharmaceuticals is
recognized as one of the leaders in the generic pharmaceutical
industry.

Warburg Dillon Read recently downgraded Mylan to "hold" from
"strong buy". Analyst Andrew Forman lowered his target price
for the drug maker to $24 from $35 based on legal costs from
a law suit with Pfizer and the possible delay in the launch of
the cardiovascular drug Procardia. He also says R&D expenses
may be higher than previous estimates.

Sound like things could go either way for this issue but we
will position ourselves slightly towards a bullish outlook.

PLAY (conservative - bullish/debit straddle):

BUY  CALL APR-17.50 MYL-DW OI=44 A=$3.12
BUY  PUT  APR-17.50 MYL-PW OI=69 A=$1.62
INITIAL NET DEBIT TARGET=$4.50-$4.56 Target ROI=50%

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

****

ALT - Allegheny Teledyne  $16.44

Allegheny Teledyne is a group of technology-based manufacturing 
businesses with significant concentration in specialty metals,
complemented by aerospace and electronics, industrial and other
consumer products. The company operates in 4 business segments;
specialty metals, aerospace and electronics, industrial and
consumer products.

Allegheny Teledyne shares slipped recently after the maker of
specialty metals said it won't meet analysts' estimates for
third-quarter earnings due to a rise in the cost of nickel and
weakness in the oil and gas markets. The stock fell to a 52-week
low last week after the company said third-quarter earnings will
be significantly lower than the year-ago profit of $0.33. They
expect to report third-quarter results on October 27. This will
be interesting for sure.

PLAY (speculative - neutral/debit strangle):

BUY  CALL APR-17.50 ALT-DW OI=18  A=$1.50
BUY  PUT  APR-15.00 ALT-PC OI=0   A=$1.12
INITIAL NET DEBIT TARGET=$2.43-2.50 TARGET ROI=50%

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


**************
Dow Transports
**************

With the price of oil at an all-time high and the airlines at
recent lows, this play a has an excellent probability of success.

FDX - Federal Express  $35.19

Federal Express and its network of six independent operating
companies include the largest and most powerful express network
in the world (FedEx). The second largest business-to-business
small package ground service in North America (RPS). The largest
surface expedited service in the world (Roberts Express) and the
leading LTL carrier in the western United States (Viking Freight).
They also own two innovative logistics and warehouse management
order fulfillment firms; Caliber Logistics and Caliber Technology.

Transportation stocks such as FDX, parent of the world's largest
air express shipper Federal Express, have been hit hard by rising
fuel costs. Shares of FDX were pummeled again recently after it
reported earnings that came in $0.02 below estimates. Fuel prices
are now expected to take more than $150 million out of operating
income in fiscal 2000 and if lower domestic growth continues, the
earnings for Q2 and fiscal 2000 could fall further below analysts'
estimates. Forecasts and ratings are being adjusted regularly and
it appears that Fed-Ex shareholders are in for serious turbulence.

PLAY (conservative - neutral/debit straddle):

BUY  CALL APR-35 FDX-DG OI=558 A=$5.50
BUY  PUT  APR-35 FDX-PG OI=399 A=$4.38
INITIAL NET DEBIT TARGET=$8.62 TARGET ROI=50%

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


****************
Index Options
****************

If you think the Dow has finally exited its trading range and can
can remain volatile for the next few weeks, this short-term play
might suit your style.

DJX - Dow Jones Industrial Average  102.79

This is the best known index of stocks in the United States. It
contains 30 issues that trade on the New York Stock Exchange. The
Dow, as it is called, is a fundamental barometer of how shares of
the largest companies in America are performing.

Find out about all the current news and events that are affecting
the major indexes in the daily market wrap on the home page at:

http://dev.OptionInvestor.com/marketwrap/index.asp

PLAY (very aggressive - neutral/debit straddle):

BUY  CALL NOV-102 DJV-KX OI=141 A=$4.75
BUY  PUT  NOV-102 DJV-WX OI=492 A=$3.62
INITIAL NET DEBIT TARGET=$8.12-$8.25 TARGET ROI=10%

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



**********

SEE DISCLAIMER IN SECTION ONE

**********
The Option Investor Newsletter            9-26-99
Sunday                        7 of 7

*************
COVERED CALLS
*************

Technical Indicators Explained..


We continue our discussion of technical analysis terms and the
basic indicators that can help you determine market direction.

Advances vs. Declines (A/D)
 
This is a measure of the number of stocks that have advanced in
price and the number that have declined in price within a given
time span. The A/D is generally expressed as a ratio and it can
help indicate the general direction of the market; when a higher
number of stocks advance rather than decline on a single trading
day, the market is thought to be bullish. The A/D will function
best as a confirming indicator and it is often used with other
types of analysis as a guide to the trend of the overall market.
It is also used occasionally for specific stock/industry groups.

The most common way to display A/D data is with a chart showing
the cumulative difference between the advances and the declines
on the NYSE. The period can be one week, one month, or any other
common time frame but since it is best used to identify new or
developing trends, it must be relative to the positions in your
portfolio. Compare the A/D chart with that of the DJIA. If the
Dow is moving higher but the A/D line is flat or dropping, that
is a negative signal and may indicate a future slump. Watch for
new highs and lows on the A/D chart. Near market peaks, the A/D
line will generally top-out and begin a gradual decline before
the overall market. As with all technical indicators, make sure
that it confirms other signals.

Overbought and Oversold
 
This calculation is also based on stocks advancing or declining.
When an excessive number of issues have advanced, the market is
said to be overbought. When an excessive number of issues have
declined, it's said to be oversold. If the overall market is in
an overbought condition, that's usually a sign that euphoria has
overwhelmed investors and it may be time to stop buying, perhaps
even start taking profits. When the market is oversold and the
indices appear to have declined to a relatively low point in the
cycle, you may want to start buying again, as the risk will be
lower in most bullish positions.

More on technical indicators (this week, market cycles) in the
Naked-Puts section..


SUMMARY OF PREVIOUS PICKS
*****

Stock   Price  Last    Mon  Strike Opt    Profit   ROI    Monthly
Sym     Picked Price        Price  Bid    /Loss           ROI

BRKT    15.88  15.13   OCT  15.00  2.25  *$  1.37  10.1%   6.2%
TALK    12.00  11.94   OCT  10.00  2.50  *$  0.50   5.3%   5.7%
BNBN    18.38  18.25   OCT  17.50  1.75  *$  0.87   5.2%   5.7%
ASMI     8.44   8.13   OCT   7.50  1.31  *$  0.37   5.2%   5.6%
DCTM    17.13  21.00   OCT  15.00  3.00  *$  0.87   6.2%   5.4%
NMSS    13.81  14.19   OCT  12.50  1.88  *$  0.57   4.8%   5.2%
OIL     13.19  12.81   OCT  12.50  1.38  *$  0.69   5.8%   5.1%
COMS    25.69  27.25   OCT  25.00  2.50  *$  1.81   7.8%   4.8%
NRES    25.69  24.91   OCT  22.50  4.13  *$  0.94   4.4%   4.7%
HELX    34.25  31.88   OCT  30.00  5.50  *$  1.25   4.3%   4.7%
CIEN    39.75  38.34   OCT  35.00  6.13  *$  1.38   4.1%   3.6%
PLCM    45.88  42.50   OCT  40.00  7.13  *$  1.25   3.2%   3.5%
CS      18.06  16.63   OCT  17.50  2.00   $  0.57   3.5%   3.1%
RDRT     5.88   4.75   OCT   5.00  1.31   $  0.18   3.9%   2.4%
SOFN    26.25  21.38   OCT  22.50  5.00   $  0.13   0.6%   0.5%
MOGN    13.13  11.44   OCT  12.50  1.63   $ -0.06  -0.5%   0.0%
HTCH    31.00  28.00   OCT  30.00  2.75   $ -0.25  -0.9%   0.0%
ENER    13.88  11.06   OCT  12.50  2.31   $ -0.51  -4.4%   0.0%
PCTL     5.69   4.06   OCT   5.00  1.19   $ -0.44  -9.8%   0.0%
NTMV     7.19   5.50   OCT   7.50  1.00   $ -0.69 -11.1%   0.0%
NVDA    26.00  18.00   OCT  25.00  3.38   $ -4.62 -20.4%   0.0%

* = Stock price is above the sold price (called-away).

Comments/Observations:

A great pick this week, Aerial Communications (AERL) was
unplayable as they announced a merger with VoiceStream prior
to the open on Monday. Picturetel (PCTL) and Netmoves (NTMV)
are still open with excellent premiums available in January
or April (for rolling forward) but if PCTL breaks $4.00 on a
closing basis, you may consider exiting the play. Nvidia (NVDA)
is at a key moment, taking a beating (no news) with the market
and the current support may be its last stand. The October $25
call could be bought-back and the position rolled forward or
exited on a technical bounce. Computer Task Group (TSK) was
closed this week as the technical picture continued to weaken.
Energy Conversion (ENER) has moved into a support area with BOP
remaining strong. Hutchinson (HTCH) gapped down today but held
at support, possibly forming a hammer bottom. MGI pharm's (MOGN)
up-trend is still intact. Sofnet (SOFN) is still in a lateral
consolidation but be wary of a new downside resolution. It is
worrisome that ReadRite (RDRT) continues toward the August low
(earthquake - no chips to make boxes and no need for drives?)
while Cabletron (CS) just appears to be in a post-earnings dip.


NEW PICKS
*********
Definitions:
OI - Open Interest
CB - Cost Basis (Price paid - Prem rec'd, the break-even point)
RC  - Return Called
RNC - Return Not Called (Stock Price Unchanged)


Sequenced by Return Called and by Return Not Called


Stock  Price  Mon Strike Option  Opt   Open  Cost    RC      RNC
Sym               Price  Symbol  Bid   Intr  Basis

DUSA   14.50  OCT 12.50  QDU JV  2.75  440   11.75   6.4%   6.4%
GETY   24.50  OCT 22.50  QGT JX  3.25  1262  21.25   5.9%   5.9%
CCBL   32.88  OCT 25.00  LQE JE  8.88  500   24.00   4.2%   4.2%
GCTI   40.38  OCT 35.00  QHF JG  6.38  621   34.00   2.9%   2.9%
ASDV   25.50  OCT 22.50  QDV JX  3.63  108   21.87   2.9%   2.9%

EGHT    5.00  NOV  5.00  EDQ KA  0.88  513    4.12  21.4%  21.4%
COOL    8.53  NOV  7.50  QOO KU  1.88  106    6.65  12.8%  12.8%
NEM    23.25  NOV 22.50  NEM KX  2.25  1025  21.00   7.1%   7.1%


Company Descriptions

ASDV - Aspect Development  $25.50   *** Showing Strength ***

Aspect Development is the global leader in e-Business solutions
for Inbound Supply Chain Management. Aspect's solutions reduce 
product cost and operations expense and speed new product 
introduction by providing strategic decision support for product 
development, procurement, and operations to companies in all 
industries. Aspect has been recognized as one of the fastest-
growing American companies in FORTUNE Magazine's annual survey 
of public companies. Aspect's technicals continue to improve 
and we favor the cost basis below the July high.

OCT 22.50 QDV JX Bid=3.63 OI=108 CB=21.87 RC=2.9% RNC=2.9%

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

****

CCBL - C-COR.net Corporation $32.88   *** Deep ITM Play ***

C-COR.net, founded over 45 years ago, designs and manufactures 
robust, high-quality network distribution products for two-way 
hybrid fiber/coax (HFC) networks. C-Core, which just completed
a merger with Silicon Valley Communications, jumped in price
when they announced that it has completed initial delivery of 
its new mini-fiber nodes to AT&T for deployment in the Salt Lake
City trial of AT&T's LightWire(TM) Neighborhood Broadband System.

OCT 25.00 LQE JE Bid=8.88 OI=500 CB=24.00 RC=4.2% RNC=4.2%

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

****

DUSA - Dusa Pharmaceutical  $14.50   *** A New Drug ***

DUSA is a company engaged primarily in the development of 
photodynamic therapy & photodetection, utilizing Levulan, the
company's brand of 5-aminolevulinic acid, for various medical 
indications. DUSA'S key achievement of the second quarter was 
the receipt of an "Approvable" letter from the FDA concerning 
their NDA for Levulan Photodynamic Therapy in the treatment of 
Actinic Keratoses of the face and scalp. We favor a cost basis
near support as DUSA consolidates from a recent new high.

OCT 12.50 QDU JV Bid=2.75 OI=440 CB=11.75 RC=6.4% RNC=6.4%

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

****

GCTI - Genesys Telecommunication  $40.38   *** New High ***

GCTI is a provider of enterprise-wide platform and application 
software enabling organizations to integrate critical business
information and computing resources with telephony and other
telecommunications media. Genesys closed at an all-time high
Friday on heavy volume. Posting record revenues last quarter,
GCTI has been in a strong Stage II climb as traders speculate
on future earnings. Contracts, partnerships, new products, up
in a down market, Hmmm...

OCT 35.00 QHF JG Bid=6.38 OI=621 CB=34.00 RC=2.9% RNC=2.9%

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

****

GETY - Getty Images, Inc. $24.50   *** Number One! ***

Getty Images, with over 30 million photographs and more than
15,000 hours of film, is the leading e-commerce provider of
imagery. They use extensive web-technology expertise to create
E-commerce enabled sites that allow customers to quickly and
easily access and purchase images. With the purchase of Kodak's
Image Bank, Getty will double their inventory of images and of
film footage, not to mention revenue. The stock jumped on the
news, moving to a new September high.

OCT 22.50 QGT JX Bid=3.25 OI=1262 CB=21.25 RC=5.9% RNC=5.9%

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

****

COOL - Cyberian Outpost, Inc.  $8.53 *** Stage I ***

Cyberian Outpost is a global Internet retailer of computer
hardware, software and accessories to the consumer and small 
office/home office marketplace. COOL just posted 2Q earnings
beating estimates though posting a loss. Revenues increased
over a 100% as sales more than doubled. This fall, Cyberian 
plans to launch the Internet store Tweeter@Outpost.com and
was upgraded Thursday.

NOV 7.50 QOO KU Bid=1.88 OI=106 CB=6.65 RC=12.8% RNC=12.8%

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

****

EGHT - 8x8, Inc.  $5.00    *** Speculation ***

8x8 designs, develops and markets highly integrated video
communication semiconductors and associated software to OEMs
of video communication systems. 8x8 moved up sharply in August
after announcing it is teaming up with AG Communication, a
subsidiary of Lucent, to provide an end-to-end IP Centrex
solution. On Tuesday, 8x8 jumped again after announcing that
it has linked its internal IP test network to the PacketCable
"virtual" test network managed by CableLabs. That was quickly
followed by an upgrade on Thursday. We favor the cost basis
near the September low as the long term outlook improves.

NOV 5.00 EDQ KA Bid=0.88 OI=513 CB=4.12 RC=21.4% RNC=21.4%

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

****

NEM - Newmont Mining Corp  $23.25   *** Hedge Play ***

Newmont Mining is engaged, directly and through its subsidiaries
and affiliates, in the production and development of gold, the
exploration for gold and the acquisition of other gold properties
worldwide. With the market now testing recent downside support, 
the outlook is grim for stocks and favorable for precious metals. 
Gold and gold stocks are gaining attention since gold traded 
intraday above $270 on Friday, showing strength in the face of
the recent London auction. We like this relatively low ROI play
on NEM, which was upgraded on Thursday, concentrating on downside
protection, as gold is becoming overextended.

NOV 22.50 NEM KX Bid=2.25 OI=1025 CB=21.00 RC=7.1% RNC=7.1%

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


NAKED PUT SECTION
*****************

Market Signals..


Analysts use many different technical indicators to generate
signals when specific buy or sell parameters are met. Cycle
analysis; the study of historically repetitive rhythms in
price action, can also be helpful in initiating technical
trades.

The stock market historically moves in identifiable cycles.
To be a successful investor, you must be able to determine the
current phase of activity. Historical bottoms or cyclic lows
are the most common signals that analysts attempt to uncover.
These downside support areas are more reliable and take longer
to develop than the cyclic highs. Using a long-term, monthly
chart of the DOW, it is relatively easy to spot the current
four year rhythm. The most recent bottoms occurred in 1990,
1994 & 1998. The big question is where will the next one occur.

In any type of long-term technical analysis, it is important
to understand that market cycles usually precede economic
cycles. The many facets of our economy that determine the
overall financial health of the nation are anticipated by the
emotion of the market. Any study that compares key historical
events with the movement of a major index will demonstrate
how war, recession, or a presidential election can influence
the current cycle.

It is very important to be familiar with the common investment
indicators used to determine the overall movement of the market
and apply this knowledge as a practical part of your trading
strategy. Here are some timing strategies that work well with
cycle analysis.

KEY REVERSALS:  A daily price range with a high that is above
the previous day's high and a low that is below the previous
day's low. Often referred to as an 'outside trading range' day.
Most analysts agree that a close above previous day's final
price is a bullish signal. If this type of price action occurs
during a bottom in the cycle, a reversal is likely in progress.

DIVERGENCE;  Buy and sell signals are often developed using
oscillators such as RSI, MACD, Stochastic, and other types
of momentum indicators. Divergence signals often occur at
cyclic turning points. An example might be when an issue makes
a substantial move then has a small short-term reaction, which
is followed by a new low or high for the trend. The last price
appears to perpetuate the overall trend but the actual outcome
is often a major reversal.

CHANNELS;  These patterns, including multiple bottoms and tops,
define markets that are established in trading ranges. They can
make it easier to observe rhythms and establish opening prices
more effectively. For example, a bullish trading signal will be
apparent when an issue breaks-out above the high of a recent
channel while a cyclic low is occurring.

There are many other useful indicators and the successful trader
will learn how to utilize every available tool and resource to
gain an accurate sense of the current market cycle.

Good Luck!


SUMMARY OF PREVIOUS PICKS 
*****

Stock   Price  Last    Mon  Strike Opt    Profit   ROI    Monthly
Sym     Picked Price        Price  Bid    /Loss           ROI

NVX      7.19   8.00   OCT   5.00  0.38  *$  0.38  21.0%  18.2%
DUSA    15.50  14.38   OCT  12.50  0.88  *$  0.88  21.6%  16.0%
ENMD    23.50  21.69   OCT  20.00  0.81  *$  0.81  12.1%  13.1%
CYBX    18.69  16.06   OCT  15.00  0.69  *$  0.69  15.4%  11.4%
ASPT    15.44  15.50   OCT  12.50  0.38  *$  0.38  10.5%  11.4%
HELX    31.00  31.88   OCT  25.00  0.94  *$  0.94  12.8%  11.1%
MYGN    11.88  17.00   OCT  10.00  0.50  *$  0.50  14.8%  11.0%
IDTC    23.38  23.19   OCT  17.50  0.63  *$  0.63  11.9%  10.3%
REV     24.81  21.69   OCT  17.50  0.50  *$  0.50   9.2%   9.9%
CS      18.06  16.63   OCT  15.00  0.50  *$  0.50  10.7%   9.3%
AFCI    20.06  20.06   OCT  17.50  0.50  *$  0.50   8.4%   9.1%
NETA    20.00  20.13   OCT  17.50  0.50  *$  0.50   8.3%   9.1%
CEPH    20.44  17.63   OCT  17.50  0.44  *$  0.44   7.8%   8.4%
HLTH    34.94  39.75   OCT  25.00  0.69  *$  0.69   9.0%   7.8%
ORTL    18.88  16.00   OCT  15.00  0.44  *$  0.44  10.5%   7.8%
PRTL    23.06  18.63   OCT  17.50  0.50  *$  0.50   9.8%   7.3%
MK      10.81  10.25   OCT  10.00  0.31  *$  0.31   8.1%   7.0%
USWB    28.50  29.38   OCT  22.50  0.50  *$  0.50   8.1%   7.0%
INTU   103.00  94.06   OCT  85.00  1.31  *$  1.31   5.3%   5.8%
HELX    30.25  31.88   OCT  22.50  0.50  *$  0.50   7.6%   5.7%
PR      22.88  23.06   OCT  20.00  0.31  *$  0.31   4.7%   5.1%
KING    32.81  37.63   OCT  25.00  0.44  *$  0.44   6.3%   4.7%
CIEN    39.75  38.34   OCT  30.00  0.44  *$  0.44   5.2%   4.6%

* = Stock price is above the sold strike price (option expires).

Comments/Observations:

Most of this month's plays remain fairly deep ITM though
Intuit (INTU) did approach the sold strike with the one-two
punch of the market tanking and INTU's CEO resigning. CEPH,
CYBX, ORTL, and PRTL are correcting and should be monitored
as little help can be expected from the overall market.


NEW PICKS
*********
Definitions:
OI  - Open Interest
CB  - Cost Basis (break-even point if put exercised) 
ROI - Return On Investment 


Sequenced by ROI

Stock  Price  Mon Strike Option  Opt   Open  Cost   ROI Opt
Sym               Price  Symbol  Bid   Intr  Basis  Expired

COOL    8.53  OCT  7.50  QOO VU  0.38  354    7.13  13.6%
TALK   12.00  OCT 10.00  QQK VB  0.38  2039   9.62  11.9%
SUPG   21.44  OCT 17.50  UQG VW  0.50  25    17.00   9.7%
CY     26.50  OCT 22.50   CY VX  0.44  146   22.06   6.3%
GCTI   40.38  OCT 30.00  QHF VF  0.44  0     29.56   5.2%
CSE    49.25  OCT 45.00  CSE VI  0.75  4665  44.25   4.6%
AFFX  100.50  OCT 75.00  FIQ VO  0.75  28    74.25   3.6%
AMAT   78.94  OCT 65.00  ANQ VM  0.56  3809  64.44   3.1%


Company Descriptions

AFFX - Affymetrix  $100.50     *** Blue "Chip" Play ***

Affymetrix is recognized as a worldwide leader in the field of
DNA chip technology. The company has developed and intends to
establish its GeneChip system as the platform of choice for
acquiring, analyzing and managing complex genetic information
in order to improve the diagnosis, monitoring and treatment of
disease. A recent downturn in the market has produced favorable
put premiums for those who would consider owning this issue (or
being paid for trying).

OCT  75.00  FIQ VO  Bid=0.75  OI=28  CB=74.25  OI=3.6%

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

****

AMAT - Applied Materials  $78.94     *** Own This One ***

Applied Material manufactures, markets & services semiconductor
wafer fabrication equipment & related spare parts. The company's
worldwide customers include both companies which manufacture
semiconductor devices for use in their own products and others
which manufacture semiconductor devices for sale to the industry.
The impact of the recent earthquake in Taiwan on chip makers was
over-estimated and now it appears to be fairly minimal. Demand for
more-sophisticated data communications such as wireless equipment
will continue to fuel future profits for semiconductor makers.

OCT  65.00  ANQ VM  Bid=0.56  OI=3809 CB=64.44  ROI=3.1%

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

****

COOL - Cyberian Outpost, Inc.  $8.53 *** Stage I ***

Cyberian Outpost is a global Internet retailer of computer
hardware, software and accessories to the consumer and small 
office/home office marketplace. COOL just posted 2Q earnings
beating estimates though posting a loss. Revenues increased
over a 100% as sales more than doubled. This fall, Cyberian 
plans to launch the Internet store Tweeter@Outpost.com and
was upgraded Thursday.

OCT  7.50  QOO VU  Bid=0.38  OI=354  CB=7.13  ROI=13.6%

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

****

CSE - Case Corp  $49.25     *** Merger Date Approaching ***
    
Case Corporation is a leading worldwide designer, manufacture
and distributor of agricultural and construction equipment, and
offers a broad array of financial products and services. The
proposed merger between Case and New Holland is expected to
close in the fourth quarter of this year pending regulatory
approval. Case shareholders will receive $55 per share in cash. 
Together, they will create a $12 billion entity that will reach
more farm and construction equipment customers that any other
company in the world.

OCT  45.00  CSE VI  Bid=0.75  OI=4665  CB=44.25  ROI=4.6%

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

****

CY - Cypress Semiconductor  $26.50     *** New IPO ***

Cypress Semiconductor designs, develops, and manufactures a broad
range of high-performance integrated circuits. The company sells
to the networking, military, computer, telecommunications, and
instrumentation application markets. CY is up partly because of
their interest in QuickLogic, which recently filed to offer 6.6
million shares, including Cypress' stake, at $8 to $10 a share.
Cypress is expected to earn up to $33 million and will own more
than half a million shares after the offering. A solid company
regardless, with earnings forecast to double in the next year.

OCT  22.50  CY VX  Bid=0.44  OI=146  CB=22.06  ROI=6.3%

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

****

GCTI - Genesys Telecommunication  $40.38 *** New High ***

GCTI is a provider of enterprise-wide platform and application 
software enabling organizations to integrate critical business
information and computing resources with telephony and other
telecommunications media. Genesys closed at an all-time high
Friday on heavy volume. Posting record revenues last quarter,
GCTI has been in a strong Stage II climb as traders speculate
on future earnings. Contracts, partnerships, new products, up
in a down market, Hmmm...

OCT  30.00  QHF VF  Bid=0.44  OI=0  CB=29.56  ROI=5.2%

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

****

SUPG - SuperGen  $21.44     *** Own This One ***

SuperGen is a pharmaceutical company dedicated to developing
products intended to treat life-threatening diseases; cancer
and blood cell disorders, and other serious conditions such as
obesity. SuperGen is developing its portfolio of anticancer
drugs through the development of its generic, proprietary and
Extra-TM- products. Share values spiked after analysts started
coverage on the sector and they recently completed $8 million
of private placement to a group of institutional investors.
Nice technicals on this issue with support near the cost basis.

OCT  17.50  UQG VW  Bid=0.50  OI=25  CB=17.00  ROI=9.7%

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

****

TALK - Talk.com  $12.00   *** Still Waiting - Wondering ***
    
Talk.com, Inc. is a provider of long distance telecommunication 
services to small and medium-sized businesses and residential 
customers in the United States, primarily through its e-commerce
platform. The Internet/telephone competition is heating up and
TALK is showing signs of a potential breakout. The bullish move 
above its 150 dma supported by volume offers a favorable entry
to speculate on a future news release.

OCT  10.00  QQK VB  Bid=0.38  OI=2039  CB=9.62  ROI=11.9%

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


**********
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