Option Investor
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Daily Newsletter, Tuesday, 09/28/1999

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The Option Investor Newsletter         Tuesday  9-28-99
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.

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

Published three times weekly, Sunday, Tuesday, Thursday evenings.
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        9-28-99            High     Low     Volume  Advances Decline
DOW    10275.53 - 27.86 10310.04 10081.13   881,303k  1,096   1,893
Nasdaq  2756.25 -  5.50  2763.75  2694.74 1,103,400k  1,435   2,475
S&P-100  675.46 -  0.05   677.51   659.99    Totals   2,531   4,368
S&P-500 1282.20 -  1.11  1285.39  1256.29             36.6%   63.4%
$RUT     418.49 -  3.37   421.86   414.53
$TRAN   2856.98 -  5.47  2882.23  2822.47
VIX       26.97 -  0.30    30.80    26.02
Put/Call Ratio      .68
*************************************************************

Abbey Joseph Cohen, Ballmer, Greenspan, Acompora....Goldilocks
and three bears.

Goldilocks got burned today by the negative market outlook announced
by Ralph Acompora today. Ralph the mouth, seized another pivotal
market day to try and make a bigger name for himself by announcing
hi short term target for the Dow was now 8900-9200. ZAP! The
struggling market never had a chance. Ralph said that market 
internals were breaking down at an alarming rate, a fact we
discussed on Sunday, and even though he was bullish long term,
his short term outlook was very bearish. The market went into 
a spin and broke under the 10100 level to 10081 before bargain
hunters could stop the slide. Down -218 at 1:30 the recovery
came on strong volume and pushed the Dow back into positive
territory just before the close. A miraculous recovery in the
eyes of some, considering the volume of economic events and
a FOMC meeting in the next five days. The spark for the rebound
was the expectation for the Bank of Japan to announce a new
dollar/Yen program late this afternoon. Sorry! The BOJ announced
late in the afternoon that they felt they were doing all that
was necessary to inject liquidity into their economy and again
called on the G7 to make a move. This may not play well tomorrow.
You will recall that no one expected the BOJ to do anything but
everyone else was hoping that after the G7 Japan would feel
pressure to do something. Looks like it is not going to happen.


 

 

The downhill slide caused the Dow to again trade under it's
200 DMA but the rebound brought it back to a dead stop right
on the line. (10275) The last three weeks has seen the Dow
trade in a down trending channel which also tops out at 10300.
Again, and I hate to seem like a broken record, but we are
at a critical point. In order to break out of this trend the
Dow needs to trade over 10400 and close over 10350 tomorrow.
Failure to trade over 10400 or even hold over 10300 will doom
us to several more days of bungee trading. A close under
10200 tomorrow would be very negative and could bring Ralph's
prophecy to pass.

If you have graduated from Maalox to Dramamine and are
seatbelted firmly into your trading chair then these big
swings are perfect for producing trading rallies. Some of the 
chat rooms today were talking about the big bucks these moves
produce. If you are following a specific stock, like QCOM,
then you should be familiar with it's trading pattern. A
gap down of -$8 at the open on no material news and then a
steady rising intraday chart should set off entry point alarms.
These -200 point drops cause recent winners to sell off strongly
on profit taking but when the market starts rebounding they
are sometimes the fastest gainers. QCOM closed positive after
the -$8 at the open. If you are a holder and not a trader then
don't try this at home. 

Twice now the market has traded in the -10% correction range
and twice it has rebounded. This is good. Today's rebound was
much stronger than the Friday event. If traders are convinced
that the -10% correction took all the excess out then we could
move up from here. The futures are up strong at +3.00 but we
have a lot of dark before morning. Remember the bear trap rally
on Monday? The strong technical bounce at the open, slowly
bleeding off all day as sellers continue to outweigh buyers.
Tomorrow could be the same. The advance/decline line is still
dropping like a rock with a three declines for every two advances
today. The new highs/lows were still very negative with 40
new highs to over 100 new lows. 

The earnings outlook is still good but we are only half way
through the pre-warning season. After the close today Gillette
and Safeco both announced earnings warnings. Neither appeared
to have any impact on the futures so investors are still not
too worried about random warnings. The Internet sector is still
hot and may be holding up the Nasdaq. CMGI announced earnings
that beat the street last night and said that next year earnings
my grow by +300%. This powered CMGI into positive ground again
today after a huge gain yesterday. YHOO, which announces next
week, continues to show good strength gaining another +3.31
today. YHOO also dropped -$8 intraday and provided yet another
entry point for target shooters. Remember, YHOO normally drops
AFTER earnings, so don't plan on holding too long. The real 
Internet superstar continues to be AOL. Up +$28 since 9/21,
AOL just refuses to pull back and let us in. We have a policy
that we do not recommend stocks that have spiked the day
before. AOL has fit that model for five days. Will they continue
up? Probably so but the options have so much expectation 
built in that the premiums are very overvalued. Any future
pullback by AOL would immediately subject the call buyer to
sudden losses as the premium instantly evaporated. Playing stocks 
on a rocket run should only be done by very experienced traders.
But you say, how can you lose money on a stock that keeps
going up? Answer: Nothing keeps going up and the last buyers
in will lose their shirts when it finally stops. Buyer beware.

The game plan for tomorrow should be packed with caution. Yes, 
the markets could rebound from here because of the -1000 point
drop. Yes, the drop on Friday and the drop today form a classic
double bottom. To be a valid DB the days need to be close
together. The sell off steep and the second day needs to take
out the low from the first day and rebound on heavy volume. 
All of which happened today. Volume could have been better and
traders would have liked to see the Dow finish positive. If we
rally at the open and then flat line or trend down the rest of 
the day then keep out. If we rally at the open and continue 
moving up during the day with advancers beating decliners by
a strong margin then it is probably buyable. Just remember
the flood of economic reports and FED meeting next week. There
is a better than 50/50 chance that we will be having another
Dow 10,000 party soon and they will not be drinking champagne.

Be very careful and if you must trade then you must sell too soon.

Jim Brown
Editor


ps:  Don't forget about the fall seminar series. You need to 
register now in order to get the cheap airfares.

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?



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

As of Market Close - Tuesday, September 28, 1999 

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

DOW Industrials   10,500  11,320  10,276    BEARISH   9.23      
SPX S&P 500        1,350   1,420   1,282    BEARISH   9.16       
OEX S&P 100          675     735     675    BEARISH   9.24    
RUT Russell 2000     440     465     418    BEARISH   9.14       
NDX NASD 100       2,320   2,380   2,428    BULLISH   9.03   
MSH High Tech      1,120   1,180   1,241    BULLISH   9.03   

XCI Hardware       1,035   1,050   1,071    BULLISH   8.24    
CWX Software         750     800     862    BULLISH   9.03         
SOX Semiconductor    480     525     525    Neutral   9.24        
NWX Networking       555     585     593    BULLISH   9.17       
INX Internet         450     510     486    Neutral   9.24      

BIX Banking          690     710     575    BEARISH   7.23    
XBD Brokerage        410     440     366    BEARISH   7.23    
IUX Insurance        645     660     541    BEARISH   7.23         

RLX Retail           915     960     818    BEARISH   7.23     
DRG Drug             365     390     343    BEARISH   9.16      
HCX Healthcare       745     785     683    BEARISH   9.16   
XAL Airline          180     190     134    BEARISH   5.21      
OIX Oil & Gas        285     305     288    Neutral   9.16       

 
Posture Alert    
The tug-of-war continues, with the bears spoiling the party on 
Monday afternoon, followed by Tuesday's reversal led by the bulls. 
Lots of volatility and activity, however, very little net result. 
Tuesday's late day rally was lead by America Online and the 
Internet sector, which continues to make gains. Oil & Gas, 
followed by the (very weak) Insurance sector led Tuesday's losers.


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

/members/marketposture



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

Tuesday, September 28, 1999

Say What?

So, one of the biggest bulls on Wall Street revised his Dow 
forecast downward. Big deal! He sure looked a lot smarter before 
all the buy programs kicked-in this late afternoon! Can we have an 
office pool; to see how many days it is before he is back in the 
news pounding the table for the bulls? Last time he made comments 
like this, he did a 180-degree reverse 10 days later. Oh well. 

Many of the leading technology indexes held support, and bounced 
very nicely, some even off of key benchmark levels. Whether this 
holds, remains to be seen, but the last two days have been an 
absolute wash for bulls and bears alike (unless you sold at the 
top and bought at the bottom).

Will we see some follow through tomorrow morning, possibly? Will 
we see sellers coming into future rallies, absolutely! The way 
current sentiment appears, the potential of downside reversals 
invoke a greater reaction than upside reversals. With the Dow and 
S&P 500 breaking 200-day moving-averages, bulls are a little 
quicker to lock in any profit they can, not to mention the 
portfolio manager whose bonus is tied to the performance vs. 
his/her peers. 

For those of you who have been following the Volatility Index, you 
have probably made some nice trades as of late. Last week, the VIX 
held ground at the 32 level, which it has done numerous times in 
the past. During today's action, the VIX was up +3.53 intra-day, 
which is a very big move, especially with no real news event to 
propel this market lower. The high was 30.80, which of course, 
presented a very good buying opportunity. Continue to watch the 
VIX, because it is a non-emotional, excellent trading tool. 

In terms of the Pinnacle Index for the OEX, the PI number for 
650-670 did decrease dramatically during the last two days. 
However, due to the overwhelming negative sentiment (and still a 
high PI), we still view this area as excellent support.


BULLISH Signs: 

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


Mixed Signs: 

Volatility Index:
The VIX is in the danger zone; however, it has shown good support 
in the past around 30, then 32-33, so should this level hold, it 
may be a good buying opportunity.

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


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 be 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 %    Alert

Friday, July 16           32,285          -
Friday, July 23           62,455        +93.4%
Friday, July 30           74,895        +131.9%
Friday, Aug. 06          113,258        +250.8% 
Friday, Aug. 13          117,620        +264.3%        


September Expiration Cycle
OEX OTM Call Analysis (Open Interest September 690-780)
Date                 Open Interest     Change %    Alert

Friday, August 20         41,346          -
Friday, August 27         78,026         +88.7%               
Friday, September 3      104,700        +153.2%
Friday, September 10     144,711        +249.9%


October Expiration Cycle
OEX OTM Call Analysis (Open Interest October 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     Tues      
Indicator                        (9/24)     (9/28)

Pinnacle Index (OEX):          

Underlying Support  (680-700)      1.1       1.4 
Underlying Support  (650-670)     22.6       8.6
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .6        .5
CBOE Equity P/C Ratio               .5        .5
OEX P/C Ratio                       .9       1.0


Peak Open Interest (OEX):

Puts                              640        600
Calls                             700        700 
P/C Ratio                         .93        .91

Market Volatility Index (VIX):	

CBOE VIX                         26.97


Investors Intelligence:

Bullish                         41.50%  *
Bearish                         31.40%  *


The Power of Sentiment Analysis

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

 
OEX Pinnacle Index              Friday      Tues
Benchmark                       (9/24)      (9/28)

Overhead Resistance (680-700)     1.12       1.39

OEX Close                       672.80      675.46

Underlying Support  (650-670)    22.56       8.56
                     
 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

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


Put/Call Ratio                  Friday     Tues
Strike/Contracts                (9/24)     (9/28)

CBOE Total P/C Ratio             .61        .54
CBOE Equity P/C Ratio            .53        .46
OEX P/C Ratio                    .90        .99


Peak Open Interest 
(OEX)                Friday           Tues
Strike/Contracts     (9/24)           (9/28)

Puts                 640 /  7,676     600 /  8,344
Calls                700 / 10,340     700 / 11,650
Put/Call Ratio         0.93             0.91


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 28, 1999                      26.97 


 

Investors Intelligence    Major             Percent     Percent
Date                      Turning Point     Bullish     Bearish

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


Sept  1, 1999                               42.9        31.9 
Sept  8, 1999                               44.1        30.5 
Sept 15, 1999                               41.5        31.4  *


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

Daily Results

Dow    10275.53  24.06-27.86 -3.80
Nasdaq  2756.25  21.34 -5.50 15.84
$OEX     675.46   2.71 -0.05  2.66
$SPX    1282.20   5.95 -1.11  4.84
$RUT     418.49   4.77 -3.37  1.40
$TRAN   2856.98 -16.27 -5.47-21.74
$VIX      26.97  -2.27 -0.30 -2.57

Calls             Mon   Tue  Week

QCOM     193.63   3.81  0.31  4.13  Looking to increase shares
ITVU      37.38   3.50 -0.38  3.13  Great relative strength
SUNW      93.00   3.75 -0.94  2.81  12-month target at $110
XMCM      46.63   1.25  1.38  2.63  New, Internets are strong
NOK       90.75  -0.06  2.50  2.44  New, Technical breakout
EMC       71.38   1.44  0.88  2.31  Great intraday recovery
RNWK     101.13   3.81 -1.75  2.06  Hot sector = hot stock
YHOO     184.69  -1.94  3.31  1.38  Final run for earnings
GE       118.38   2.00 -1.25  0.75  Dropped, sinking Dow too much 
SNE      149.25   1.75 -1.44  0.31  Recovering with the Dollar
NTAP      72.75  -1.63  1.88  0.25  Waiting for direction
ADI       56.31  -0.06  0.06  0.00  Even-steven for the week
CSCO      68.38  -0.88  0.25 -0.63  Dropped, unable to rally
ELNK      45.31  -2.22 -0.03 -2.25  ISP's are the place to be
DCLK     113.88   2.28 -5.16 -2.88  Big intraday swings to play
VOD      227.00  -3.50  0.00 -3.50  Final leg of split run
INKT     125.06  -4.75 -0.19 -4.94  Dropped, underperforming
EBAY     138.00  -7.31 -0.75 -8.06  Walking on thin ice

Puts

GENZ      45.31  -1.50 -3.69 -5.19  New, technical play
LLY       62.94  -2.00 -0.25 -2.25  Broke support at $65
KO        50.75  -0.13 -0.25 -0.38  Dow is hindering a recovery
WLP       65.25  -0.06 -0.31 -0.38  Dropped, mission accomplished
WPI       29.38   0.00 -0.19 -0.19  Moving with the markets
GPS       32.25   0.19  0.06  0.25  Dropped, basing at $32
DD        59.88  -0.31  1.06  0.75  New, sinking with Dow 30
JNJ       91.50   2.00 -0.50  1.50  Will bounce of $90 last??
DOW      108.69   0.94  0.88  1.81  Chemicals looking weak



PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

INKT $125.06 -0.19 (-4.94) On Monday, the internets made a run 
we all expected, clawing their way back to levels established 
earlier in the month.  Unfortunately, our play decided to go 
against the grain and ended the day in the red.  On Friday, 
the stock closed on its support at $130 where we were 
expecting a bounce, however it never developed.  Instead the 
stock broke through its support and continued its downward 
trend, which started back on September 22.  During this time 
period many Investors should have been stopped out of their 
positions ending the play.  Due to the continuing weakness 
in INKT and its failure to find support, we decided to end 
the play and concentrate our efforts elsewhere.  

GE $118.38 -1.25 (+0.75) The bears were just too strong today, 
shaking investors nerves and adding to the confusion that has 
been present for quite some time.  Shareholders of GE were not 
excluded as investors continued to sell off shares throughout 
the day.  The stock dipped below its 10-dma at $118, which is 
a bad technical sign for the stock.  $118 should have acted as 
the support level for GE, but the stock managed to break 
through with little resistance.  Current investors should have 
been taken out of their positions with today's drop in the 
stock.  Since GE could not hold this support and many 
investors were stopped out of their positions we decided to 
end this play and concentrate our efforts elsewhere.

CSCO $68.38 +0.25 (-0.63) That does it - another headfake by 
CSCO.  Yes, we realize that the NASDAQ is down 200 points in 
the last 2 weeks and that CSCO makes up the third largest % of 
it, right behind INTC and MSFT.  However, it just isn't 
profitable to remain in the play waiting for the reversal.  It 
isn't moving fast enough and looks like its struggling to keep 
its head above water.  After all, this is the 3rd day of trading 
back under its 10-dma.  We could forgive it if the volumes were 
low, but volume has been rising as the price has been edging 
down, which isn't a good sign.  Thus we're dropping CSCO tonight.


PUTS:
*****

WLP $65.25 -0.31 (-0.38) Fear is back and taking advantage 
of the markets once again.  The negative momentum of the 
broader markets should have been great for our put play.  
Unfortunately, the stock has showed support at $65 and 
refuses to release its grasp.  We have continued this play 
because of weakness in the stock and the long-term healthcare 
sector.  The sector remains in poor standings however the 
stock has found firm ground, marking the end of our play.  
Thanks to current market conditions there are several put 
plays available, therefore we have decided to drop this play 
for others with more potential.

GPS $32.25 +0.06 (+0.25) Gap seems to have lost its downward 
momentum amongst too many kind words spoken as of late.  Despite 
Tuesday's moody market, Gap seemed to hold its own throughout 
the day.  We have successfully played Gap at the peaks and 
valleys and believe it is time for a bit of a climb as our 
technical indicators point in the direction of a positive 
trend.  Although Gap may drift a bit in days to come, without 
any news to report, holidays looming just around the bend, and 
what may be a recovering sector, it is best to step out and play 
something with more definitive movement.


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

ADI $56.31 +0.06 (+0.00) Stocks that are added to the major
indexes such as the S&P 500 have to be bought by all the money
managers who run these funds, which is the case with ADI as of 
there recent announcement.  So why isn't ADI giving us higher
prices?  Well, its called uncertainty, a tug of war between 
buyers and sellers.  It did surge on Monday to an intraday high 
of $59.19 which would have been the time to take a short-term 
profit.  Trailing stops become so important in a market that 
can be up 100 points one minute and down 100 points the next.  
Not only was the overall market in a fickle mood, but the PHLX 
semiconductor index has gone through major intraday swings in 
the last two days as well, bouncing from 511.00 on the low side, 
to 533.64 on the high side, only to close right in the middle 
at 525.21.  ADI today rallied off of the lows of the day $54.75, 
to close up 0.06 at $56.31, flat for the week.  You may notice 
a strong bottom building at $55.  If we have reached a bottom 
in the overall market and the buyers on the street have returned, 
look for ADI to continue to hold up strong.  Today's close could 
be a buying opportunity, if you were stopped out earlier in the 
week.  

SUNW $93.00 -0.94 (+2.81) The bullish excitement propelled 
SUNW even higher on Monday.  The stock set another new high 
at $94.88 on very strong volume with over 11.34 mln shares 
being exchanged.  CSFB reiterated a Buy rating citing "the 
company has become the thought and technology leader in the 
emerging service provider economy".  They also raised the 
12-month target price on SUNW to $110 and the fiscal 2001 
EPS estimates to $2.15 from $2.03 specifying that "Sun's 
Network Service Provider division should grow by 30 percent 
- 40 percent over the next two years as the company 
partners with network equipment providers and helps 
wireless carriers converge with the Internet".   Share 
prices may also have been influenced by the company's 
announcement on Monday that there has been a significant 
rise in sales revenues of Oracle Applications sold via its 
SUN(TM) platform in the past 12 months with additionally new 
customers such as Excite@Home, GoTo.com, Living.com, and 
UPS.  Even in today's unnerving market, our momentum play 
showed strength as it used its 100-dma ($92.24) as a bottom 
support level before attempting a rebound back towards 
overhead resistance late afternoon.  Trading volume was 
again about 65% above the norm and this is definitely a 
good sign.  Good news too came from Sanford Bernstein & Co 
who started new coverage on SUNW with a Market Perform.  

QCOM $193.63 +0.31 (+4.13) QCOM certainly participated in 
yesterday's market uptrend gaining $3.82 however, only on 
less than 50% of its ADV.  Volume did pick up a bit today 
as the stock continued to flirt with its overhead resistance 
at $199.  Good news came after the bell today as Qualcomm 
announced it would be seeking shareholders' approval to 
increase the number of authorized shares!  According to Julie 
Cunningham, VP of Investor Relations "February 2000 would be 
our earliest opportunity to have more shares authorized" 
considering QCOM just split 2:1 in May.  Recall QCOM became 
a split candidate recently after it soared above the $155 mark.  
Earnings have now been confirmed for November 2nd.  The numbers 
are expected to meet or beat Streets' estimates and again this 
was one of the factors which first fired up this momentum play.  
But five weeks can be a long time in the options market so be 
careful.  Confirm the continued momentum and look for 
convincing volume before initiating new positions especially 
ahead of the Fed meeting next week.  Also in the news, 
AG Edwards downgraded QCOM from a Buy to an Accumulate but 
offered no comment.  



*****************
CALLS CONTINUED IN SECTION TWO
*****************


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


The Option Investor Newsletter         Tuesday 9-28-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

ELNK $45.31 -0.03 (-2.25) ELNK pulled back yesterday after 
making a valiant effort at the open to break through 
opposition at the 100-dma ($51.53).  However even with the 
downdraft yesterday it sustained a level above $44 which 
may be evolving as new support.   Today's performance seems 
to confirm that yes, there may have been a little profit-
taking and but certainly not a signal to exit.  Technically 
ELNK is above its 10-dma ($42.49) and today's volume 
dissipated to 669 K indicating there was not a long-line of 
sellers looking to dump the stock.  Also in the news today, 
Scott & Stringfellow stepped up to the plate for ELNK and 
started new coverage on the stock with a Strong Buy rating.  
This week will be treacherous ahead of the Fed meeting so 
think twice before beginning any new plays.  If you do, 
keep stops in place and expect lots of volatility.

SNE $149.25 -1.44 (+0.31) In a reaction to the market fight and
flight response today, Sony lost some ground.  With renewed
concerns of interest rate fears and the market "officially in
correction mode briefly" according to Bloomberg reports, we 
continued down below our 10-dma of $151.  But SNE holding just 
below the 10-dma is common if you look at the trends from the 
past six months.  Japan is slowly starting to improve however, 
as the Nikkei has gained for the last two days to close above 
17,000.  The dollar gaining ground on the yen has also helped 
to support SNE.  Also the Japanese have decided to drop their 
fixed commission structure on security trades as of October 1st.  
This in hopes of attracting a greater amount of Japanese savings 
into securities.  Currently only 10% of Japanese savings are in 
stocks and this move should help attract capital to the market, 
thus helping Sony.  A report on the trend of new imaging 
technologies bodes well for SNE.  Citing the increased sales in 
digital camera's and Sony's success in this area, analysts 
anticipate the performance and market share to continue.  We 
are watching the $146 level to hold on the dips.  Any move 
below this support should signal your stops to take you out.

RNWK $101.13 -1.75 (+2.06) Thank goodness for some computer
buy programs today.  That's what saved the markets from a
continued slide and allowed RNWK to finish the day above the
10-dma support of $98.  What will help us with RNWK, is the 
fundamental reasons for our play.  Good earnings outlook, 
momentum, trend, and it is a prime candidate for a stock split 
announcement.  RNWK continues to hold it's chart pattern nicely, 
despite negative pressures from the market.  RNWK last split 
2:1 in May.  Currently RNWK is a candidate for another split 
above $90 and with more than enough shares authorized, we could 
see another 2:1 announcement around earnings.  Be cautious 
through the next week as we approach the Oct 5th Fed meeting.
After this, we should see some strength and start an earnings
run, market willing.  Projections for RNWK, and the earnings 
outlook in general, are better than normal for October.  This 
should be the catalyst for our play.  Josepthal and Lyons 
initiated coverage of RNWK today with a Buy rating.  EMusic is 
also being very helpful to RNWK, by offering free software and
music to allow users to experience the benefits of online
digital music.  This will help boost RNWK's sales.  Tread
lightly now, as the market fell below the 200-dma, a bearish
sign.  But RNWK looks strong and should forge ahead given the
right conditions.  

EMC $71.38 +0.88 (+2.31) EMC has been one of the stocks defying
the odds lately.  Given the tremendous pressure that the market
and analysts have given us with computer hardware warnings, EMC
continues to show strength.  Investors used the weakness of 
today's drop to buy the dip at EMC's low of $68.38 and EMC shot 
up over $3.00 from the low.  The demand and potential for EMC's 
storage solutions are phenomenal considering the Internet growth 
potential.  EMC shows a very historical pattern of providing 
investors with a great earnings run starting two weeks prior to 
the date.  Considering estimates of $0.27/share vs.$0.19 , we 
should expect this trend to continue and expect the run to start 
full swing next week.  Recent news indicates companies continuing 
to use EMC as solutions for their storage needs and the Data 
General purchase continues to acquire confidence of EMC's market 
penetration ability.  We feel there is a buying level at the 
10-dma of $70.50 but use caution.  In this market enviromment, 
you have to plan your entry and exit points carefully.

ITVU $37.38 -0.38 (+3.13) The market had a major panic attack
today, as investors worried about inflation and interest rates.
ITVU investors appeared to sense that this was an over reaction
and, in anticipation of it's historical earnings run, remained 
relatively quiet.  It's reaction kept our trend momentum alive 
as we got a positive 12/20/6 momentum break out.  ITVU should a 
strong swimmer given our earnings play momentum however, 
when a market acts as the current, even the strongest swimmers
fatigue during time.  Since the market gave us an extremely
bearish signal today with a drop below the 200-dma, and an
official 10% correction for a short period, investors must be
extremely careful.  Many analysts are expecting the Dow to 
break below 10,000 by Friday.  This means stops must be in 
place to protect profits and capital and you must monitor ITVU 
closely to detect the turn.  ITVU was noted as the leader in 
streaming technology in an article stating that Psainc has 
selected them to deliver the media information to it's web site 
PSAZZ.com, for e-commerce travel.  ITVU has the potential and 
is at a good position to buy for the run, but be sure to confirm 
a positive direction in the market and the stock before playing.  

NTAP $72.75 +1.88 (+0.25) After Friday's blowout to the downside
NTAP seems to be looking for a direction to go.  The past two 
days have seen NTAP basically trade sideways.  Volume has been 
anemic, averaging less than 350K each day.  Besides the tone 
in the broader markets, what makes NTAP difficult to trade at 
times is the lack of conviction supporting the moves in the 
stock.  No one wants to buy or sell.  For some types of traders 
this kind of action provides great opportunities to trade off 
intraday support and resistance levels.  For our purposes we 
would wait to see a solid move accompanied by volume before 
entering a new play.  We may not see such a move until after 
Monday's FOMC meeting.  NTAP has been holding up as well as 
others in its industry.  With the recovery in the broader markets 
this afternoon, some may be tempted to jump in with both feet 
if we see a bounce continue in the next day or two.  Our thought 
would be to keep your eye on NTAP but stay in cash until we 
see some new buying develop.  NTAP continues to trade below 
its 10-dma at $73.56, which suggests there may be more profit-
taking to come as well.  Be patient, as a missed opportunity 
is better than a loss of capital any day.

DCLK $113.88 -5.15 (-2.88) Since joining are call list on 
September 19th, DCLK has been stuck in a $10 trading range,
between $110-$120.  Monday DCLK started out on fire looking 
like it was off to the races, making a high at $121.50 in the 
first hour of the session.  In a pattern similar to last week
traders decided to take their profits and shares of DCLK began
to slide.  Today DCLK continued to drop back to the $110.25 
before a few buyers stepped up to the plate.  DCLK is another
stock that is looking or waiting to find a direction. 
Technically DCLK did manage close just above its 10-dma which
stands at $113.54.  Even though shares of DCLK do seem to be 
consolidating in a $10 range, at this time we would still 
look for the Internet advertising company to break out to 
the upside.  Patience will be the key, as we need to see fresh
buying enter the market.  Earnings are scheduled to be released
October 8th,(not confirmed) and we could begin to see an
earnings run at any time. At this time cautious investors may 
want to keep your powder dry and have patience, until we see 
some conviction develop one way or the other.  Nevertheless, 
a $10 range can be extremely profitable to trade if you are 
comfortable with more risk.

VOD $227.00 +0.00 (-3.50) We have just a few more days for VOD
to run before its split.  Again VOD splits on Monday, for owners 
of record on Friday, October 1st.  That means for our purposes 
we only have until Friday to profit from a split run.  After 
starting the week off attempting to make its way higher shares 
of VOD hit $231.56 and promptly rolled over.  No real profit-
taking, just no conviction.  As we mentioned Sunday, the area 
of support was at $225 where VOD has created a strong bottom.  
We saw the broader markets recover late in the session today 
which could carry over into Wednesday.  If it does, it may
provide us with an opportunity to join in on the last few days
of the split run.  We would urge caution here as well.  Pick your
points carefully and remember you will want to be out by the
close of business on Friday.

YHOO $184.69 +3.31 (+1.38) How's your neck?  Suffering from a 
case of whiplash?  YHOO reached as low as $175 yesterday and  
touched $178 today but it's darn hard to find a bottom on this 
for a good entry.  The answer seems to be "at any level that 
is $6 below its high of the day".  Remember YHOO is on an 
earnings run, in which they are expected to report $0.09 per 
share next Tuesday, October 6, the day after the FOMC meeting.  
Of course, we never encourage that you hold a position over 
earnings, especially when it's preceded by the possibility of 
an interest rate hike.  You may want to consider taking your 
profits off the table by the close on Friday to protect them 
from the uncertainty leading up to the event.  Frankly, we  
recommend caution opening positions this week, but if you must, 
at least buy the dips in the mid-$170 range, as there is some 
support there.  YHOO continues to remain well above its 10-dma, 
even on the dips.  

EBAY $138.00 -0.75 (-8.06) Almost a candidate for the bone yard 
tonight, EBAY had a miraculous recovery today along with the rest 
of the Internet sector, as it bounced off $132 and $135 on 2 
occasions throughout the trading day.  By the way, this was a 
clear violation of the $136-$138 support we'd referred to on 
Sunday, which makes this play suspect.  EBAY closed on the thin 
gray line today at $138, leaving us a bit edgy on this one.  Our 
reason for keeping it tonight is not to convince you to play it, 
but to convince you to keep it on the radar screen for another 
day or two.  Why?  We think that with YHOO running into earnings 
following CMGI's super performance in the earnings department 
last night, EBAY will move in sympathy.  But if the market has 
other plans for these three, just move on to the next play.  
Let's see what happens tomorrow and Thursday.  It could be up, 
market willing.  Just don't get sucked in thinking another dip 
was just as buyable as the last.  That hasn't been the case for 
two weeks.

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

LLY $62.94 -0.25 (-2.25) With support at $65 out of the way, 
it was an easy journey to the next support at $62.  This is 
exactly what we were looking for and the overall weak bias 
in the market has helped us achieve our goal.  LLY bounced 
off right $62 as expected and if you closed your position, 
you did so with a nice profit.  There was no recent news to 
drive LLY lower as it is part of the panic selling that has 
gripped the markets lately.  Now it is time to decide if LLY 
has the momentum to mount even further losses.  Tuesday's 
rebound in the broad markets was impressive and will likely 
carry over to Wednesday.  At this point, we would expect LLY 
to come back with the markets so tighten your stops or look 
for an exit point.  The rebound could drive Lilly back to 
new resistance at $64.50-65.00.  Fortunately for us, LLY's 
5-dma has been strong resistance for two weeks and it rests
at $64.61.  Friday, LLY turned up at the end of the day as the
market rallied.  Yet there was no follow through on Monday.  
Next stop could be $60.56, the recent low in mid August.  
Today's intraday action could be a repeat.  If LLY closes 
above the 5 or 10-dma then we will re-evaluate our play for a 
new entry point or a drop.  Keep your eyes open to sector or 
company news to potentially influence our play.   

DOW $108.69 +0.00 (+1.81) The shares of Dow Chemical have 
bounced back slightly in the last two trading days, it sold off 
in the morning today with the rest of the market to trade as 
low as $107.  As the selling pressure diminished, DOW recovered 
to close the day +$0.88.  In the news today the company came 
out with a press release announcing its progress and challenges 
in balancing economic growth with environmental integrity and 
social responsibility-known as the "triple bottom line".  This 
was reported to be a courageous effort but was unlikely to  
affect today's share price.  Going forward, technically DOW 
remains weak, trading well below the 200-dma near $110.00.  
With petroleum prices remaining high and Q3 earnings expected 
to be below expectations, this should keep the pressure on the 
shares and continue the downtrend in current market conditions.  
A break above the 200-dma would trigger a short covering.

WPI $29.38 -0.19 (-0.19) In a confusing day on Wall Street the
shares of Watson Pharmaceuticals Inc continued the downtrend, 
dropping to another 52-week low of $28, before rebounding off 
to close the day at $29.38, down only $0.19.  The strength in 
the shares was probably due to program buying in the overall 
market and should continue the downtrend going forward.  The 
company has recently reported that third-quarter profit will
miss forecasts by 6 or 7 cents per share.  The company is due 
to report on 11/04, which is a little over a month away.  We 
expect the shares to continue to drift to lower lows ahead of 
the earnings report.  If the shares trade to below the $27 level, 
this should trigger additional weakness in WPI.  Cautious 
players may want to wait for a bounce off the 10-dma at $31 
but it remains to be seen if the market can recover to that 
level.

JNJ $91.50 -0.50 (+1.50) JNJ gave us the bounce we mentioned 
Sunday.  Technically JNJ is probably still oversold, but we will
stay with our put play until the market tells us different.
The 10-dma is sitting at $93.75 and we would need to see a 
close over that area with some strength or volume supporting it.
As of now it's simply not there.  There has been no news for the
industry or for JNJ itself that would lead us to believe that 
the decline in the drug industry is over.  Even with the bounce
in the broader markets yesterday, shares of JNJ only gained $2
on volume of 2.9 mln shares.  It appeared as though it was 
more "short-covering" rather than new buyers coming into the
market.  If you are in a play on JNJ, you should keep your 
stops tight as JNJ could continue its bounce if we see the 
recovery in the broader markets continue for a day or two.  We 
do believe at this time that any bounce in JNJ will be short 
lived and will provide us with opportunities to buy puts again.

KO $50.75 -0.25 (-0.38) And the descent continues.  Let's recap 
from the original write-up the reason for the play.  "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."  This is a KO problem, not a market problem and 
Gillette just joined the ranks of flagging revenue giants after 
today's close.  These two could rub off on each other, taking 
them both down.  Even so, support based on OI for KO is at $50, 
so use caution if opening this play.  Today would have been a 
great day to enter the play - it was textbook perfect. . .until 
the end of the day when the market reversed course.  Even KO 
can fake us out.  Yes, this is a conservative play, but if you 
are even more conservative, wait for the fall below $49.50 
with conviction before entering a new play 


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

NOK - Nokia $90.75 +2.50 (+2.44 this week)

Nokia is a supplier of telecommunication systems and equipment 
and works to develop, manufacture and deliver operator driven 
infrastructure solutions and end-user driven mobile phones.    
Nokia dominates the GSM and the TDMA markets and is touted as 
the technological leader in cellular phones.  Nokia is also 
known as the swiftest and the strongest, unveiling new phones 
every 12 months versus the industry standard of 18 months and 
was voted the 11th most valuable brand name in the world, atop 
such notables as BMW and American Express.

Nokia looks particularly attractive as of late as it has 
consistently made higher lows since Friday and has been steadily 
moving up against the market.  As the fickle Tuesday market 
rallied late day, Nokia was a forerunner with volume surging 
in the final hour.  The long-time resistance at $90 was broken 
in this surge.  It looks like the breakout investors have been 
anticipating in this strong sector.  Assuming this isn't yet 
another bear-trap rally in the broad markets, Nokia has some 
room to move with the next support at $100.  Look for a strong 
opening on Wednesday in NOK to confirm the breakout but if 
NOK drifts back below $90 and shows signs of staying range-
bound, you will want to exercise caution.  

On Tuesday, Nokia announced numerous enhancements to its IP 
Telephony portfolio thus improving  scalability, resiliency 
and functionality.  IPRelay is a two-way personal gateway network 
that will allow a connection from the IP network to the Public 
Switched Network (PTSN) or an existing private branch exchange.   
This will work to address the issues concerning geographic and 
high user requirements.

BUY CALL OCT-85*NAY-JQ OI=2698 at $6.88 SL=5.25
BUY CALL OCT-90 NAY-JR OI=8485 at $3.50 SL=1.50
BUY CALL OCT-95 NAY-JS OI=3413 at $1.31 SL=0.50
BUY CALL NOV-90 NAY-KR OI=1281 at $6.50 SL=4.75
BUY CALL NOV-95 NAY-KS OI=  92 at $4.25 SL=2.50 low OI

Picked Sep 28th at       $90.75    P/E = N/A
Change since picked	  +0.00    52 week high=99.37
Analyst Ratings      13-9-0-0-0    52 week low =29.53
Last earnings 07/99   est= 0.51    actual= 0.51
Next earnings 10/21   est= 0.51    versus= 0.44
Average Daily Volume = 2.80 mln
Chart = http://quote.yahoo.com/q?s=NOK&d=3m

****

XMCM - Xoom Inc. $46.50 +1.38 (+2.63 for wk)

Xoom is a rapidly growing Internet-based direct marketing 
company that offers its 10 million subscribers a variety of 
free services, including e-mail, chat rooms, auctions, and 
homepages.  In return, Xoom.com sends advertisements, retail 
offers, and newsletters to its members via e-mail.  The offers 
include proprietary and third-party products such as computer 
software, consumer electronics, and DVDs.  The company, which 
generates sales primarily from advertising and electronic 
commerce, is merging with several of NBC's Internet operations 
as well as NBC and CNET's jointly owned Snap.com portal 
services.

While the bears were having their way with most stocks, our 
latest call play, XMCM, decided to go the opposite direction 
and finish the day on a higher note.  Like many of its 
Internet counterparts, XMCM rallied leading the markets back 
to respectable levels.  Because of its recent performance under 
negative market conditions, we decided to add XMCM as a call 
play.  The stock held its support at $35.63 on September 16 
and has been a rampage ever since.  We expect this upward 
momentum to continue as the stock continues to break though 
key resistance point.  XMCM recently broke through its 50-dma 
at $40 and closed at its 10-dma at $46.50.  If the internets 
continue there rally tomorrow, look for XMCM to be a 
participant.  The next resistance level for the stock is $50, 
which is just a few points away.  Watch for dips in the stock 
as entry points, current volatility in the markets should 
supply these opportunities.  Because this sector has been so 
volatile lately, it's a good idea to use the recommended stops 
for protection.

In the news, last week, BancBoston Robertson Stephens 
eMarketing analyst Lowell J. Singer reiterated his Buy rating 
on Xoom.com.  Other than this there has been little on the 
stock to effect its movement.

BUY CALL OCT-40 XQM-JH OI-267 at $7.75 SL=5.75
BUY CALL OCT-45*XQM-JI OI=536 at $4.25 SL=2.50
BUY CALL OCT-50 XQM-JJ OI=300 at $1.94 SL=0.75
BUY CALL NOV-45 XQM-KI OI= 15 at $6.88 SL=4.75 low OI
BUY CALL NOV-50 XQM-KJ OI= 35 at $4.63 SL=2.75 low OI

Picked on Sep 27th at    $46.50     P/E = NA
Change since picked       +0.00     52-week high=$98.50
Analysts Ratings      1-3-1-0-0     52-week low =$21.13
Last earnings 07/99  est= -0.16     actual= -0.16
Next earnings 10-20  est= -0.43     versus= -0.44
Average Daily Volume =    669 K
Chart = http://quote.yahoo.com/q?s=XMCM&d=3m


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

DD - DuPont $59.88 +1.06 (+0.75)

DuPont is a leader of global industrial companies that produce
and engineer products such as pharmaceuticals, chemicals, 
high performance materials, and agriculturals.  Some of their 
products include Teflon, Dacron and Lycra.  The company is 
mainly focused in the life sciences area and its work includes 
the finding of treatment for the H.I.V virus.  It is the number 
one chemical firm in the U.S.  The company operates globally 
through some 20 strategic business units.

A trend is developing among the Cyclicals, especially the 
Chemical sector, and that trend is down.  The recent weakness 
in the Dow has investors running for cover and they won't 
likely reappear until we hit support at 10,000 on the Dow.  
Even then it is likely that we will have a tug-of-war between 
buyers, who believe in the upcoming earnings strength, and the 
sellers, who see a bear market ahead of Y2K.  This has taken 
its toll on certain sectors, one of which is the Chemical 
group.  You may remember the huge run-up we had from March 
to May.  It left analysts scratching their collective heads 
since there was no fundamental reason for the rise.  But 
that is why they call them Cyclicals.  Anyway, this group is 
now paying the price as investors are in selling mode.  We 
like DD after the break of support at $60 which occurred on 
Monday.  Today's late day rebound gave lift to Dupont but 
left it right at resistance.  This is a level we are looking 
to open new plays.  There is resistance at $60 followed by 
more resistance from the 10-dma at $61.  The downside on the 
other hand shows weakness.  There is support at $57.50 (weak 
support) followed by support at $55 (stronger support).  We 
want to see DD confirm the bounce off $60 before opening new 
plays but an overall weak market should keep the pressure 
on DD in the short-term.  

BUY PUT OCT-65*DD-VM OI=5789 at $5.63 SL=3.75
BUY PUT OCT-60 DD-VL OI=8109 at $2.00 SL=1.00
BUY PUT OCT-55 DD-VK OI= 814 at $0.75 SL=0.00

Average Daily Volume = 5.58 mln
Chart = http://quote.yahoo.com/q?s=DD&d=3m

****

GENZ- Genzyme Corp. $45.31 -3.69 (-5.19 this wk)

Genzyme Corp has one of the largest and most diverse gene 
therapy programs in the world.  The company began its gene 
therapy program in 1991 to develop treatments for cystic 
fibrosis.  Since then, Genzyme's gene therapy efforts have 
expanded to target cardiovascular disease, cancer, and 
lysosomal storage disorders.  The company's gene therapy 
researchers have achieved a number of important scientific 
and regulatory "firsts" in gene therapy studies and vector 
development and have designed more than 200 viral and lipid 
vectors for use in experiments.

We wish we knew exactly what started the decline but we don't.  
All we know is that GENZ has been on a steady descent to the 
basement from $60 since about September 13, and there isn't any 
support until it reaches $40.  That's a historical level, not 
technical.  Technically, the chart is drastically negative with 
all moving average support (from the 10-dma to the 200-dma) 
pierced long ago.  Volume, one of our favorite indicators, has 
been slightly above the ADV of 1.1 mln shares during this period.  
However today, for the first time in 9 trading days, GENZ traded 
less than 1 mln shares.  Volume is drying up while the price 
is falling.  Armed with this knowledge, it appears that there 
is a lack of buyers, not a preponderance of sellers, which 
caused GENZ to close at its low of the day.  This explains why 
GENZ was falling all day and experienced no late turnaround, 
unlike the rest of the market (not a good sign).  We would 
expect this trend to continue.  Just be aware that any good 
news from the market or the company could quickly turn the 
play around.  Our goal is to catch GENZ for a short-term 
momentum ride as it drifts lower with the markets. 

There's been no news since last Tuesday, nor can we find any 
corresponding news that would explain the decline beginning 
about 2 weeks ago.

***We do not list the EGW root symbol since those strikes also 
include a component of a previous spin-off.  Make sure you 
confirm the symbol with your broker before playing.***

BUY PUT OCT-50*GZQ-VJ OI=184 at $5.63 SL=4.00
BUY PUT OCT-45 GZQ-VI OI=227 at $2.13 SL=1.00
BUY PUT NOV-50 GZQ-WJ OI=175 at $6.75 SL=5.00
BUY PUT NOV-45 GZQ-WI OI= 30 at $3.63 SL=2.00

Average daily volume = 1.16 mln
Chart = http://quote.yahoo.com/q?s=GENZ&d=3m


*****************************
SEE DISCLAIMER IN SECTION ONE


The Option Investor Newsletter         Tuesday 9-28-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

YHOO - Yahoo! $184.69 +3.31 (+1.38)(+20.19)(-7.38)

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.  

Sunday's Write Up

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.

Tuesday's Write Up

How's your neck?  Suffering from a case of whiplash?  YHOO 
reached as low as $175 yesterday and  touched $178 today but 
it's darn hard to find a bottom on this for a good entry.  
The answer seems to be "at any level that is $6 below its high 
of the day".  Remember YHOO is on an earnings run, in which 
they are expected to report $0.09 per share next Tuesday, 
October 6, the day after the FOMC meeting.  Of course, we 
never encourage that you hold a position over earnings, 
especially when it's preceded by the possibility of an 
interest rate hike.  You may want to consider taking your 
profits off the table by the close on Friday to protect them 
from the uncertainty leading up to the event.  Frankly, we  
recommend caution opening positions this week, but if you must, 
at least buy the dips in the mid-$170 range, as there is some 
support there.  YHOO continues to remain well above its 10-dma, 
even on the dips.

BUY CALL OCT-170 YHV-JN OI=5532 at $20.25 SL=16.00
BUY CALL OCT-180*YHV-JP OI=5804 at $13.63 SL=11.00
BUY CALL OCT-190 YHV-JR OI=5598 at $ 9.00 SL= 6.75

Picked on Sep 14 at   $165.19    P/E = 684
Change since picked    +19.50    52 week high=$244.00
Analysts Ratings   9-17-5-0-0    52 week low =$ 48.75
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



************************
COMBOS\SPREADS\STRADDLES
************************

Eureka! We've Hit The Motherlode!


***********
MARKET RECAP
***********

Monday, September 27

Equity markets rebounded Monday as investors searched for relief
from over-valuation, upward pressure on interest rates and the
declining dollar. The Dow industrial average rose 24 points to
10,303 while the Nasdaq composite gained 21 points to 2761. The
S&P 500 stock index rose 6 points to 1283. Advances led declines
1,753 to 1,238 on volume of 776 million shares ands the 30-year
treasury bond was down 20/32, pushing the yield higher to 6.02%.

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

Starbucks   SBUX  OCT22C/OCT23C  $0.75  debit  bull-call
Viatel      VYTL  NOV30C/OCT30C  $0.93  debit  calendar

Starbucks opened lower and traded down throughout most of the day.
The target entry price should have been available when the stock
fell below $23 but we were not watching the quotes at that time.
We did observe a $0.75 debit during the morning session. Viatel
was a strange position as it opened with significantly lower
prices on the short side than those we received from the server
on Friday. The CBOE was having difficulty last week and that may
have been the source of our erroneous data. Regardless, the stock
price assisted us in the play, falling more than enough to allow
an entry at the target debit. The position traded as low as $0.75
during the session.

Portfolio plays:

The market struck gold Monday with the commodity surging higher
after European central banks said they would restrict sales of
bullion for the next five years. The Philadelphia Exchange's gold
and silver index was up 21% and gold stocks rocketed on the news.
Newmont Mining (NEM) jumped almost $5 to $27.75 and Barrick (ABX)
romped $4 to $24.12. Both of our new bullish positions traded at
favorable returns near maximum profit and they should be closed
to protect gains and limit potential losses.

The credit strangles were the focus of our attention again as
the market ballooned in morning trading. Hewlett Packard (HWP)
was the best of the group in the first few hours, up $2.12 with
the position trading at $1.50 to close; an $0.88 profit for one
week. Johnson & Johnson (JNJ) also came on strong in the rally,
up $2.68 from a recent bottom near $90. Those of you who don't
want to own the stock should have taken the easy $0.56 profit.
Merrill Lynch was the worst of the three with only a $0.50 gain
during the market rally, but the position was easily closed for
$1.88 debit; a $0.62 profit. Successful traders always consider
an early exit, regardless of the type of play, when the market
offers a favorable return. All of these plays have offered at
least a 25% return, twice in the first week of trading.

In our group of smaller issues, Bell Atlantic (BEL) and 3Com corp
(COMS) both made favorable moves and the calendar spreads on those
issues are playing out nicely. Hambrecht and Quist (HQ) rebounded
$2 to its old range above $40 and Unify (UNFY) halted its recent
plunge with a $0.75 gain. UNFY and Tuts Systems (TUTS) have been
incredibly volatile as of late and those are two positions that
we will watch closely (exiting early if necessary) to prevent any
losses. One of our old straddles; Allied Capital (ALLC), made a
solid rebound today. The remaining position (NOV-$22C) was sold
for $0.88 to close the play for a small profit.

Motorola (MOT) was the big mover in our long-term portfolio, up
$5 to a midday high near $89. This is an excellent opportunity to
roll the play down but wait for the short term recovery to fade
before making any adjustments. Watch for new signs of "selling
into strength" before considering a move. Many of our long-term
issues rallied with the market and you might consider using this
rebound to roll-down on some of those plays. LEAPS/CC's positions
that we are adjusting lower include General Motors (GM), Philip
Morris (MO), Polaroid (PRD) and Exxon (XON).

Tuesday, September 28

Blue chip stocks continued to decline Tuesday, recovering from
steep midday lows only after buying from short sellers reduced
losses in the last hour of trading. The Dow industrials fell 27
points to 10,275 while the Nasdaq composite index gave up only
a small loss to 2756. Decliners led advancers on the NYSE by
1,893 to 1,096 on heavy volume of 877 million shares with new
lows outpacing new highs 302 to 31. The 30-year U.S. Treasury
bond fell nearly a full point, pushing the yield up to 6.09%.

Portfolio plays:

Hambrecht & Quist (HQ) was a big winner today as Chase Manhattan
(CMB), the nation's second biggest bank, said it will buy the San
Francisco-based firm for $1.35 billion to extend its reach in the
lucrative investment banking business. Our bullish debit spread
was easily closed for $14.50 credit, a $3 profit on the position.

Starbucks (SBUX) was another big mover in the small-cap group, up
almost $3 to $26 and moving comfortably above the sold strike in
our new bullish debit position. Bell Atlantic (BEL) broke above
recent resistance after declaring a $0.38 (quarterly) dividend.
This issue is one to watch as the sold strike is at $65 and we
don't want to let a profitable calendar spread get away. Viatel
(VYTL) also made a nice recovery, climbing almost $1 to end just
above $25. There may be hope for that one yet.

Motorola (MOT) continued its recovery today, up $3 at midday to
$89. A roll-down to the $95 strike provided a $1 credit against
the cost basis but beware of jumping the gun as the stock has yet
to show signs of a failed rally. Medtronics (MDT) appears to be
holding nicely after its recent 2-for-1 split. The stock traded
comfortably near $35 even with the market volatility of the past
two days. Biogen (BGEN) is also showing signs of life, climbing
to a high near $82 and closing on a bullish note.

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



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

These new "Reader's Request" plays are based on the current price
or trading range of the underlying issue and the recent technical
history or trend. Current news and market sentiment will have an
effect on these positions so review each play individually and
make your own decision about the future outcome of the stock.

****

CMGI - CMGI Inc.  $97.93     *** Reader's Request ***

CMGI develops and integrates advanced Internet, interactive, 
and database management technologies. The company delivers creative
products and services that will both generate and profit from
direct marketing opportunities on the Internet.

Late Monday the Internet venture capital firm announced favorable
fourth-quarter earnings that easily beat analysts' expectations.
In a conference call, chief executive David Wetherell said the
company expects sharply higher revenue in the coming year and
industry experts say this giant will grow to be the major player
in the Internet revolution.

We cover this issue extensively in the main section of the OIN
and today's breakout (through a recent resistance level) on
solid volume may put it back on our "calls" candidate list.

PLAY (aggressive - bullish debit spread):

BUY  CALL NOV-85 QGW-KQ OI=186 A=$18.12
SELL CALL NOV-95 QGW-KS OI=295 B=$11.62
INITIAL NET DEBIT TARGET=$6.25 ROI(max)=60% B/E=$91.25

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

****

AXP - American Express  $135.81     *** Reader's Request ***

American Express is engaged in the business of providing travel
related services, financial advisory services and international
banking services throughout the world. They provide a variety
of products and services, including the American Express Card
and other stored value products, business expense management
products and services, corporate and consumer travel products
and services, magazine publishing, and merchant transaction
processing, point of sale and back office products and
services.

AXP is another company that makes regular appearances in the
"calls" section of the OIN. It's very well-known with lots of
coverage by major analysts. The most recent outlook is bullish
with ratings of "near-term accumulate" and "long-term buy". The
company's large, flexible marketing, expense and reserve budgets
should continue to drive earnings growth of 13%-15% for the next
few years. The company also recently announced some new Internet
initiatives and enhanced product lines to improve its position
in E-commerce.

We favor the current technical trend and a small price disparity
exists in the OTM put options for those who agree with a bullish
outlook.

PLAY (conservative - bullish/credit spread):

BUY  PUT OCT-120 AXP-VD OI=1309 A=$0.75
SELL PUT OCT-125 AXP-VE OI=2239 B=$1.38
INITIAL NET CREDIT TARGET=$0.75 ROI=17%

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

****

PHG - Philips Electronics  $100.69   *** Reader's Request ***

Koninklijke Philips Electronics of the Netherlands is one of the
world's biggest electronics companies. It is a global leader in
color television sets, lighting, electric shavers, color picture
tubes for televisions and monitors, and one-chip TV products.
The company is also active in other industries such as lighting
and consumer electronics, appliances, semiconductors, medical
systems, business electronics, and IT services.

Philips is by far the leader in this industry with lots of news
and announcements about future products. Our position is based
on the recent technical history and a favorable probability of
profit. This is an extremely active issue with volatility skews
in both directions but we favor the bullish outlook with a cost
basis well below the recent lows.

PLAY (conservative - bullish/credit spread):

BUY  PUT OCT-80 HPZ-VP OI=34 A=$0.31
SELL PUT OCT-80 HPZ-VQ OI=29 B=$0.81
INITIAL NET CREDIT TARGET=0.62 ROI=14%

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

****

BCR - C.R. Bard  $46.50     *** Another Try! ***

C.R. Bard is engaged in the design, manufacture, packaging,
distribution and sale of medical, surgical, diagnostic and
patient care devices. Hospitals, physicians and nursing homes
purchase approximately 90% of the company's products, most of
which are used once and discarded. C.R. Bard is also a leading
multinational developer, manufacturer and marketer of health
care products.

A few weeks ago, we ran a bullish (calendar) position on this
issue, and watched the stock fall to recent lows with the broad
market sell-off. The company has been rumored as a takeover
candidate in the past and with the recent increased merger
activity, the OTM call options are active again. Here is a new
favorable (neutral) position for those who like to speculate.

PLAY (aggressive - bullish/calendar spread):

BUY  CALL JAN-50 BCR-AJ OI=55  A=$4.00
SELL CALL OCT-50 BCR-JJ OI=735 B=$1.88
INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=50%

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



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

Another new group of straddle plays to choose from (two of them
courtesy of Tom Gentile at Optionetics) and most of the positions
offered favorable entry points during Monday's session. Allegheny
Teledyne (ALT), Federal Express (FDX) and Exxon (XON) appeared to
be the most popular plays. Again this week, we noticed that some
of the positions were opened at better-than-suggested prices even
though many of the opening targets were slightly out of reach. In
the tracking summary, we record the initial cost of each position
based on a simultaneous order and observed quotes (throughout the
day) from our data source (Interquote).

Sunday's new plays (positions/prices):

Allegheny Teledyne     ALT	   APR17C/APR15P  $2.50  debit
Dow Jones Industrials  DJX	   NOV102C/N102P  $8.12  debit
Federal Express        FDX	   APR35C/APR35P  $9.75  debit
Mylan Laboratories     MYL	   APR17C/APR17P  $4.56  debit

These new plays are based on Tom's (Optionetics) approach to
debit straddles. Please review his entry and exit strategies
to maximize profits and limit losses on these positions.

New Optionetics plays (positions/prices):

Union Carbide  UK    JAN50C/JAN55P  $10.50  debit
Exxon          XON   JAN75C/JAN75P  $9.25   debit

The market rally on Monday did little to help the rest of our
straddle plays, some of which were collapsing to the downside.
The problem with this type of recovery (and the range bound
trend it produces) is that the potential for a future breakout
is reduced and the cycling trend continues to erode premium in
our positions. At some point, you will have to make a judgment
about closing the play, possibly trading against the straddle
to avoid losing time value (and potential). That is why it is
very important to monitor your plays on a daily basis, looking
for changes in technical character so you can adjust your exit
strategy (when necessary) to fit changes in the outlook of the
underlying issue.

One of the first candidates for profit appears to be Donaldson,
Lufkin and Jenrette (DLJ). The straddle closed Tuesday at $14
credit, a $0.75 profit for the entire position. We expect to
close the put side of the position when it exceeds the overall
cost basis for the play and will make a determination about the
call option (hold or sell) at that time. The technical outlook
of the underlying stock will also be evaluated to help in our
final decision. In other news, the $2 billion merger between
copper companies Asarco (AR) and Cyprus Amax Minerals (CYM)
edged closer to collapse on Tuesday when both of the companies
postponed a key shareholder vote on the deal. Asarco and Cyprus
are the targets of a hostile takeover bid from Phelps Dodge (PD).

One of our older straddles issues; Espire Communications (ESPI)
is now one to watch as it is finally making a move out of its
old trading range near $8. The (MAR-$10) straddle was observed
near break-even today as the stock price fell below $7. We plan
to close the bearish portion of the position when it pays for
the entire play, leaving our (MAR-$10) call option (free) to
profit from any long-term recovery.



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

DISCLAIMER

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

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

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