Option Investor
Newsletter

Daily Newsletter, Thursday, 09/30/1999

HAVING TROUBLE PRINTING?
Printer friendly version

The Option Investor Newsletter         Thursday  9-30-99
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)
************************************************************
        9-30-99            High     Low     Volume Advances Decline
DOW    10336.90 +123.40 10402.80 10212.80 1,024,370k 1,892   1,172
Nasdaq  2746.16 + 15.89  2765.41  2717.96 1,210,569k 2,169   1,848
S&P-100  672.37 +  8.64   676.75   663.91    Totals  4,061   3,020
S&P-500 1282.71 + 14.34  1291.32  1269.33            57.3%   42.7%
$RUT     427.30 +  5.78   427.31   418.49
$TRAN   2909.16 + 16.27  2922.35  2892.33
VIX       26.89 -  1.01    28.82    25.99
Put/Call Ratio      .61
*************************************************************

The good news, the month is over, the bad news, the month is over.

Did you survive the month of September? This was a tough one but
now you can look back on it and say "I am glad it is over." The
bad news, October is now upon us and the outlook is very uncertain.
The rally this afternoon was very satisfying and expected. It
actually gave me a chance to get some fills on puts that I was
target shooting. More on that Sunday. September definitely turned
out as a "dump the duds" month but many blue chips were thrown out
as well. The rally today was a direct result of last minute window 
dressing by fund managers who wanted to list more winners in their
portfolios than losers on their quarterly statements. 


 

 

After trading basically flat for the last two days the starting 
bell rang at 1:30 this afternoon and the Dow gained +140 points 
to bounce off 10400. The flurry of activity was focused into 
recent winners and big names. The Dow failed to hold the highs
and slid back to close at 10336, only +36 points above the 
ceiling from the last two days. After the close the downward
drift continued with the S&P futures going immediately into
negative territory. Tuesday I said for any rally to hold the
Dow would have to trade over 10400 and close over 10350. Close
but no cigar.

While the rally was nice for the books, it was the biggest gain
since Sept 3rd, it has a very good possibility of being a bear
trap. The advance/declines was positive for a change but just
barely. With Greenspan talking tonight, key economic reports
due out tomorrow and the Fed meeting next week there is not a 
good reason to rush out and buy stocks. Most of the news which
drove stocks this week is old news and the key players are all
suffering from profit taking. AMZN is old news. AOL is old news.
CMGI earnings are old news. Now we have to wait for another week
before the October earnings news takes control of the market.
Next week will still highlight earnings warnings and set the
tone for the real earnings season. The major even next week
will be the YHOO earnings and fortunes of the Internet stocks 
which will be painted by the same brush. Fortunately the 3rd qtr
earnings are still expected to be in the +20% range. This is
probably what is keeping the market from falling even farther.

While nobody can predict the direction of the markets for October,
the collective memory of past October crashes is flashing in
the rearview mirror for most traders. This fear factor is one
of the reasons we are range bound. Traders are still selling
into rallies and attempting to raise cash for any buying 
opportunity to come in the next few weeks. Bargain hunters 
that may not have been around for some of the past October
crashes are continuing to buy the dips. A classic tug of war
between the buyers and sellers. How do you win? 

I would suggest that you consider selling some time. There are 
four things that can happen when you buy an option. 1.) Stock 
goes up fast. 2.) Stock goes up slow, 3) Stock is flat, 
4) Stock goes down. Only ONE of these options will make you 
money if you are a Call/Put buyer. 

When you sell time you win when THREE of those conditions
exist. If you buy time you have to be right to win. When you 
buy time you have to pick the direction, the timing and the 
movement to win. When you sell time you only have to be close
to win. If you are selling calls then you pick a stock that
you think will not reach your strike price. That means it can
go up slowly, stay flat or go down for you to make a profit.
If you sell a $50 call on a $45 stock for $3 then the stock 
has to close over $53 on expiration day for you to lose. 
ANY price under $53 and you win. If you bought the call for
$3 then the stock would have to move from $45 to over $53
before you can win. (simplified examples)

The same holds true for selling puts. You pick a stock that
has a good bullish trend, wait for a down day and sell a put
out of the money. If you sell a $40 put on a $45 stock for 
$3 then the stock must drop to less than $37 before you can
lose. Remember you use this on a stock that is moving up. A
$45 stock moving up must make a major direction change and a 
major move to close under $37.

Why the option lesson today? Friday is option selling Friday.
That is the Friday two weeks before expiration. Premiums 
still have some time value but two weeks is too short for
a major direction change on most bullish stocks. Tomorrow
is the best day of the month to sell puts. Almost anyone 
with a margin account can sell naked puts and pocket some
almost free money over the next two weeks. I would recommend
selling puts instead of calls because of the oversold market
conditions. Put premiums are inflated because of the recent
drop and the odds of the market moving dramatically lower 
in the next two weeks are slim. I think 10,000 will offer 
strong resistance if we go in that direction. 

Remember that put premiums reflect the expectation that the
stock will or will not reach that strike price. The Dell $40
OCT-put DLQ-VH is only $1 because nobody expects Dell to trade
under $40. The EGRP $22.50 QGR-VX is only $.88 because $22.50 
is strong support and nobody expects it to break the strike.
The YHOO $165 put YHV-VM is $4.38 because of the chance YHOO
will drop from $175 to $165 in the next two weeks is high. 
Also the stock price is much higher. 

The returns may not be the same as a call on AOL but the risk
is much smaller. The margin on the Dell Put is about $16 for
a $1 profit but it is a 6% profit for two weeks effort. The
EGRP Put produces a profit of about 10%. The YHOO play about
7% profit. You decide if this type of play is right for you.
I love it and I use some uninvested cash to sell puts every
month on this Friday. Check out the Sunday newsletter every
week for some great naked put plays.

Which way next? Barton Bear(Biggs) was on CNBC tonight with
his permanent Dow is going to hell speech. I doubt anybody
takes him serious anymore. He was only one of dozens of analysts
predicting doom over the last week. They could be right but
when everybody lines up on one side of the argument the
reverse normally comes true. The bearish sentiment is so thick
that a rally must be about to break out. I heard one analyst
today that said the advance/decline line had been so bearish
for so long that nobody must be left holding stock. His point
was that there was now an estimated $2 trillion dollars available
to buy stock in money markets and uninvested cash in mutual
funds. Everybody is waiting for the bottom. Yes, some of this
will wait until after Y2K, but there is still a lot of cash 
on the sidelines. Don't get me wrong, I am not saying that 
today was the first day of a record rally. It could be days
or weeks before it is safe to go back into the markets. It is
up to us as personal funds managers to wait for a green light
before opening new positions. If you are a risk taker then
buy the next dip. If you would rather be safe than sorry then
wait until after the Fed meeting to make your next investment.
I had a reader ask me today if we could get another pre-Fed
spike like we had in August since the +.25% increase is already 
priced into the market. I think since it is October and this 
is the retraction of the third and final rate cut from last
fall, the chances are slim. However the very oversold condition
of the market makes anything possible. The volume on the NYSE
was over 1 billion shares today. I have mixed feeling whether
this was good or not. Normally a rally on strong volume is
a good thing but the mood at the close was negative. Some
wondered if the volume was from the rats selling into the
rally to flee the sinking ship. Tomorrow will tell. Futures
are down -2.70 and a lot of dark before morning. I would like
to believe the drop to 10081 on Tuesday was the last leg of
a double bottom but then I would have to believe in Santa
Claus and the Easter Bunny also.

Sell too soon.

Jim Brown
Editor

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

As of Market Close - Thursday, September 30, 1999 

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

DOW Industrials   10,500  11,320  10,337    BEARISH   9.23      
SPX S&P 500        1,350   1,420   1,283    BEARISH   9.16       
OEX S&P 100          675     735     672    BEARISH   9.24    
RUT Russell 2000     440     465     427    BEARISH   9.14       
NDX NASD 100       2,320   2,380   2,408    BULLISH   9.03   
MSH High Tech      1,120   1,180   1,232    BULLISH   9.03   

XCI Hardware       1,035   1,050   1,054    BULLISH   8.24    
CWX Software         750     800     866    BULLISH   9.03         
SOX Semiconductor    480     525     499    Neutral   9.24        
NWX Networking       555     585     600    BULLISH   9.17       
INX Internet         450     510     496    Neutral   9.24      

BIX Banking          690     710     584    BEARISH   7.23    
XBD Brokerage        410     440     374    BEARISH   7.23    
IUX Insurance        645     660     532    BEARISH   7.23         

RLX Retail           915     960     826    BEARISH   7.23     
DRG Drug             365     390     342    BEARISH   9.16      
HCX Healthcare       745     785     685    BEARISH   9.16   
XAL Airline          180     190     137    BEARISH   5.21      
OIX Oil & Gas        285     305     296    Neutral   9.16       


 
Posture Alert    
Window-dressing was the name of the game today, as money managers 
shifted equities around to make their funds look better than their 
true performance.  Semiconductors led the losers with a -3.60% 
drop, followed by Internet and Brokerage, which were down very 
slightly.  Banking and Retail led the leaders, with gains of 2.50% 
and 2.05% respectively.


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

/members/marketposture



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

Thursday, September 30, 1999

Not Going Anywhere?

Can we fast-forward to next week already? This alternating trend 
between the bears & bulls continues, as the bulls won out Tuesday 
and Thursday, while the bears won Monday and Wednesday. Net result 
for this week, absolutely nothing. If you have been buying the 
dips and flipping really quickly, then you have had a fun and 
profitable week. Otherwise, you've been treading water with all 
the mutual funds.  

Sentiment that we have not seen in awhile is that the recent 
(quality) IPO's are showing good strength. This week has seen 
numerous IPO's debut with big gains, and some with 100% gains or 
better such as InterNap Networks & Foundry Networks. What this 
shows us is that there is big money sitting in money market funds, 
waiting for the right opportunity. It is only a matter of time 
before the billions sitting on the sidelines gets put to good use 
in the general market. 

Sentiment readings came out yesterday, and bearishness continues 
to gain strength. According to the Investors Intelligence Survey, 
the percent of bearish investors is now at a year-to-date high of 
32.8%! This bodes extremely well for this market. 

If you were to combine all the billions of dollars sitting on the 
sidelines, with the extreme bearish sentiment that currently 
prevails; what would happen to this market if October's earnings 
season comes out stellar? One very big market rally! However, 
continue to be patient, because until some uncertainty is removed 
from this market (i.e. Fed, earnings, inflation, etc.), the bears 
won't run for cover.  


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 above the 25 benchmark, but has held ground in the low 
30's.

Interest Rates:
The yield on the 30-yr Treasury is above the 6% benchmark, but off 
the highs of 6.272%.


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 Gillette and Dupont(rumored) being 
the latest casualties.

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

Russell 2000 & S&P 500:
The RUT and SPX continue 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      Thurs  
Indicator                        (9/24)     (9/28)    (9/30)  Alert

Pinnacle Index (OEX):          

Underlying Support  (680-700)      1.1       1.4      1.9
Underlying Support  (650-670)     22.6       8.6      5.5
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .6        .5       .6
CBOE Equity P/C Ratio               .5        .5       .5
OEX P/C Ratio                       .9       1.0      1.2


Peak Open Interest (OEX):

Puts                              640        600      650
Calls                             700        700      700
P/C Ratio                         .93        .91      .84

Market Volatility Index (VIX):	

CBOE VIX                         27.09



Investors Intelligence:

Bullish                         42.90%  *
Bearish                         32.80%  *


The Power of Sentiment Analysis

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

 
OEX Pinnacle Index              Friday      Tues       Thurs
Benchmark                       (9/24)      (9/28)     (9/30)

Overhead Resistance (680-700)     1.12       1.39       1.87

OEX Close                       672.80      675.46     672.37

Underlying Support  (650-670)    22.56       8.56       5.54
                     

 
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       Thurs
Strike/Contracts                (9/24)     (9/28)     (9/30)

CBOE Total P/C Ratio             .61        .54        .63
CBOE Equity P/C Ratio            .53        .46        .48
OEX P/C Ratio                    .90        .99       1.21


Peak Open Interest(OEX)     Friday         Tues            Thurs
Strike/Contracts            (9/24)         (9/28)          (9/30)

Puts                  640 /  7,676     600 /  8,344    650 / 10,088
Calls                 700 / 10,340     700 / 11,650    700 / 11,995
Put/Call Ratio           0.93             0.91            0.84


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                      27.09 


 

Investors Intelligence Major             Percent     Percent
Date                   Turning Point     Bullish     Bearish

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

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

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

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

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

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

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

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

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

Sept  1, 1999                            42.9        31.9 
Sept  8, 1999                            44.1        30.5 
Sept 15, 1999                            41.5        31.4  
Sept 22, 1999                            42.9        31.6
Sept 29, 1999                            42.9        32.8



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

Daily Results

Index     Last    Mon    Tue    Wed    Thu   Week
Dow    10336.95  24.06 -27.86 -62.05 123.47  57.62
Nasdaq  2746.16  21.34  -5.50 -25.98  15.89   5.75
$OEX     672.37   2.71  -0.05 -11.73   8.64  -0.43
$SPX    1282.71   5.95  -1.11 -13.83  14.34   5.35
$RUT     427.30   4.77  -3.37   3.03   5.78  10.21
$TRAN   2909.16 -16.27  -5.47  35.91  16.27  30.44
$VIX      26.89  -2.27  -0.30   0.93  -1.01  -2.65

Calls             Mon    Tue    Wed    Thu   Week

VOD      237.75  -3.50   0.00   7.19   3.56   7.25  What a run!
AOL      104.06   3.75   8.75  -0.50  -5.19   6.81  New
XMCM      49.63   1.25   1.38  -0.50   3.63   5.75  Looks strong
RNWK     104.56   3.81  -1.75  -1.00   4.56   5.50  Above support
CMVT      94.31   1.88  -2.31   1.12   2.94   3.63  New
ITVU      37.13   3.50  -0.38   2.81  -3.06   2.88  Time to buy?
SUNW      93.00   3.75  -0.94  -1.44   1.44   2.81  Great day
DCLK     119.13   2.28  -5.16   2.56   2.75   2.38  Momentum
EMC       71.38   1.44   0.88  -1.13   1.13   2.31  Earnings run
NOK       89.88  -0.06   2.50  -1.25   0.38   1.56  Above 10-dma
SNE      150.06   1.75  -1.44  -0.94   1.75   1.13  Rebounded
QCOM     189.19   3.81   0.31  -5.88   1.44  -0.31  Comeback
NTAP      71.63  -1.63   1.88  -0.50  -0.63  -0.88  Dropped
YHOO     179.50  -1.94   3.31  -5.38   0.19  -3.81  Ending run
ELNK      42.94  -2.22  -0.03  -1.50  -0.88  -4.63  Dropped
EBAY     141.06  -7.31  -0.75   1.00   2.06  -5.00  Nasdaq 100
ADI       51.25  -0.06   0.06  -1.19  -3.88  -5.06  Dropped

Puts

GENZ      45.06  -1.68  -1.50  -3.69   1.44  -1.69  Downhill slide
KO        48.25  -0.63  -0.13  -0.25  -1.88  -0.63  Great play
JNJ       91.88   0.19   2.00  -0.50   0.19   0.19  Dropped
WPI       30.56   0.38   0.00  -0.19   0.81   0.38  Future drift
LLY       64.19   0.94  -2.00  -0.25   0.31   0.94  Good entry
DD        60.50   0.00  -0.31   1.06   0.63   1.38  What a day!
DOW      113.63   3.50   0.94   0.88   1.44   3.50  Dropped


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


CALLS:
*****

ADI $51.25 -3.88 (-5.06) ADI this week traded as high as $59.19
riding the wave of being a new upcoming addition to the S&P 500.
But even that kind of news could not support the stock in a semi-
conductor sector that chose this week to sell-off substantially.
The PHLX semi-conductor index started the week sitting at 514.85,
four trading days later it sits at 499.07.  Stocks in the sector
have taken a major beating.  For example Micron Technologies 
is down 14.25 points and the week isn't finished yet.  On 
Tuesday it was recommended that trailing stops be put in place 
to protect your profits in your ADI position, we hope that 
advice was followed, especially when the shares broke through 
the support point at the $55 level that had held up so well in 
trading sessions of the past.  This sell-off in the shares was 
clearly an across the board sector repositioning of assets and 
going forward we will do the same and reposition our money at 
these current levels.  The short-term rally has now ceased and
other opportunities look much more attractive at this time.

NTAP $71.63 -0.63 (-0.88) After bouncing off support at $69.50 
late in the day Tuesday, shares of NTAP continued to climb to 
$75.63 in the first two hours of trading Wednesday.  Apparently 
the ascent to higher prices was not meant to be as the sellers 
stepped in pushing NTAP back to close down $0.50 for Wednesday's 
session.  Today with the strength in the broader markets, whether 
it was "window dressing" or not, NTAP couldn't get out of its 
own way, as shares of the computer networks company drifted 
lower for most of the day.  Since last Friday NTAP has spent 
most of its time south of its 10-dma.  Even industry leader 
Cisco Systems has seen a bit of a pullback and as of today hasn't 
been able to pull itself out of the doldrums either.  We will 
continue to keep our eye on NTAP and the networking sector but 
for now there are better opportunities elsewhere.   

ELNK $42.94 -0.88 (-4.63) This leverage/merger play came to 
a grinding halt today.  There was no mistaking the words of 
Bill Burnham, General Partner of Softbank's venture capital 
firm, Softbank Capital Partners.  EarthLink, MindSpring, and 
other ISP's are simply "over-valued"!  He believes the future 
truly holds free Internet access and that companies will solely 
"rely on revenue from advertising and e-commerce".  Even AOL 
shares fell on the comments.  Technically ELNK is perched on 
its 10-dma ($42.93) and recall that just on Tuesday it received 
a Strong Buy rating from Scott & Stringfellow.  However with 
the upcoming Fed Meeting and this recent news event afflicting 
the stock today, we reconsidered that its too risky to keep 
ELNK on our call list. 


PUTS:
*****

DOW $113.63 +3.50 (+6.75) After it was reported last week that
rising costs of petroleum-based raw material would hurt third
quarter earnings, DOW has come back with an enormous amount of 
rebuilding news that the market seems to be buying.  On Tuesday
we reported that the company came out with a press release 
announcing its progress and challenges in balancing economic
growth with environmental integrity and social responsibility.  
Today the Dow Chemical company announced that it has launched
a corporate-wide program to incorporate the "Six Sigma"
methodology into all of its businesses, as part of its Phase II
transformation strategy.  With the help of third quarter window
dressing, this stock has now powered its way through the 10-dma
that was at the $110-$111 levels.  If you did not close your 
puts at this point, the time is now to move on.  Although we 
believe that it is very possible that we will be revisiting 
this stock in the near future as the comeback does not seem to 
have legs to it, we will let it go for now.  

*************************
DROPS CONTINUED IN SECTION TWO
*************************



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

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


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

To subscribe you may go to our website at 

www.OptionInvestor.com

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

 "subscribe@OptionInvestor.com" 

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

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


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

The Option Investor Newsletter         Thursday 9-30-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


************************
DROPS - PUTS - CONTINUED FROM SECTION 1
************************

JNJ $91.88 +0.19 (+1.88) With the oversold conditions in the 
drug sector, many of the companies seem to be consolidating 
and trying to find a bottom.  At this point, the $90 area has 
proven to be solid support for JNJ.  After Tuesday bounce, we 
decided to give JNJ one more chance to continue its slide to 
lower levels.  Although JNJ didn't really exhibit any signs of 
renewed strength it didn't fall either.  There still has been 
no news to change the near term outlook for the JNJ or the 
industry as a whole, however it appears as the most of the 
recent declines may be over and we are entering a period of 
consolidation.  JNJ is a stock that moves in cycles and this 
could be the bottom before the up cycle.  So we are dropping 
JNJ and will look elsewhere for other opportunities.  



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

Cash

Sun Tzu, the ancient Chinese military philospher, said that the 
wise general knows how to use both normal and special forces. 
He meant: in a week like this, stay in cash. Normal forces, 
like the Army, represents your long term stock portfolio. 
Special forces, like a Marine Expeditionary Unit floating 
around on amphibious ships, represents options. You want to use
the special forces, which are capable of gaining alot of ground 
quickly, when you are very confident of the situation. You do 
not want to expose these highly specialized assets to undue 
risks. My trades are a good example of why you want to stay in 
cash in a week like this.

I started the week on a high note and went downhill from there. 
I had IBM and QCOM calls which I sold shortly after the open on 
Monday. 25% gain on those positions; 10% gain for my portfolio. 
Later that day, I got into an OEX put position, but was stopped 
out due to a bad entry. On Tuesday, I again entered a OEX put 
position, but was again stopped out due to a bad entry. Later 
Tuesday, I played the rebound from a double bottom with IBM 
and QCOM calls. I was up at the close on those open positions. 
Wednesday opened with negative news on IBM (Merrill dropped it 
from the top 10 tech list), and the stock gapped down, which 
caused my stop alert to trigger. Another loss. Shortly after 
that, QCOM hit my stop and I sold that position too. I added 
insult to injury by buying more calls, since I had convinced
myself that the market was rebounding. More losses, as those 
contracts too hit their stops before the end of the day. Overall,
25% loss on my portfolio for the week. The lone bright spot this 
week was in my core stock portfolio: AMZN jumped on news about 
ZShops. This was one week better left to the Army.

The good news is that I know when to quit and watch for better 
battlefield conditions, such as after the Fed meeting next week. 
The Marines made their name by amphibious landings at places like
Iwo Jima and Saipan in carefully calculated invasions. But between
those landings, they spent months in Australia, doing exercises, 
relaxing, and resting. By contrast, the Marines were misused in 
Vietnam because they were subjected to continuous operations 
which kept units in the field for months at a time. Since the end 
of August, my trading portfolio bears more resemblance to a Vietnam 
era unit beat up by too many plays, too many uncertain risks, too 
many hunches on too many CPI reports, etc, etc. At least until 
early next week, I am going on a trading halt. I'll use the time 
to make a list of stocks with earnings in mid October, options I 
want to play, and prices that I want to target shoot. I'll live 
to fight another day, and when I do, I'll come out swinging.

Janar Wasito
janar@OptionInvestor.com



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

XMCM $49.63 +3.63 (+5.75) Its been a tough week for Internet 
stocks which have been the leaders in the market.  Despite 
this leadership, like other sectors, internets have had a 
difficult time maintaining their rally mode status.  Xoom.com 
has a similar history, however, the stock has managed to 
break through it 10-dma at $46.50 showing technical strength 
in the stock.  The next resistance level for XMCM is its 
200-dma or $50, which is just around the corner.  If Internet 
stocks maintain today's momentum into Friday look for the 
stock to reach this level.  Today's market run was impressive 
but expect similar volatile conditions in the near-term.  
The Federal Reserve is meeting next week and it remains 
questionable whether they will raise interest rates.  There 
will be plenty of entry points available for those investors 
looking to place new trades.  The stock has been trading 
between $44 and $49 the past few sessions.   A good entry 
point within this range would be the 10-dma or $46.50.  
Remember, confirm the overall market direction before placing 
these trades.  There was no news to report at this time.       
 
NOK $89.88 +0.38 (+1.56) Nokia opened solidly at $90.00 this 
morning and traded as high as $90.25 before settling into a 
mid-day lull, trading as low as $88.81.  Nokia rallied late day 
to close at $89.88.  Our short term technical indicators point
to a positive moving average trend.  This is due to NOK's 
ability to hold above the 10-dma which is at $88.75.  Notice 
today's bounce was right at that level.  Nokia plans to unveil 
a number of new features at the upcoming Telecom '99 event, 
which will be held from October 10-17 in Geneva, Switzerland.  
Nokia is known as the world's leader in cellular phones and has 
stated that by 2003, they are expecting to have over 1 billion 
mobile subscribers.  Use caution in this market!

SNE $150.06 +1.75 (+1.13) Sony has been a stock without
direction this week.  Staying very range bound just below
our 10-dma of $151 due to the markets move on the Yen gaining
versus the Dollar.  We did get a late day rebound, as the 
Dollar did firm today giving us some confidence in our play 
strategy.  The Yen has been at a three and a half year
high as of last Wednesday and investors have been looking
for signs from Japan to curb the rise.  Japan has been
very non committal however, and yesterday the Dollar fell
another full point to $105.74, continuing the trend down.  
This condition causes Sony's products to cost the American 
consumer more and curbs sales.  What we are hoping to see soon 
is a commitment from Japan to improve their monetary policy to 
curb the Yen's rise, therefore a rise in the dollar, a positive 
market, and a rotation of capital to Japan.  These conditions 
will be fuel to spark SNE to trend higher.  We may not see this 
combination until after next Tuesday, so use patience and caution 
in your decisions.  On the lighter side, SNE issued license to 
six companies to help manufacture the new memory stick, to be
used in PC's, camera's, etc. commencing the fabrication of
the new technology.  Finally, did you like the show "Matrix"?
Apparently most people did!  SNE just shipped 1.5 million
copies making it the most successful DVD release thus far.  Wait
for a confirmed turn in SNE's stock price before playing.

RNWK $104.56 +4.56 (+5.50) Real Networks gave us a big tail
today.  Characteristic of most species with big tails, is
the fact that they are strong and RNWK showed it's strength
today as it battled back from a potentially dangerous dip to
$95 on news of intense competition from Microsoft.  Microsoft
announced that they have teamed with thirty five companies
in order to compete in the streaming media delivery market.
A formidable opponent to say the least.  MSFT has reason to 
be hard on RNWK, since they lost Rob Glasser, a former 
Microsoft employee to RNWK who is now the CEO with a lot of
MSFT knowledge.  The fact that RNWK climbed to remain above 
our support of $100, is a very bullish indicator.  Investors 
are expecting continued good earnings, and as we mentioned 
in Tuesday's update, a possible split announcement.  All this 
because they have a "significant head start" in the streaming 
market against competitor Microsoft as per spokesman Jay 
Wampold and are looking to be in the black as far as earnings.   
Tails on a candlestick chart are indications of strength, showing
the buyers out powering sellers to keep the price up.  The
company confirmed release of it's earnings this quarter
after the market close on Oct. 19th.  Today's strength, and
fact that we are 13 days away from the announcement, put's
us in a prime spot for an earnings run.  

EMC $71.38 +1.13 (+2.31) EMC was slow out of the starting
gate today but, as the session wore on, and investor confidence 
rose from the group of favorable economic data, EMC gained 
steam.  A company spokesman today confirmed that the estimated 
earnings release will be October 20th, before the market opens.  
Given this information and a positive market direction, we  
expect the run into earnings to begin any time.  I wouldn't 
expect any dramatic gains until after the Fed meeting, but 
today's economic news helps our situation substantially.  
Analysts are setting EMC's target price at $82, and with a 
whisper number on the street for earnings of $0.31 versus an 
estimate of $0.27, we can expect a good run to occur.  Today's 
close puts us slightly above our 10-dma support of $71.00.  Jim 
Seymour with CBS MarketWatch listed EMC as a stock to play. 
Remember Jim's caution before the Fed meeting, and confirm a 
rise in the stock price and market before playing.  Use 
trailing stops to protect against market surprises.

ITVU $37.13 -3.06 (+2.88) Even on a sunny day, it rains 
somewhere in the world.  Today while the market shined on us 
because of better than expected GDP revision, a little rain 
fell on ITVU.  So why the dip today?  Well investor relations 
for InterVu had no comment, and said that the industry is so
volatile that they view it as customary and not out of the
normal range in price.  After Wednesday's gain, we can't
complain.  We are still in profitable range.  ITVU did confirm
that their earnings release will be on October 28th, at
2 p.m. Pacific time.  Since they're streaming experts, it will
be broadcast on the Web, as well as a conference call.  Look 
at the chart, especially the April earnings run.  Very volatile!  
Considering that we are still 20 days away from the announcement, 
it is early in the run.  Consider today as investors protecting 
those recent gains.  The consensus earnings estimate for ITVU 
is ($0.53), the whisper on the street is ($0.38).  If the street 
proves right, this would be close to a 40% surprise.  Good 
reason for some investor confidence.  Along with this confidence,
ITVU is one of the 35 who have teamed with Microsoft to expand 
the delivery of broadband media.  We hit $40.88 on Wednesday 
which made for some great profits.  After today's consolidation, 
look for momentum to return with volume before opening new 
plays.

VOD $237.75 +3.56 (+7.25) Shares of VOD finally kicked into 
gear the past two days.  After gapping up $3.00 at the open on 
Wednesday, VOD traded made a high of $236 in the first 90 minutes
before settling in to the familiar sideways pattern for the 
balance of the session.  The buying continued today into the 
close as VOD topped out at $239.25 in the last 30 minutes before 
closing at 237.75.  Since being selected to our list on Sep 21, 
at $216.63, VOD has provided us with several great opportunities 
to climb on board its split run.  Besides the 5:1 stock split 
investors are anxiously awaiting the release of Vodafone's third 
quarter subscriber numbers which are due out Monday.  Analysts 
are expecting a record 2.7 million new subscriptions worldwide,
compared to their previous best of 2.5 million in Q4 of 1998.  
If you haven't taken you profits from the VOD run keep your 
stops close, as we would suggest liquidating any open positions 
by the close of business tomorrow.  But for you dare-devils, we 
could possibly see a phenomenon where investors have been waiting 
to own VOD and buyers are anxiously waiting in the shadows.  
It's your call to stay aboard but we will exit the play before 
the weekend to avoid a post-split depression. 
 
DCLK $119.13 +2.75 (+2.38) Well at least the trading range has 
narrowed.  After climbing to a high of $121 Wednesday morning, 
shares of DCLK fell back into a $5 trading range for the balance
of yesterday and today.  DCLK tried this morning to continue
its ascent to higher highs only to fall back one more time.  
DCLK announced yesterday it had added 7 new Websites to its 
shopping and services program.  They included Travelcity.com, 
Comedy Central, A&E, The History Channel, New York Daily News, 
National Review, and Netzip.  DCLK also announced Wednesday it 
had signed an agreement with Internet Stock News.  We are staying 
with DCLK, as it did appear to be picking up a bit of momentum 
in the last half hour of trading today.  After bouncing off 
$116.25, the volume picked up as the price began to climb near 
the upper end of the trading range for the past two days.  We do 
believe that DCLK will eventually break out of its range bound 
pattern and continue higher.  We would urge extreme caution in 
considering a new play in DCLK, until it proves it can break 
through its overhead resistance in the $120-$121 area and hold 
it.  In the mean time keep your stops close and let the market 
tell us what our next move should be. 

SUNW $93.00 +1.44 (+2.81) Wednesday was another great day 
at the market for SUNW.  It peaked first thing at $95.75 
setting another 52-week record high before profit-takers 
came in to take some cash off the table.  The stock held up 
well, never slipping under $91.38.  Certainly the Strong Buy 
reiteration by MSDW offered support.  They also issued a 
price target of $125 and raised Year 2000 estimates to 
$1.83 from $1.75.  Ironically SUNW took back today exactly 
what it gave up yesterday ($1.44).  Trading volume remains 
very strong with levels still about 65% above normal.  So 
far this week, support seems firm at $91 just below the 10-
dma ($92.05)  In the news, the company announced the 
earthquake in Taiwan shouldn't have any impact on its 
supply chain and thereby not affect sales.  Also on 
September 29th, Sun Microsystems announced they broke their 
own TPC-C world record for online transaction processing. 
The TPC-C benchmark is an industry-standard test designed 
to measure systems' online transaction processing capacity 
under controlled conditions.  The new record of 135,461 
transactions per minute beats SUNW's previous record by 
over 17%.  Even though this play continues to provide 
players with lots of profit opportunity proceed with 
caution ahead of the FOMC Meeting.  Earnings are confirmed 
for October 14th, after the bell and so far it appears the 
momentum may continue to carry it towards to this date.  

QCOM $189.19 +1.44 (-0.31) QCOM took a good whipping out 
behind the shed yesterday shaking off $5.88.  But the stock 
came back today showing lots of spunk.  It succeeded in 
reaching a daily high of $194.13 before settling for a 
small gain.  Trading volume is still a bit sluggish at 
about 50% of its ADV however, this hasn't hurt the profit 
opportunities.  For instance, the daily spreads this week 
have been as wide as 10 points offering a variety of 
entries to target shoot into this momentum play.  Now be 
careful of using stops on such a volatile Internet stock. 
It's very easy to get kicked out of the game unintentionally 
and lose possible gains.  This play really needs your undivided 
attention to take full advantage of its potentiality.  In the 
news today, Qualcomm announced that they are reviewing their 
investment in Metrosvyaz of Russia since Leap Wireless 
International withdrew its support due to "serious financial 
irregularities".  QCOM has approximately $50 mln (net book 
value) in relation to this venture.  Bottom-line is that they 
may have to take a one-time write down in the fourth fiscal 
quarter of 1999.  Still the company reported it expects to meet 
or beat 4Q analyst consensus at $0.88 p/s.  The earnings' date 
has been confirmed for November 2nd, after the bell.

YHOO $179.50 +0.19 (-3.81) While fund managers were shopping for 
end of the quarter window dressing today, Yahoo! apparently was 
not on their "buy" lists.  Volume has been on a sequential 
decline since last Friday to the point where YHOO traded just 
63% of its ADV today.  It looks like investor sentiment toward 
piling into YHOO for its earnings announcement on October 6th 
has ended.  Similarly, you can be pretty sure that the exit is 
going to get crowded as that day approaches, especially since 
the FOMC meeting precedes it on October 5.  The Fed meeting alone 
will cause jitters in interest rate sensitive stocks.  Also, 
given a stock's propensity to fall after an earnings announcement, 
you should plan a prior exit of the position.  As you know, we 
never recommend holding over earnings.  Since Monday and Tuesday 
aren't shaping up to be positive days (FOMC, YHOO earnings) for 
YHOO, you may want to plan to exit tomorrow.  We'll likely close 
the play in Sunday's letter.

EBAY $141.06 +2.06 (-5.00) Despite noticeable volume most likely 
related to window dressing in today's market, Internet stock 
volumes were light to average, signaling that they were not 
likely dressing any fund managers' windows.  EBAY was no 
exception, trading just 95% of its ADV.  Last night though, it 
was announced that EBAY would join the NASDAQ 100 on October 6, 
which should have sparked some buying activity.  It means that 
index fund managers will eventually have to add it to their 
portfolios to accurately reflect the index.  It's a forced 
accumulation, which will drive up the volume, and thus the 
price, a bit.  Perhaps we'll see the volume pick up after the 
FOMC meeting when investors won't likely feel as skittish about 
a rate hike.  Historical support is still in the $136-$138 
range, a point that looks buyable so long as it bounces off and 
doesn't drop through.  Technically, the 10-dma of $141 has been 
providing some resistance for the last week but the price is 
edging up nonetheless.  As a friendly reminder, this is a 
volatile Internet issue and not for regular anti-acid users.  
If your risk profile is only slightly more conservative than 
a "Flying Wallenda", you may want sit out this technically 
critical and interest rate sensitive period of the market while 
waiting for direction.  Earnings are scheduled for release on 
October 26 after the close.



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

KO $48.25 -0.63 (-2.88) Yes, it's the real thing, and just the 
thing for a great put play.  While KO struggled for recovery 
today, the last hour of trading fired the strategic silver 
bullet, as selling volume increased drastically, sending the 
price down $1.56 from its high of the day.  This was an apparent 
attempt by a fund manager or two to "hide the body" so KO doesn't 
have to show up on the funds' roster.  We note again 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."  We got a great entry yesterday afternoon 
as the price fell below $49.50 and the volume began to increase.  
While the long term prospects don't look good for KO, we implore 
you to use caution at this point, since window dressing isn't 
going to be a factor again until next quarter, which may cause 
the selling volume to shrink.  In the short term, major selling 
may be over, which may cause the descent to slow or stabilize.  
From a historical perspective, the selling volume isn't likely 
to remain this high forever.  To enter the play, you may want 
to wait for a technical bounce with failure at the $49-$49.50 
level.  You have to go all the way back to 1996 for a lower 
price.  Earnings aren't until "the third week of October, 
probably Wednesday or Thursday".  That's the best KO could 
tell us when we called them.

GENZ $45.06 -1.69 (-5.44) We still have no idea what started 
this downhill slide, but we sure like the slope.  Technically, 
every moving average has violated to the downside.  The 10-dma 
can't even keep up with the rate of descent.  The pattern seems 
to be fall, up slightly, fall more, up slightly, fall more, 
every time setting a lower low.  The next support is at $40.  
A good entry will likely occur when the price rises to $46 then 
falls back, but wait for the downward bounce to be sure.  The 
drug stocks actually exhibited some strength today, which may 
rub off on the biotech sector in the not too distant future, 
especially if the market takes off, the stock gets an upgrade, 
or the company reports some good news.  Just make sure negative 
market conditions are in your favor before starting the play.  
Maybe tomorrow or Monday in front of the FOMC meeting?  Earnings 
are not until October 21, according to Zack's, and thus not yet 
a factor.

DD $60.50 +0.00 (+1.38) What a day for Dupont!  Dupont traded 
right around $61 throughout the day but experienced a big late 
day sell-off, bringing the volume up to approximately 5 million 
and sending it downward to close at $60.50.  As we all know it 
is the time of year for "window dressing" and Dupont was 
certainly not excluded from the fun.  This may have been the 
main reason for the rebound today.  Dupont continues to be 
burdened with a large negative divergence from its 50-dma and 
we see further downside.  The stock again closed below the 
10-dma at $60.75 despite trading above it during the day.  
Therefore, we expect a continuation of Dupont's downtrend 
as today's rally was probably a bear trap.  We expect DD to 
retest the lows from Tuesday at $58 again soon.  

LLY $64.19 +0.94 (-1.00) Right on schedule is our put play 
of Eli Lilly.  You may recall from Tuesday's update that we 
were looking to exit the play and let Lilly rebound back to 
the resistance at $65.  LLY has co-operated and we are looking 
for the next entry point.  But we have some reason to fear that 
the resistance may not last.  This is because Schroder & Co. 
came out today and started coverage on 5 Drug stocks.  They gave 
LLY the lower of the 2 ratings at Outperform but the comments 
spurred the gains you saw in the stock and sector today.  The 
other concern is the market which had a nice move up today.  
But $65 resistance is strengthened by the 10-dma and has not 
folded under the buying pressure.  This is the determining 
factor in our play.  As long as LLY remains below this level, 
it is a good entry point.  We expect today's window dressing 
rally to subside and LLY should head right back to $62.  This 
is just what we got late in the day right after LLY hit $65 
and rolled over.  Keep your stops set right above the 10-dma.

WPI $30.56 +0.38 (+1.00) Today the Market had a nice short-term
turn around, rallying to close the day over 100 Dow points.  
This action was due to the end of the quarter window dressing 
by money managers, as well as an oversold technical bounce.  
But even this was not enough to rally the shares of WPI above 
our cover point at $32.  The high of the day hit $31.13 before 
bouncing back down to settle at current levels $30.56 on very 
low volume.  As we have recently reported WPI is expecting to 
miss the earnings estimate by 6 or 7 cents per share due to 
report on 11/04.  Going forward, although the shares have 
bounced off of the recent lows of the year, we expect WPI to 
continue to drift lower in the trading days to come, looking 
for an additional entry point on the confirmed bounce off the 
10-dma at $30.75.  Always remaining cautious, just in case 
the downtrend is broken, we will stop out the play on any 
sustained rally over the 10-dma.


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

CMVT - Comverse Technology Inc. $94.31 +2.94 (+3.63)

Comverse Technology makes enhanced telecommunications systems 
and is the third-largest firm in the voice mail market.  Its 
TRILOGUE Infinity and Access NP product lines supply voice 
and fax messaging, automated personal assistant, and call 
answering services.  TRILOGUE is marketed to telecom network 
operators and gives multiple telephone users access to 
integrated digital information and messaging services. 
Comverse's AUDIODISK and ULTRA lines are communications 
monitoring systems used by police and surveillance agencies, 
correctional institutions, emergency 911 services, financial 
institutions and tele-marketers. 

We actually ended the day on the upside, anyone watching the 
market lately would realize what a rarity it is.  Our newest 
call play, CMVT, participated in the rally and is going to be 
one to watch in near future.  One reason why we chose this 
play was due to an annual shareholders meeting that is scheduled 
for October 8th.  One of the items on the agenda is to vote 
to authorize the increase of common shares from 100 million 
to 300 million.  We have seen in the past what type of euphoria 
can be brought about by such an event.  The reason why this 
action can drive a stock higher is because shareholders 
anticipate a forthcoming stock split.  An recent example of 
this situation is BroadVision.  Today during its annual 
shareholder meeting, BVSN announced that its Board of 
Directors approved a 3-1 stock split.  The stock was up $11.13 
on the news as investors bought shares hoping to get a piece 
of the pie.  Technically speaking, CMVT looks very strong.  
The stock is trading well above its moving averages and is 
poised to make a run at its 52-week at $97.63.  When placing 
new trades, watch for slight pullbacks on the stock.  A good 
entry point would be its 10-dma at $91.00 if the stock retreats 
this far.  If the stock continues into higher regions, go with 
the flow and enjoy the ride.  

There was little news to report this week.  One good announcement 
came from  Oscar Gruss & Son which initiated coverage on Comverse 
Technology with a Buy rating and a 12 month price target of $111.

BUY CALL OCT- 90 CQV-JR OI=1187 at $6.38 SL=4.25
BUY CALL OCT- 95*CQV-JS OI= 804 at $3.38 SL=1.00
BUY CALL OCT-100 CQV-JT OI=  81 at $0.69 SL=0.00
BUY CALL NOV- 90 CQV-KR OI-  55 at $7.63 SL=5.75
BUY CALL NOV- 95 CQV-KS OI=  21 at $5.63 SL=3.75

Picked on Sep 30th at   $94.31     P/E = 47
Change since picked      +0.00     52-week high=$97.63
Analysts Ratings     9-3-0-0-0     52-week low =$19.58
Last earnings 08/99  est= 0.52     actual= 0.52
Next earnings 11-30  est= 0.52     versus= 0.41
Average Daily Volume =   929 K
Chart = http://quote.yahoo.com/q?s=CMVT&d=3m


**********
NEW CALL PLAYS CONTINUED IN SECTION THREE
**********

SEE DISCLAIMER IN SECTION ONE





The Option Investor Newsletter         Thursday 9-30-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


********************
NEW CALL PLAYS - CONTINUED FROM SECTION TWO
********************

AOL - America Online Inc $104.25 -5.00 (+6.75 for the week)

AOL is the world's #1 provider of online services with over 
17 million subscribers.  It's acquisitions in 1998 and 1999 
have given the company a 60% market share and diversity.  
CompuServe, an online service geared more to professionals, 
added its 2 million users to the AOL portfolio in 1998.  
This year AOL brought the Web navigator, Netscape, to its 
organization and is also using DIRECTV to launch an 
interactive TV service.  The recent announcement of a 
proposed merger between EarthLink (ELNK) and MindSpring 
(MSPG) and the new wave of companies offering free Internet 
access is certainly heating up the competition for AOL.

Let's keep it simple.  AOL is an earnings' play.  The stock 
has been moving full-speed ahead since Friday revving up 
for 3Q earnings expected on October 18th (to be confirmed).  
Granted news events are influencing the stock's movement but 
they are not the basis for this play.   For instance last 
Friday AOL jumped up $10 in response to Microsoft's (MSFT) 
action to raise its access rates to match AOL's.  For months 
investors have been exiting ISP stocks because of very strong 
competition with free ISP services and this bold move by MSFT 
gave strong confirmation for the pay ISP business model.  
Other news events that accelerated AOL's climb last week were 
the positive analyst ratings.  Jefferies & Co started coverage 
with a Buy rating on September 23rd and the following day 
Brokerage William Blair upgraded AOL from a Long-term Buy to 
a Strong Buy.  That same day a dissenting vote did come from 
Raymond James who downgraded the stock from a Buy to an 
Accumulate, yet it obviously was overlooked by investors.  
Since last Friday AOL advanced $11.75, or 12% that is until 
today's trading.  You would have expected the upward momentum 
to continue in today's rising market, but a negative news 
event has ironically blessed us with an entry point into 
this play.  According to Bill Burnam, a general partner of 
Softbank's venture capital firm, Softbank Capital Partners, 
he believes that ISP's like AOL, ELNK, and MSPG are all 
"over-valued" and that in the future these companies will 
"rely on revenue from advertising and e-commerce" and not 
from charging customers for Internet access.  So that explains 
part of AOL's degradation today.  Also it's likely some profit-
taking was in order after the recent run up.  Near-term overhead 
resistance is at $113.50, a daily high hit yesterday afternoon 
and support remains firm in the $87 to $90 range.

In other news today, AOL announced that over 11 mln of its 
subscribers now shop online.  This figure is double from what 
it was in June 1998.  

BUY CALL OCT-100*AOO-JT OI=27678 at $ 7.75 SL=6.00
BUY CALL OCT-105 AOO-JA OI=25134 at $ 4.88 SL=3.25
BUY CALL OCT-110 AOO-JB OI=21697 at $ 2.88 SL=1.50
BUY CALL NOV-105 AOO-KA OI= 4235 at $ 9.50 SL=7.25
BUY CALL NOV-110 AOO-KB OI= 5914 at $ 7.38 SL=5.75

Picked on Sep 30th at   $104.25    P/E = 178
Change since picked       +0.00    52 week high=$175.50
Analysts Ratings    23-16-3-1-0    52 week low =$ 20.62
Last earnings 06/99   est= 0.11    actual= 0.13 surprise +18.2%
Next earnings 10-18   est= 0.13    versus= 0.05
Average Daily Volume = 19.2 mln
Chart = http://quote.yahoo.com/q?s=AOL&d=3m


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

No new put plays today.



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

GENZ - Genzyme Corp. $45.06 -1.69 (-5.44 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.

Tuesday's Write Up

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.

Thursday's Write Up

We still have no idea what started this downhill slide, but 
we sure like the slope.  Technically, every moving average 
has violated to the downside.  The 10-dma can't even keep up 
with the rate of descent.  The pattern seems to be fall, up 
slightly, fall more, up slightly, fall more, every time setting 
a lower low.  The next support is at $40.  A good entry will 
likely occur when the price rises to $46 then falls back, but 
wait for the downward bounce to be sure.  The drug stocks 
actually exhibited some strength today, which may rub off on 
the biotech sector in the not too distant future, especially 
if the market takes off, the stock gets an upgrade, or the 
company reports some good news.  Just make sure negative market 
conditions are in your favor before starting the play.  Maybe 
tomorrow or Monday in front of the FOMC meeting?  Earnings are 
not until October 21, according to Zack's, and thus not yet a 
factor.

BUY PUT OCT-50*GZQ-VJ OI=367 at $4.75 SL=2.75
BUY PUT OCT-45 GZQ-VI OI=227 at $2.13 SL=1.00
BUY PUT NOV-50 GZQ-WJ OI=190 at $5.88 SL=4.25
BUY PUT NOV-45 GZQ-WI OI= 56 at $3.63 SL=2.00

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



************************
COMBOS/SPREADS/STRADDLES
************************
MARKET RECAP
************************

The Calm Before The Storm?

Wednesday, September 29

U.S. stocks closed lower Wednesday, as profit warnings and the
upcoming meeting of Federal Reserve policymakers kept investors
on the sidelines. The Dow industrials closed 62 points lower at
at 10,213 and the Nasdaq index was down 26 points to 2,730. The
S&P 500 index closed off 13 points at 1,268, below a recent key 
technical level. The 30-year U.S. Treasury bond was down 17/32
to yield 6.12%.

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

CMG Inc           CMGI  NOV85C/NOV95C  $6.50  debit   bull-call
American Express  AXP   OCT120P/O125P  $0.75  credit  bull-put 
Philips Elect.    PHG   OCT80P/OCT85P  $0.56  credit  bull-put 
C.R. Bard         BCR   JAN50C/OCT50C  $1.93  debit   calendar

CMGI was our first opportunity to participate in the new plays
and it gave us about 30 minutes of direction-less movement to
open the position. The suggested target of $6.50 was available.
Philips Electronics moved in much the same manner (nowhere) but
the difference was that it remained basically at its starting
point for most of the day. The target may have been achievable
as the bid/ask quote was $0.50 for much of the session but we
will record the entry slightly lower at $0.56. American Express
was a bit more exiting, opening down almost $2. The position
moved quickly to our recommended target and actually traded as
high as $0.88 during the day. C.R. Bard was the last of our new
plays, and it proved to be a good opportunity, opening right at
our target debit and remaining there for most of the morning.
In the afternoon, the disparity faded and our position moved
closer to profit without any help from the underlying issue.

Portfolio plays:

Wednesday's market activity offered little hope as buyers were
noticeably absent from most of the well-known big-cap issues.
All of the investing world is now awaiting the interest rate
and inflation outlook from the Tuesday meeting of the Federal
Reserve's policy-setting committee. The FOMC will consider the
question of whether another interest rate increase would be an
appropriate step to moderate U.S. economic growth.

Not much news in the overall sense today but there were some
nice moves in the smaller issues. 3Com Corp (COMS) rallied to
a recent resistance area near $29 and this position has become
our focus as a close near $30 should signal a new trading range.
Bell Atlantic (BEL) also demonstrated some break-out potential
today but it fell back in the afternoon, settling near our sold
strike at $65. The upper level of the trading range appears to
be at $69 and that is also near the limit of our profit range
in the calendar spread. Keep a close watch on that one.

Viatel (VYTL) is recovering somewhat with another bullish move
up to $27. Our sold strike in this volatility spread is at $30
so we still have some distance to go before profits will start
to appear. One of the stocks in our long-term section, Computer
Associates (CA) is starting to make a move. The stock climbed
$2 higher to $59 on solid volume and it appears the move might
continue back to the recent highs near our sold strike at $60.

Thursday, September 30

The effects of quarterly "window dressing" pushed U.S. equities
higher and blue-chip issues registered the biggest gains of the
day. The Dow Jones industrial average rose 123 points to 10,336
while the Nasdaq composite moved up 16 points to 2,746. Market
breadth was better than usual as advancing issues outnumbered
decliners 1,892 to 1,172, on heavy volume of 1 billion shares.
The 30-year U.S. Treasury bond rose 1-3/32, pushing the yield
down to 6.05%.

Portfolio plays:

The big market news today was the decline in economic growth
during the second quarter, to its slowest pace in four years;
but increasing August home sales suggest it may be regaining
upward momentum. The newest economic reports are expected to
be the key data that Fed policy-makers will examine in their
meeting next Tuesday on interest-rate strategy. Most of well
known analysts are convinced the U.S. central bank will keep
rates steady for the remainder of the year.

Bell Atlantic (BEL) made another run at a new high but fell
back near the close as buyers took profits from today's rally.
The calendar spread position at $65 is comfortably profitable
but an upside break-out could spell disaster so keep this one
at the top of your quote list. The new play on C.R. Bard (BCR)
offered some excellent disparities in the front month option
premiums and with the stock holding ground near $47, we have
decided to recover some of the lost potential in our previous
(OTM) spread. The position; JAN55C/OCT55C, was adjusted down
to the $50 strike for October, netting a $0.75 credit. This is
a bold move but it will bring our play back to profitability
if BCR can remain below $50 for two weeks. Viatel (VYTL) just
keeps right on trucking and our newest calendar spread is now
in a profitable position, only four days into the play. As the
issue approaches $30, watch for a favorable exit opportunity.

Three of our slumping (bullish) issues; Qwest (QWST), Tuts
Systems (TUTS) ands Unify (UNFY) all made nice rebounds in
today's market. The QWST and UNFY spreads are now profitable
and you should consider closing those plays to protect gains
and prevent potential losses. Starbucks (SBX) appears to be
consolidating near $25 and we hope it remains at that level
for the next two weeks.

Computer Associates (CA) continued its recent rally, up $2
to September highs near $60. Our sold strike is now slightly
ITM and a new upside break-out is possible. Keep a close watch
on that one. On the downside, Biogen (BGEN) and Cabletron (CS)
slid further, even as the market rebounded. BGEN now appears
to be headed for new lows and it's certainly a candidate for
downside adjustment. CS should successfully test support near
$15 and we will wait for the outcome of that activity before
making any decisions about the long-term position.

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



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

MU - Micron Technology  $66.50     *** Another Big Down Day! ***

Micron Technology and its subsidiaries principally design,
develop, manufacture and market semiconductor memory products,
personal computers and custom complex printed circuit board,
memory module and system level assemblies. The company's chip
and memory operations focus on the design, manufacture and
marketing of semiconductor memory components primarily for use
in PCs. Their primary semiconductor products are dynamic random
access memory (DRAM) components.

Shares of semiconductor makers tumbled again today as investors
worried about the potential impact from a nuclear accident in
Japan and a drop in memory chip prices. Japan's worst nuclear
accident in history occurred at a Japanese uranium processing
plant about 90 miles northeast of Tokyo. Analysts and traders
were already worried about the impact on chip and PC makers of
the Taiwanese earthquake last week and now this accident just
makes it worse.

Information from company reports around the manufacturing area
were favorable and most of the industry appears unaffected by
the nuclear incident. It seems that this newest activity was
just a catalyst for further profit taking and most analysts
expect a rebound to occur some time next week. In any case,
Micron at $50 seems extremely speculative, even for the most
pessimistic traders.

PLAY (conservative - bullish/credit spread):

BUY  PUT OCT-47.50 MU-VW OI=507  A=$0.56
SELL PUT OCT-50.00 MU-VJ OI=3767 B=$0.81
INITIAL NET CREDIT TARGET=$0.31 ROI=14% (two weeks)

Note: Friday's volatile activity may produce a better net-credit
and experienced traders might consider legging-into the position
to take advantage of any further downside movement.

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

****

MUEI - Micron Electronics  $10.50     ** Cheap Speculation ***

Micron Electronics is a recognized industry leader and direct
vendor known for its award-winning products and services. The
company develops, manufactures and markets high-performance,
competitively-priced computing solutions to consumers, small
businesses, commercial, and public sector buyers.

Shares of Micron electronics have fallen recently despite a
strong earnings report released earlier this week primarily
due to concerns over earnings from its personal computer sales.
Micron made $0.14 a share during the fourth quarter, which blew
away consensus analysts' estimates, but its growth came from a
memory chip business segment. The company's PC sales actually
declined in the quarter and gross margins fell to 17% from 21%.

Micron Electronics has a small, yet very profitable memory
business in SpecTek. SpecTek semiconductor markets various
grades of memory products under its brand name. CIBC World
Markets increased its quarterly estimates for Micron based
on strong earnings from the SpecTek unit. One analyst said
that higher DRAM chip prices were the reason why their new
division had a stellar quarter; gross margins were up to a
four year quarterly high.

The stock price has found support near $10 in the past and
with the low cost of this position, it has a reasonably high
probability of success, as long as the stock can remain near
(or above) the $10 range.

PLAY (conservative - bullish/calendar spread):

BUY  CALL APR-12.50 MQU-DV OI=107 A=$1.50
SELL CALL NOV-12.50 MQU-KX OI=205 B=$0.38
INITIAL NET DEBIT TARGET=$1.00 TARGET ROI=50%

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



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

Great news for the straddles section as we have a big winner in
one of the short-term (Optionetics) positions. United Healthcare
(UNH) dropped over $12 during the session amid reports that trial
lawyers are preparing a slew of class-action lawsuits on behalf
of managed-care patients. Such lawsuits could hurt a companies'
ability to control health costs because managed health-care such
as HMOs are a form of insurance and insurers limit their coverage
of doctors, hospitals, and procedures in order to hold down costs.
Regardless of the outcome, the straddle traded at $13.00 credit,
a $2.50 profit from the initial play. If you feel that today's
reaction is overdone, you might consider selling just the bearish
side of the play (for a nice profit)and holding the call option
for a rebound.

Other issues that are performing well include Allegheny Teledyne
(ALT), hitting a high of $17.50 today as more news of the planned
spin-off of their Aerospace and Electronics segment became public.
That issue will probably recover after the earnings warning has
passed so we are going to watch for technical indications of a
bullish change in character. Federal Express (FDX) has been on a
rebound since the day we opened the position and on Tuesday, the
straddle traded at $10.50 credit, a small profit ($0.75) for one
week. The stock appears to be recovering on news that FDX Corp.,
operator of Federal Express, is planning to buy back 15 million
shares (about 5%) of its stock. Union Carbide (UK) is also moving
up nicely after a successful test of recent lows near $52. With
the profit warnings out of the way, this issue will continue to
rebound as long as the DOW holds its ground. The problem is that
a significant resistance area resides near the current price at
$57. Lycos (LCOS) has also moved quietly out of an old trading
range near $45 and is now heading for the top of a (long-term)
channel near $53. The recent boost in secondary Internet stocks
may help this one.

Copper company Phelps Dodge (PD) finally agreed to a take-over
of Cyprus Amax Minerals (CYM) for $1.8 billion, terminating its
month long hostile buy-out effort and the merger pact between
Cyprus and Asarco (AR). In setting the friendly transaction,
Phelps Dodge increased its hostile offer by about $65 million
in cash. Based on Thursday's stock prices for Phelps Dodge, the
deal values Cyprus at $19.82 a share. This may adversely affect
the future volatility of the stock but we will wait a few days
before making any judgment.

One of our more speculative positions; Williams Companies (WMB),
has just started to demonstrate signs of a significant change in
character, with a $2.44 rally on Monday. A series of new articles
came out on Tuesday with a large debt offering leading the group.
The company is planning to sell $1.25 billion in 10-year notes
and $425 million in eight-year notes, using use the proceeds to
develop a network eventually expected to consist of 33,120 miles
of fiber optic cable. Williams is also expected to raise several
hundred million dollars in a new initial public offering of 29.6
million shares. The Wall Street debut of Williams Communications
Group (WCG) is expected to have excellent demand and analysts
appear to favor its aggressive growth strategy. The planned IPO
should be priced at $21 to $23 on Thursday night and that should
give another boost to the recovering parent stock.

Look for some "New Plays" in Sunday's edition.



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

DISCLAIMER

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

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

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

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives