Option Investor
Newsletter

Daily Newsletter, Tuesday, 10/05/1999

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The Option Investor Newsletter         Tuesday  10-5-99
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)
************************************************************
        10-5-99           High     Low     Volume  Advances Decline
DOW    10400.59 -  0.64 10509.20 10277.10   958,064k 1,222  1,783
Nasdaq  2799.16 +  3.70  2833.96  2765.37 1,193,256k 1,819  2,096
S&P-100  682.91 +  0.31   690.99   673.61    Totals  3,041  3,879
S&P-500 1301.35 -  3.25  1316.43  1286.44            43.9%  56.1%
$RUT     426.01 -  0.60   428.16   423.86
$TRAN   2979.73 + 20.63  3008.20  2956.30
VIX       26.07 +  0.37    27.67    25.43
Put/Call Ratio      .54
*************************************************************

Dow -.64, just another boring day in the market!

If you just checked the closing stats when you got home tonight
then you probably thought it was a really slow day. If you
explored further you would have seen a really wild ride for
those with open positions. The Dow was up +109 points before
the conclusion of the FOMC meeting in anticipation of no rate
increase. At 2:15 when the Fed did announce there would not be
a rate increase now but they were changing the bias to a tighten
stance the market dropped -232 points to a low of 10277. 
Considering we were over 10500 at the high, it was a substantial 
drop to support.


 


 

As you can see by the Dow chart above the 10300 line, which had
been upward resistance for us all last week, became support for
us today after the Fed reaction sell off. The Nasdaq showed the
same trends and bounced off 2765 which had been previous 
resistance. These are good signs but the market still has some 
challenges to move upward from here.

So why did the market crash when the Fed did just as everyone
expected. We view it as a buy the rumor and sell the news event.
Yes, most analysts expected the bias change to tighten in formal
statements but in their hearts everyone wanted a continuance of
the neutral status and a green light to move ahead. The bias
change was a reality check for many traders. Too much bullishness
clouds your expectations. (I know from experience!) The bias
change means that the Fed can pull the trigger on another rate
increase at any time. For example, if the jobs report came in
too strong on Friday then Greenspan could simply make the rate
announcement with no warning. The FOMC tried to blunt this
threat by saying in their announcement that a change in the
bias to tighten "did not commit them to action in the future."
Just changing the bias does not necessarily mean they are 
planning to raise the rate. Essentially this is like raising 
a guillotine over the market and daring anyone to put their 
head in it. 

Now, without actually raising rates, the Fed has put a cloud of
uncertainty over the market. They have taken a position where
they can say "we didn't do it" if the market crashes, but they
can also take credit if the economy continues to slow. It is 
a win-win for the Fed and pain in the neck for us. Bond yields 
spiked up to 6.18% today and every point it moves higher will 
cause more Y2K cautious investors to consider bonds instead 
of stock.

I know you have heard this before but the next 10 days will be
very critical in the market. We are very close to the beginning
of the end if the Y2K problem is going to cause a sell off. If 
it is going to happen it could start anytime. Investors who
wanted to get one last earnings cycle under their belt before
moving to the sidelines could start selling into the earnings
rallies. We are also entering the October Zone. October has not
been kind to investors. In 1998 we hit the bottom on Oct-8th
after the market was rocked by the Japan crisis. The market
then rallied strong from the Oct-8th low of 7472 to 9645 in the
first week of January. A whopping +2200 point gain. The market
low in Oct-97 was 6970 and occurred on the 28th of the month.
We then rallied +1200 points into the first of December when
we were hit with another drop. Still, the case in point here 
is the tendency for October to host short term market bottoms
followed by strong rallies into January. This is the RECENT
NON-Y2K trend. What will actually happen this year is anybody's
guess. Our challenge is to trade any rally while constantly
looking for signs of investors moving to the sidelines in
time to capitalize from it. There is also a group of analysts 
that think the Y2K cloud will actually provide an increasing 
three month wall of worry that will actually fuel the market 
into solid gains between now and the end of the year. The latter
scenario now must carry the additional weight of the possible
rate increase.

In other news oil prices fell for the second day in a row amid 
fears that an upcoming meeting of three key oil ministers would 
cause changes in global oil output. This put pressure on oil 
stocks again but is a long term plus for the market. High oil 
causes higher consumer prices on thousands of products and adds 
to inflation.

MCI Worldcom announced today that it would buy Sprint for $115
billion in stock. This would be the largest merger in history
but it could be years before it happens, if at all. A government
spokesman said it would be anti-competitive and there are sure
to be many legal hurdles to the transaction. 

AAPL announced a new sub-$1000 iMac today to launch their bid
into that market. AAPL stock soared +3.36 on the announcement
and the news that the Taiwan earthquake damage had been repaired
and computers were again shipping.

AOL rocketed for a +4.38 gain after announcing a major software 
upgrade that would allow users to connect in more ways than
before. Micron (MU) jumped +5.69 after posting better than
expected earnings. Not all news was positive today. Haliburton
issued a profit warning and fell -6.06. Dropping oil prices
are worse than a Y2K virus to oil service firms.
 
Where to from here? I view the market rebound from the -123 low 
at 3:10 as a positive sign. The market still wants to go up. There
is money on the sidelines that doesn't want to miss any possible 
rally. Tomorrow should give us a clue to the market direction.
Remember, we were very oversold going into this week and some of 
that pressure was removed with yesterday's +128 gain. We are now
starting the fourth quarter and the score is tied to use a football
analogy. If we can get to Friday's Jobs Report without a major sell 
off AND the Jobs Report is not strong enough to trigger the Fed then
the weight of the interest rate cloud will lighten. Even though 
the NYSE finished at a break even the advance/decline reversed 
its gains from yesterday and turned negative again. Many analysts 
feel we still have not had a cleansing sell off and are waiting 
for another big drop before moving back into the market. 

Obviously no one has the answer. A good plan for entering the 
market today would be to average your buys. Open only one half 
or one third of the position you eventually want. As the trade
progresses you can decide if you want to hold, or add to it the
remaining contracts. If it goes down on a market dip you can 
enter the rest of your position cheaper and average down. The 
only worry here is a continuing declining position. Please 
reevaluate your decision based on current research before 
entering the rest of the trade.

This is a great market for target shooting. The big swings give
you opportunities to buy options at 25-50% less than the highs 
of the day. I target shot CMGI puts on Monday by placing five 
different orders before the open at different increments below 
the then current price. I got filled on four of them and one 
was the low of the day. These big spikes work well on profit 
stops as well. There is nothing wrong in setting multiple sell 
stops and taking some profit off the table along the way.

Pick your entry points carefully until you are sure of the 
market direction and sell too soon.

Jim Brown
Editor



************************************
MONEY SHOW in San Francisco Oct-28/31
************************************

OptionInvestor.com is a major sponsor and exhibitor at the 
San Francisco Money Show the last weekend in October. At the
Money Show we will be hosting a FREE get acquainted session 
for our readers. This event will be on Thursday Oct 28th, and 
will consist of an introduction of the OIN staff and five 
breakout sessions on various types of option strategies. 
Refreshments will be served and there will be many gifts 
for each reader.

On hand will be:

Jim Brown, Editor
Kimo, Asst editor
Ray Cummins, Spreads editor
Chris Verhaegh, Options 101 and spreads specialist
Buzz Lynn, Research Analyst and asst editor
Janar Wasito, Traders Corner writer
Tom Gentile, Chief Option Strategist, Optionetics
George Fontanills, Author, educator, trader
Austin Tanner, President, Pinnacle Capital Advisors

After the introductions we will breakout into six chalk 
talk sessions led by the staff. The informal chalk talks 
were a hit at our Denver seminars and allow the attendees 
to move around from session to session as the night progresses. 
The sessions will include:

Ray Cummins: Spreads/combos

Chris Verhaegh: Covered Calls/Naked puts/Calls on leaps

Buzz Lynn: Directional trading with calls/puts

Austin Tanner: Skybox/Sentiment Analysis

Tom Gentile: Straddles

George Fontanills will be signing his new book which
comes out on Oct 22nd titled, "Trading Options Online."

$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$

VERY IMPORTANT - Because we need to know how many people
are going to attend we need you to register before the event.
It is FREE and you will receive several free gifts as well 
but YOU MUST REGISTER BELOW IF YOU ARE COMING.

http://www.OptionInvestor.com/sfms

$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$

During the Money Show there are dozens of breakout sessions
taught by many different speakers representing many different 
firms. OptionInvestor.com will be presenting eleven of these
and Optionetics presents several more.

OIN Money Show breakout sessions:

During the next three days the OIN staff will host eleven
breakout sessions. 

Oct 29, 5:05PM Jim Brown -   Maximizing Returns with Options
Oct 30, 10:10A Ray Cummins - Calendar Spreads, Covered Calls,
                             Zero Cost leaps
Oct 30, 1:40P Ray Cummins -  Covered Calls, Naked Puts, 
                             Triple the S&P Safely
Oct 31, 8:55A Buzz Lynn -    15 Things Every Option Trader Should 
                             Know
Oct 31, 10:10 James Brown -  Investing on the Internet, Tools,
                             Who, Where, How
Oct 31, 1:40P James Brown -  Beginners Guide to Trading Hot
                             Internet Stocks
Oct 31, 1:40P Chris Verhaegh - Spreads Strategies for Income, 
                               Speculation and Hedging
Oct 31, 2:35P Chris Verhaegh - Option Pricing, Overvalued, 
                               Undervalued, no value.
Oct 31, 2:35P Buzz Lynn - Trading, Entry Point, Exit Point, 
                            Get to the Point

no time yet - Buzz Lynn - Options on Stock Splits
no time yet - Chris Verhaegh - Charting, the Key to Technical 
                                 Analysis

Tom Gentile and George Fontanills will also be doing
breakout sessions but I do not have the info yet. 


If you live in California or just want to get away for 
the weekend then click here for more info.

http://www.intershow.com/moneyshow/sfhome.htm

Click here to register - it is free!

http://www.OptionInvestor.com/sfms



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

As of Market Close - Tuesday, October 5, 1999 

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

DOW Industrials   10,500  11,320  10,401    BEARISH   9.23      
SPX S&P 500        1,350   1,420   1,301    BEARISH   9.16       
OEX S&P 100          675     735     683    Neutral  10.05  *    
RUT Russell 2000     440     465     426    BEARISH   9.14       
NDX NASD 100       2,320   2,380   2,472    BULLISH   9.03   
MSH High Tech      1,120   1,180   1,277    BULLISH   9.03   

XCI Hardware       1,035   1,050   1,080    BULLISH   8.24    
CWX Software         750     800     888    BULLISH   9.03         
SOX Semiconductor    480     525     549    BULLISH  10.05  *        
NWX Networking       555     585     609    BULLISH   9.17       
INX Internet         450     510     503    Neutral   9.24      

BIX Banking          690     710     596    BEARISH   7.23    
XBD Brokerage        410     440     385    BEARISH   7.23    
IUX Insurance        645     660     537    BEARISH   7.23         

RLX Retail           915     960     858    BEARISH   7.23     
DRG Drug             365     390     357    BEARISH   9.16      
HCX Healthcare       745     785     711    BEARISH   9.16   
XAL Airline          180     190     145    BEARISH   5.21      
OIX Oil & Gas        285     305     286    Neutral   9.16       


 
Posture Alert    
Buy-the-rumor, sell-the-news mentality was in full effect today, 
as the broad market sold off after the Fed made their announcement 
to leave rates alone, yet change their neutral bias to a 
tightening bias. Leaders today included the Semiconductors 
(+3.20%), Internet (+2.02%), and Software. On the downside, Oil & 
Gas lost another -2.31% on the heels of a negative warning from 
Halliburton Co.  With Tuesday's actions, we have upped 
Semiconductors to BULLISH from it's brief Neutral stint, and the 
S&P 100 to Neutral from Bearish. 


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

/members/marketposture



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

Tuesday, October 5, 1999

Partly Cloudy with a Chance of Rain?

So the Fed finally made their appearance before us and gave us the 
good news of no rate hike, yet change their neutral bias to a 
tightening bias. This was the news that was expected, and the buy 
the rumor, sell the news mentality took over. This happened 
extremely quickly as the Dow retraced over 200 points in a short 
period of time, before late-day buyers stepped in (most likely 
short covering) to make the day a non-event.

What does this mean for you, the investor? For you golfers out 
there, you know the feeling of having a tee-time set up with your 
3 best friends, several weeks out, at a prestigious club (or like 
us, 3 friends, all call in sick to work, and head to the nearest 
hackers course). You then arrive and hear the Thunderstorms in the 
background, and being the optimist, you state that it will blow 
over shortly and you jump in your golf cart. Sometimes you end up 
wet and frustrated, and other times you get lucky and everything 
blows over (usually the former happens).

What this means for the market? Well, perception of interest rates 
and inflation represent a very large part of this market is terms 
of sentiment analysis. Granted, the news that came out today was 
expected, but what this tells us is that a thunderstorm cloud 
continues to hang over our head, and will do so for every economic 
indicator (or blurb from any Fed-head to Ballmerspan) until their 
next meeting. Wall Street doesn't like uncertainty, and because of 
this bias, we are certain that uncertainty will increase, which 
will only help fuel this zigzag direction in the market. 

The one big thing going for this market in the near term is the 
start of earnings season, which can definitely lift this market. 
However, it is a double edge sword. We want earnings to be great! 
However, if earnings are too good, the Fed may spoil the party 
with future rate-hikes, so uncertainty can actually increase with 
too good an earnings season. 

Wall Street always looks six months ahead, and if the crystal ball 
gazers see several rate hikes coming, this earnings season could 
be trading range bound. Some stocks/options will have sunny skies 
ahead, and many others will end up wet, some weeks will rally, and 
others will fall, so choose carefully, and bring your umbrella 
just in case.   
    

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.


Earnings Season:
Earnings season is still early, but we should have a stellar 
earnings performance this month. Micron Tech has already beat, 
and Yahoo is on deck.


Mixed Signs: 

Volatility Index:
The VIX is above the 25 benchmark, but has held ground in the low 
30's.


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.

Interest Rates:
The yield on the 30-yr Treasury is above the 6% benchmark and 
nearing the highs of 6.272%.
  
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 look 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%
Friday, October   01     108,460        +215.6%


Market Sentiment at a Glance     Friday     Tues
Indicator                        (10/1)     (10/5)

Pinnacle Index (OEX):          

Underlying Support  (680-700)      1.9       2.0
Underlying Support  (650-670)      5.5       5.4
                    

Put/Call Ratios:

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


Peak Open Interest (OEX):

Puts                              650        650
Calls                             700        700
P/C Ratio                         .87        .94

Market Volatility Index (VIX):	

CBOE VIX                         26.07



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
Benchmark                       (10/1)      (10/5)

Overhead Resistance (680-700)     1.90        2.00

OEX Close                       670.31      682.91

Underlying Support  (650-670)     5.51        5.42
                     

 
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                (10/1)     (10/5)

CBOE Total P/C Ratio             .69       .68
CBOE Equity P/C Ratio            .56       .41
OEX P/C Ratio                    .93       .94



Peak Open Interest (OEX)  Friday           Tues
Strike/Contracts          (10/1)           (10/5)

Puts                    650 / 10,550    650 / 11,137
Calls                   700 / 12,141    700 / 12,606
Put/Call Ratio             0.87             .88


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 
  
October 5, 1999                         26.07 


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
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   Week
Dow     10400.59 128.23  -0.64 127.59
Nasdaq   2799.64  59.12   3.67  62.79
$OEX      682.99  12.29   0.39  12.68
$SPX     1301.43   5.45  -3.17   2.28
$RUT      426.00   3.08  -0.61   2.47
$TRAN    2979.73  90.76  20.63 111.39
$VIX       26.07   0.00   0.37   0.37

Calls              Mon    Tue   Week

DCLK      123.56   0.38   8.81   9.19  Broke through resistance
QCOM      194.75   3.03   4.91   7.94  Participated in the rally
BRCM      120.25   4.56   3.19   7.75  New, earnings play 
NOK        97.00   4.56   3.19   7.75  Nokia hits new 6-week high
VRTY       69.50   3.44   2.69   6.13  Looks like a traders dream
SUNW       97.81   4.53   1.28   5.81  Reached a new 52-week high
AOL       113.50   1.25   4.38   5.63  Great looking earnings run
AEOS       54.31   2.68   1.88   4.56  Retail stocks back to life
CMVT       98.00   4.06  -0.31   3.75  Shareholder meeting ahead
EMC        76.00   3.62  -0.50   3.13  Well above its support
LCOS       56.50  -1.28   4.25   2.97  Lycos has winning session
ADBE      114.69   4.63  -3.13   1.50  New, 2:1 split play
XMCM       51.50   1.31  -0.38   0.94  Looking for a breakout
TFSM       41.25  -1.25   1.88   0.63  Watch for profit-taking
SNE       155.63   0.31  -0.19   0.13  A tiger on the prowl
ITVU       39.25   0.50  -0.75  -0.25  Signs of gaining momentum
RNWK      103.00  -0.44  -2.81  -3.25  Slowing down for a buy?
GMST       69.38  -7.44  -6.81 -14.25  Dropped, TV Guide turn-off

Puts

GENZ       32.94   0.41 -10.06  -9.66  Under hail of downgrades
KO         47.94  -1.50   0.38  -1.13  Has no definitive support
WPI        28.88  -0.06  -1.06  -1.13  Hits another 52-week low
PSIX       33.88  -2.63   1.75  -0.88  Still below 10-dma
EXDS       68.44  -2.81   2.13  -0.69  Shares below support level
YHOO      173.31   2.13  -4.25   2.13  Look for earnings on Weds.
IBM       122.00   2.13   2.13   4.25  Dropped, too much good news!



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:
*****

GMST $69.38 -6.81 (-14.25) Gemstar was having a great day 
yesterday until about 1:20 EST when trading was halted.  At 
that time Gemstar had gained $4.06 for the day, trading at 
$87.68.  Less than one hour later they announced they were 
going to acquire TV Guide.  How about that for a twist in the 
plot from the weekend write up.  By the end of the day shares 
of GMST had dropped to a low of $73.75 and finished the session 
down $7.44 at $76.19.  Today it only got worse as GMST continued 
to fall.  Apparently investors didn't think the deal with TV 
Guide was quite as good as Gemstar did.  It's a deal for about 
$9.2 Billion in stock and DEBT, which will supposedly strengthen 
Gemstar's position in the race to provide electronic program 
guides.  In the long run it may prove to be a solid acquisition, 
but it sure put a crimp in a good call play, so we will stand 
aside and let GMST go for now.


PUTS:
*****

IBM $122.00 +2.13 (+4.25) Lately, there is no such thing as 
bad news for IBM.  IBM broke out above its 10-dma and looks as 
though it wants to keep on going with a market recovery.  On 
Monday, IBM announced that they had, once again, broken the 
world record for data storage by 75% from their previous record, 
set just five months ago.  IBM also broke the record for 
transaction processing performance with its RS/6000 S80 Server 
on Tuesday.  Due to a potential recovery in the tech sector 
and ahead of earnings, it is time to bid this play farewell.  



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


The Option Investor Newsletter         Tuesday  10-5-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

Protecting and Managing your Stock Portfolio with Options

In these times of investing, volatility seems to be king. Investors
of Internet stocks can agree with this.  Can you imagine buying a 
high flying Internet stock last spring, only to see it move 
drastically against you.  Or what if you had purchased stock a 
few years ago on a company such as CMGI, only to see it double 
or triple in value, and then take a dive?  It's a tough thing to 
swallow, which leave many investors on the sidelines.  Is there 
any way that we can still invest in these aggressive growth stocks,
while limiting the risk?  

When most investors hear the word "Options", they think of risk, 
risk, and more risk.  Yet, most people don't look any deeper 
into what an option can really do.  Hedge funds are basically 
a portfolio of securities and derivatives that are hedged with 
either very positive or negative correlated products.   An option
is the truest form of a hedge against its underlying security, 
when positioned right.  In fact, anyone with some knowledge on 
options can greatly reduce the risk on their own portfolio.  Let's 
look at a few option strategies specifically designed to hedge 
directional risk.  

LONG PUT HEDGE - Here is a simple strategy that can be used to 
protect your long stock position from a drop in the market. 
Example: 100 shares of AOL have climbed from $100 to $150 per 
share during the year.  The trader can buy puts as protection 
AOL December 150 put @ 20 =$2000 Therefore $2000 of put insurance 
protects the position until December.  Not bad, and if the stock 
were to continue to rise, the position can still be profitable.  
The only problem here is the cost of the long put.  

COVERED CALL HEDGE - Using a short call, the trader can offset 
the position by taking in premium against the owned stock.  Using
the same example of AOL above, the trader decides to sell the AOL 
December 150 call for 20.  In this case, the trader collects 20 
points of premium as a hedge against his long stock position.  
This will help protect the losses to a limited degree if the stock
should drop.  The best case scenario is that the stock price either
remains the same or rises to expiration.  The big problem here is 
that covered calls only protect against limited amount of downside
action.  If the stock were to take a big dive, The trade could 
still lose a substantial amount of money. 

PROTECTIVE COLLAR STRATEGY - The classic collar strategy gives 
investors a cost free hedge to protect profitable stock positions.
The basic strategy consists of combining the two strategies above.
By buying the at-the-money puts as above and selling the at-the-money
calls at the same time, the trade will pay for itself generally.  
This accomplishes the need for protection on the downside but also 
allows for continued profit up to the strike price of the call sold.
Using our AOL example above, we would take our 100 shares of AOL at 
150 and use the collar strategy like this; buy AOL December 150 put 
@ 20 =$2000 and sell the AOL December 150 call for 20.  The calls 
that were sold pay for the puts and completely hedge the stock for 
any downside move.  The only negative of a collar strategy is the 
profits are limited if the stock continues up. 

APPRECIATING COLLAR STRATEGY - This strategy can be used to 
take advantage of volatile stocks in which the at-the-money call 
premiums are higher than the at-the-money put premiums.  The 
strategy is exactly like the protective collar strategy above, 
but by selling calls that have higher premiums than the puts 
bought, the trader will net a credit on the trade.  This credit
is pure profit, similar to an arbitrage.  Let's look at the 
example above once again, but in this case after buying the put 
and selling the call, you receive a net credit of 4 points on 
the trade.  If AOL rose to 200, the puts would expire worthless, 
and the calls would be assigned.  This would close out the stock 
position leaving the trader with the original 4 points.  If the 
stock were to drop to 100, the calls would expire worthless and 
the trader would merely have to exercise his put option to cover 
the falling stock.  Once again, after the position is closed out,
a profit of 4 points would remain.  

Problems do crop up with arbitrage collar trades.  One problem is 
that often the credit received may be too small for the trader to 
realize a reasonable profit after commissions.  Another may be 
finding these volatility skews in calls and puts.  These are some 
things to consider.  Whatever you decide to do, you should always 
consult a certified financial planner to see if this type of 
strategy is right for you. 

Tom Gentile
Chief Options Strategist
Optionetics



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

AEOS $54.31 +1.88 (+4.56) In the midst of the quarterly retail 
sales numbers, the retail stocks have come back to life.  Today, 
after the close, AEOS announced that total sales had increased
60.6%, and that September same store sales increased 34.2% 
compared to the corresponding five week period last year.  
With the Fed not raising interest rates today, and investors 
anticipating that same store sales numbers would be above 
estimates, the stocks in the sector are surging higher.  Today 
after the street was disappointed by the Fed shifting to an 
interest rate tightening bias, the shares of AEOS held up very 
well, as others sold off.  The stock remained steady all day, 
even hitting a new 52-week high intraday at $55.06, before 
settling in to close just off of the highs of the day at $54.31.  
From a technical standpoint the shares remain very strong, 
trading on above average volume and great momentum.  Look for 
the retail stocks to remain strong overall as we approach the 
holiday season and the same store sales numbers continue to 
come out.  If you entered into a position this week, you should 
have a nice profit, use trailing stops to protect it.  Enter a 
new position at these levels after you have confirmed the 
continuation of the upward trend. 

LCOS $56.50 +4.25 (+5.53) Internet stocks overall turned in a
winning session today, even though the Fed's decision on 
interest rates leans towards further rate hikes.  LCOS the 
fastest growing Internet portal, was not phased today and
continued the uptrend.  Analyst are saying that leading Net
companies that are profitable, will hold value better than ones
that have profitability goals in the future.  LCOS, ahead of 
its earnings to be announced on 11/18, continues to come out 
with very positive news.  Today they announced a new alliance 
with FamilyWonder.com, that will allow the companies to jointly 
develop content for consumers and Home & Family Web Guides and 
key sections of Lycos online shopping destinations.  Also Lycos
Ventures completed strategic investments in three companies:
LifeMinders.com, Conducent and Fogdog Sports.  These investments
are an ongoing process by LCOS to provide more content to the 
Lycos Network of Web sites.  This news and an overall good
session in the sector today had the shares trading as high as
$58.19, before settling in too close at $56.50.  Going forward
we believe that LCOS has just begun to breakout, but if you
entered into a new position at the beginning of the week, use
trailing stops to protect current profits, if you haven't 
already taken profits.  Look for the positive news to continue
Support is currently at $54 from today's intraday low. 

NOK $97.00 +3.19 (+7.75) Nokia had a great day, setting a new 
six week high and trading up to $97.13.  Nokia participated 
in the mid-day, post interest rate announcement sell off but 
moved upward toward the end of the trading day.  The European 
telecom companies were helped along by the MCI Worldcom Sprint 
merger announcement this morning, but Nokia has had plenty of 
good news of its own to keep it going strong.  In a recent 
Infonetics study, the jointly developed Virtual Private 
Network Solution of Nokia and Checkpoint Software, was named 
the worldwide market share leader in the dedicated VPN Hardware 
market.  Nokia has also proved they are nothing if not versatile 
by sponsoring four up and coming fashion designers in an 
approaching Paris Fashion Week where the theme of a modern 
lifestyle and individuality will be appropriately accented 
with mobile phones.  With such a big move so far this week, 
entry points will be tough.  The 10-dma is all the way down 
at $90.50.  Today's bounce was at $94 which also is showing 
support from yesterday and could be considered for an entry 
for investors expecting a pullback.   

DCLK $123.56 +8.81 (+9.18 )Just when it looked like DCLK may 
be turning over it finally broke through the $120 level that 
had been providing solid resistance for the last two weeks.  
Honestly after Monday's session it was beginning to appear as 
though DoubleClick was starting to roll over and turn south.  
Today even Allen Greenspan and company couldn't hold DCLK
back.  DCLK gained $8.81 on good volume of 5.5 mln shares.  The 
advance today could be the beginning of a nice earnings run.  
DCLK is scheduled to release earnings October 14th.  Technically
if this breakout is for real it will need to stay above the 
$120 level on a closing basis.  With the strength DCLK showed 
today we do believe that it will continue higher.  Many of the
stocks in the Internet sector were able to shrug off the FOMC
meeting and announcement of a bias toward tightening.  DCLK
announced today it had signed a  three-year license agreement
with MERANT (MRNT) to use its PVCS software configuration 
management solutions.  This agreement allows DCLK to reinforce 
its development processes to support the company's explosive
growth for the next several years.  Whatever the reason for 
the advance in shares of DCLK keep your stops close.  If you 
are considering a new play in DCLK, confirm not only market 
direction but the support levels we mentioned above and remember 
DCLK can be a volatile play.

TFSM $41.25 +1.88 (+0.63) We aren't disappointed in the action
in TFSM the past two days as it has managed to gain $0.63 for 
the week.  There are still rumors in the market place and on 
the Street as to who will come courting 24/7 Media.  Will it
be CMGI or DoubleClick for a potential buyout or merger.  Shares
of TFSM did trade down to $38.75 on Monday, and if you bought 
the bounce late in the day or this morning we would suggest 
keeping your stops close as profit-taking can occur at any time.  
We do look for shares of TFSM to continue higher over the short-
term, but remember it gained over 18% in two days last week and 
some of those folks may want to put some money in the bank.  We 
are not trying to scare anyone who might have taken a position 
in TFSM, rather make you aware of the importance of using stops.  
With the FOMC meeting out of the way, investors can now go back 
to either concentrating on earnings or being scared of how Mr. 
Greenspan will interpret every bit of news that comes our way 
in the coming weeks.  With the FED not raising interest rates, 
but adjusting their bias to tightening it could keep the markets 
on edge.  If you are considering a new play in TFSM look for 
a positive move with solid volume. 

XMCM $51.50 -0.38 (+0.94) Rally mode came to halt today as the 
Federal Reserve announced its position to possibly increase 
rates in the future.  Unfortunately, this announcement caused 
XMCM to close in negative territory.  The reason the movement 
on XMCM has stalled slightly is the two resistance points the 
stock has had to conquer.  The first resistance point was the 
$50, which has been broken.   The second was the 200-dma at 
$52, which was recently established.  The stock is currently 
at this level and trying to overcome this hold as well.  With 
the help of bargain shoppers, let's see if we can break this 
level as well.  When placing new trades, wait for a convincing 
breakthrough of $52 or a pullback to $50.  This level should 
act as a support level for future trading.  With investors 
once again unnerved by the Fed, prepare for more volatile 
market conditions in the near-term.  There was no recent news 
to report that would influence our play.

CMVT $98.00 -0.31 (+3.75) A bias to tighten interest rates was 
just a little too much for this bulldozer.  The negative news 
released by the Federal Reserve closed CMVT on a lower note 
however, not before setting a new 52-week intraday high.  
Investors remain bullish knowing that the shareholder meeting 
is just three days away on October 8.  At this meeting they 
will vote to authorize the increase of common shares from 
100 million to 300 million.  We are playing this stock as a 
split candidate and expect the results of the vote soon after 
the meeting.  Historically, split announcements have a tendency 
to propel stock prices, which we're hoping will be the case 
for CMVT.  The technical strength of the stock helps support 
our views that CMVT is a viable split candidate.  The stock 
is trading near its highs and shows little signs of weakness.  
Take advantage of the small drops in the stock as buying 
opportunities.  With investors shaken by today's announcement 
look for more volatile trading in the short-term.  Lets see if 
bargain shoppers can get the markets back to levels prior to 
the Fed announcement.
  
AOL $113.63 +4.50 (+6.75) If AOL keeps up this momentum it's 
conceivable the share price could reach historical split levels 
($120) by its earnings' date on October 20th.  There is a 
Shareholders' Meeting scheduled for October 28th to vote to 
increase the number of authorized shares from 1.8 bln to 6 bln 
so there is certainly the possibility of a split announcement.  
On Monday AOL announced a 5-year alliance worth $200 mln with 
Sabre's Travelocity.com (TSG) who will be the exclusive 
reservations engine on AOL sites.  Speaking of deals..could 
there be one brewing with ExciteAtHome?  Mum's the word 
officially, but many analysts believe such talks are inevitable.  
Any glimmer of hope for AOL to strike a deal for High-speed 
Internet access with cable operators will likely have a 
positive impact on the stock.  Today investors welcomed the 
debut of the company's new software, AOL 5.0 which is 
expected to be a driving force in this fall's membership 
growth.  For example, new features such as an interactive 
calendar and digital photo services which can be downloaded 
to a variety of portable devices prompted Steve Case, chairman 
and CEO of AOL, to predict that the new user interface "will 
lead the interactive medium's next wave of growth and create 
a bridge from the PC to other interactive devices as we move 
into a more connected society".  As a result AOL shot up 
over 4%, or $4.50 on strong volume of 22.83 mln shares being 
traded.  The bulls ruled this game today as near-term resistance 
($113.50) was shattered when the stock peaked at $114.06 by 
mid-afternoon.  New support may be forming in the $103 to $106 
range.  Wait for a pullback or target shoot for an entry into 
this earnings' play.

SUNW $97.81 +1.28 (+5.81) SUNW performed very well today.  
With trading volume heavy at over 50% its norm, SUNW broke 
through its stubborn resistance at $95.  The stock not only 
broke through this significant level, but also set yet another 
new 52-week high at $99.44.  Take a look at a one-month chart 
and it's evident that this breakthrough is  certainly notable - 
every other time (since Sep 20th) SUNW has tagged this level 
it's pulled back to firm support at $91 which is just below 
the 10-dma (now at $93.10). The tightening bias by Greenspan 
has shed even more uncertainty over the market so be careful.  
There's only 7 trading days left for this momentum/earnings 
run so time is also working against us.  Earnings are confirmed 
for October 14th, after the bell and we rarely recommend ever 
holding over an announcement as the risk of a decline is too 
high.  In the news yesterday, the company announced it's the 
first in the industry to offer a sub-$2000 64-bit UNIX 
workstation and has reduced the price of its Ultra(TM)5 
workstation to $1995.  Today SUNW and Cisco Systems (CSCO) 
announced they entered into a marketing alliance to provide 
their new "unified communications solution" to communication 
service providers.  The comprehensive service solution will 
offer clients consolidated e-mail, voice mail, and fax service 
in their networks.  To add to the basket of positive ratings 
SUNW received last week, CSFB today reiterated a Buy rating 
and issued a 12-month target price of $110.

QCOM $194.75 +4.91 (+7.94) Despite the tightening bias the 
Internets continued to rally today and QCOM didn't stay on 
the sidelines.  It's gained almost $8 over the past two days, 
representing a 4.23% increase so far this week.  Volume still 
remains below normal, but the momentum on this play remains 
intact.  The daily spreads have narrowed somewhat making it 
more difficult to target shoot an entry into the play, but 
certainly not impossible.  Remember QCOM is facing near-term 
opposition at $199, the 52-week record set on September 23rd, 
so there could potentially be another pullback off this level.  
Earnings are confirmed for November 2nd, after the bell. 

SNE $155.63 -0.19 (+0.13) Sony shares act much like a tiger
on the prowl.  It waits and waits, and then sneaks up for the
pounce.  On Monday we got a pounce as the stock gapped open, 
and continued higher for an hour on the news the Japanese 
"tankan" report came in with positive news.  The report showed 
the best confidence in twelve years.  Good news for the Japanese
economy.  After amateur hour however, SNE commenced it's
consolidation round ahead of the FOMC meeting.  The pattern
continued today, as the stock waits to pounce on its next
news item.  Look for the consolidation to continue, possibly 
to the 10-dma of $152.  Any strength in the dollar should help 
SNE.  It has gained ground against the Yen recently, but today's
Fed bias grounded it back to $106.50.  The company announced
today the release of it's new GY series of tape drives.  Giving
customers high speed and capacity drives to handle today's
information needs.  The death of Sony's founder Akio Morita
was felt as the world morns the death of a charismatic and
diplomatic leader.  He died of pneumonia at the age of 78.
As SNE approaches support, look for a positive market, and 
upward movement in the stock before playing.  Set stops as
the market appears jittery after the Fed bias to tighten.

RNWK $103.00 -2.81 (-3.25) Slowing down for a buy?  RNWK has
slowly given back it's recent gains, as the stock is
consolidating back to support.  This move is reflective of 
the markets sentiments on the Fed's bias toward tightening.  
Currently at $102, our 10-dma, this support could offer an 
entry point.  Analysts were cited on Bloomberg as expecting 
the market retreat to continue into tomorrow, due to the Fed's 
change in posture.  After that however, most market watchers 
see stocks at a "good buy" and this should lead us higher into 
earnings announcements.   We still expect RNWK to do well into 
it's earnings date scheduled for Oct. 19th, after the market 
close.  Because of it's potential as a stock split candidate, 
any market rebound should help propel RNWK higher.  An article 
in CBS market watch cited RNWK as being one of the prime sources 
for providing "promotional songs" on the net.  The trend is 
definitely toward more use of broadband and streaming technology 
in advertising and presentation on the Internet.  RNWK should 
participate well in this trend despite the increased competition 
from MSFT, Juno, and AOL.  Verify an upward trend in the market 
and a positive move in the stock before initiating any new 
plays.  Use stops to protect against a sudden October sell off.

EMC $76.00 -0.50 (+3.13) EMC has been paralleling the market
for the last two days, as it trended up quite steadily to a 
new 52-week high of $78.  A look at a five minute daily chart 
shows the similarities in trend to the NASDAQ and S&P.  EMC  
dropped with the Fed announcement to adopt a tighter bias toward 
the economy but recovered from it's low, as did the markets 
also.  EMC's movement today show's investor interest and strength 
in the stock, as it remained well above it's support of $72, 
and invited buyers on the dip.  Although we remain bullish into 
earnings on Oct 20th before the open, be cautious and expect 
the market to consolidate a bit more due to the Fed news, 
before heading higher into the earnings run.  Today David 
Takata of Gruntal and Co discussed the outlook for the Technology 
sector, and termed it exciting and unpredictable.  He did list 
EMC as one of the stocks to follow with good potential due to 
the Internet craze.  Protect your profits with stops and confirm 
a positive market and stock direction before playing.

ITVU $39.25 -0.75 (+0.25) ITVU is showing signs of gaining
momentum in it's trend.  Monday's move at the open, with a $2
spike, helped to fuel our trend line on the 10-dma and widen
our MACD.  Also considering the Fed's change today, and ITVU's 
ability to react to news, we held up very well only dropping 
$0.75.  ITVU is poised well to participate in it's earnings 
run to be announced on October 28th.  Look for a breakout over 
$40 based on historical earnings runs and be cautious of the 
pre-announcement dip that occurs right at the date.  ITVU
partnered with Dr.Drew.com to provide the Internet with Web
casts of the popular health and life styles show.  ITVU also
expanded it's customer base in an alliance with BRS media
which brings radio to the Internet.  ITVU continues to position
itself to capture the expanding streaming market.  We could
experience some market pullback, as a flow over from today's
sell-off.  Use caution and protect your profits with stops.  
We expect a recovery to occur late Wednesday to Thursday as 
buyers rush in to get bargains.  Confirm market direction 
and stock strength before starting any new plays.

VRTY $69.50 +2.69 (-0.75) VRTY is turning out to be a traders
dream.  As most stocks fluctuated on the Fed's news today, VRTY
remained stable and committed.  Stable and committed in 
maintaining it's gain today and thereby adding strength to our 
momentum, by increasing the gap on our MACD, and maintaining 
our trend line in advance mode.  Although VRTY's profit-taking
on Monday did not take us all the way to our support of $65, 
it did give us a good buying opportunity, showing a distinct
turn around off of it's low Monday of $66.75.  It is also 
following the support nicely, offering investors buying 
opportunities at every dip close to the 10-dma since the
inception of it's new trend on Sept 9th.  Today Internet
software analyst Greg Vogel, said that VRTY is positioned
as one of the companies to participate very successfully in 
the e-commerce revolution that is taking place.  Be cautious 
going into the market volatility tomorrow and protect your 
profits.  


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

GENZ $32.94 -10.06 (-9.65) Let the downgrades begin!  GENZ 
has come unglued this week under a barrage of downgrades.  The 
sell-off really starting gaining steam right at the time the 
markets turned on Tuesday with the FOMC verdict.  This quick 
and sharp reaction to the tightening bias adopted by the Fed 
really took its toll on GENZ.  In an obvious panic situation 
among investors, GENZ hit $30.75, down $12.25 before rebounding.  
The profit potential on this play if you had open positions 
was incredible to say the least.  The bonus to this drop was 
that GENZ slowly slipped through $40 giving you a chance to 
jump on board.  The reasoning for the drop is the multiple 
downgrades that hit GENZ this week.  On Monday, it was CS First 
Boston and Prudential issuing comments and on Tuesday it was 
Raymond James, Cowen and ING Barrings who came out against 
the stock.  ING was biggest bear in the bunch as they dropped 
GENZ from a Strong Buy to a Hold.  The problems stem from the 
pipeline drugs, which aren't living up to the hopes of analysts.  
Choosing entry points at this point will be tough.  With a 
drop of this magnitude it is common to see a bounce.  Therefore 
tighten up your stops to preserve your profits.  Apparently 
the insider selling that we have talked about has proved to 
be a leading indicator in this case.  Support and resistance 
will be tough to call with this volatility and if you are 
new to options, this may not be the play for you.  Expect lots 
more volatility and protect your gains.

KO $47.94 +0.38 (-1.13) Coke managed to have a positive day 
with big volume despite a weak global demand and continued 
currency issues.  A series of setbacks, including the massive 
European product recall in June, has left Coke standing on 
wobbly legs and a pending earnings shortfall.  It has been noted
that by being up front in regards to the possible Q3 earnings,
Coke has avoided a potential earnings surprise plummet.  On 
Tuesday, A.G. Edwards upgraded Coke from Maintain to Buy 
with a target price of $75 by year-end.  KO still remains 
under the 10-dma at $49.75.  Coke hasn't not been above the 
10-dma all month.  This could be considered for an entry 
point and with KO being so far below other major averages, 
we don't see any definitive support lines.  Remember to 
exercise caution and use your stops if you are playing Coke.  

WPI $28.88 -1.06 (-1.13) In another confusing day on Wall 
Street, with a lot of stocks up in the morning before the FOMC 
announcement, only to sell-off after the announcement, WPI 
remained steady as she goes...DOWN!!.  Dropping to another 
52-week low of $27.81, before rebounding somewhat to close the 
day at $28.88.  An interesting development today was the volume.
The volume in the shares picked up substantially, trading well 
above the average number of shares.  This increase in volume 
could be due to the uncertainty that a FOMC meeting brings, but
with that said, the shares did not buck the downtrend.  This 
keeps us in a bearish position going forward.  Those that are 
holding current put positions, tighten your trailing stops to 
protect profits.  Look for WPI to confirm the downtrend when 
entering a new position.  

EXDS $68.44 +2.19 (-0.75) The shares of EXDS have been on a 
roller coaster ride in the last two days as we suspected.  
Starting this trading week at $69.18, and then on Monday 
trading as low as $65.00 before bouncing back to close the day 
at $66.31.  The lows of yesterday's trading session in the 
shares could have provided a nice profit-taking situation.  
Today, backed by the news that EXDS and ORCL would team up to 
sell database and business management software online, the 
shares bounced back to close up over two points on the day at 
$68.44.  We believe that this price surge intraday was due to 
some new money coming into the shares after the news, as well
as investors covering there short positions.  With the 
uncertainty back into the market now that the Fed has spoken,
we believe the shares will remain in a short-term decline and
return to the previous days lows.  We will remain in this 
position as long as the shares remain below current resistance 
levels at $70.  Current holders of put positions should keep 
stops tight, just in case the downtrend is broken behind strong 
volume and momentum.

PSIX $33.88 +1.75 (-0.87) Yesterday PSIX played out 
perfectly as it descended lower on strong volume shedding 
another $2.63.  Today the market took PSIX on a topsy-turvy 
ride amidst triple trading-volume levels.  It's likely the 
comment by Senior e-commerce analyst Rick Juarez of BBRS 
heavily influenced today's performance.  He reiterated a 
Buy rating citing that he expects solid 3Q earnings with 
revenues $1-2 mln on the upside and that "in the wake of 
recent weakness in the stock, which has created, in our 
view, an attractive entry opportunity in the leader of 
value-added IP-centric access".  We're keeping PSIX on our 
put list because one-day doesn't make a trend and 
ultimately, the rally didn't sustain upwards of $36.38 and 
then swiftly reversed.  The stock's freefall was nipped in 
the bud only by the closing bell.  Technically the MACD and 
MOM are still in negative mode and PSIX is well below the 
200-dma ($42.60), a tell-tale indicator it violated on 
September 23rd.  The company's earnings report is expected 
on October 25th (to be confirmed).



*********************************************
PICK NEWS - PUTS - CONTINUED IN SECTION THREE
*********************************************



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



The Option Investor Newsletter         Tuesday  10-5-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


*********************************************
PICK NEWS - PUTS - CONTINUED FROM SECTION TWO
*********************************************

YHOO $173.31 +2.13 (-2.13) Is Yahoo's earnings run over?  If 
Monday's trading session was any indication the answer would 
be yes.  The stock fell over four points despite a very 
bullish day for the broader markets.  Today was a different 
story as investors pushed the stock higher managing to recoup 
most of Monday's losses.  We have one trading day left until 
the big announcement, Yahoo will report their earnings after 
market close on Wednesday.  If history is any indication of 
the future, this will be the stocks turning point and our 
bearish position will be at full force.  However, remain 
cautious until Wednesday, Yahoo has one more day and investors 
may try to rally the stock once again.  For new trades, watch 
for failed rallies, this should be a good sign that the stock 
is about to turn.  With broader markets shaken by today's 
announcement on interest rates, prepare for more volatile 
market conditions.  To bring you up to date with the most 
recent news, Yahoo announced today it has launched a number 
of new features, a new design and content to its popular 
Internet shopping service, Yahoo! Shopping making online 
shopping quicker, easier and more convenient for consumers.
Here are the put contracts to help in your preparation.  
Remember, conservative traders will want to wait until after 
earnings to avoid the possibility of a split announcement 
or other positive surprises.

BUY PUT OCT-175 YHV-VO OI=2799 at $10.38 SL= 7.75
BUY PUT OCT-170*YHV-VN OI=3503 at $ 7.75 SL= 5.75
BUY PUT OCT-165 YHV-VM OI=2221 at $ 6.00 SL= 4.25
BUY PUT NOV-170 YHV-WN OI= 768 at $15.25 SL=11.75


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

BRCM - Broadcom $120.25 +3.19 (+7.75 this week)

They have established strategic relationships with some key
equipment manufacturers, including 3com, Cisco Systems, General
Instrument, Motorola, and Nortel Networks just to mention a
few.  Broadcom makes semiconductors used in broadband (high-
speed) data and video transmission products.  They control 
the market for cable modems and digital set-top boxes.  Their 
chips are also used in products for Ethernet networking, 
digital broadcast satellite, and digital subscriber line 
markets.  Located in Irvine, California, Broadcom primarily 
competes with Conexant Systems, Lucent and Texas Instruments.

The semiconductor industry has managed to find a little strength
the past three sessions.  BRCM has bounced nicely off its recent
lows.  The recent sell-off in the chip makers industry seems 
to have been primarily based on the Taiwan earthquake.  Some 
analysts believe the sell-off was over done while others are 
viewing the setback as a buying opportunity.  We tend to believe 
it may have created some wonderful buying opportunities.  We 
are basically looking at BRCM for an earnings play.  BRCM is 
scheduled to release earnings October 14th after the close.  
Analysts are expecting BRCM earnings to come in at $0.21, 
compared to just $0.09 last year.  And traders seem upbeat 
about Micron's earnings surprise from Monday.  Investors are 
somewhat shrugging off Alan Greenspan and the FOMC meeting 
today, driving the price of BRCM shares up over $3.00 on the 
session on better than average volume of 2.1 mln shares.  We 
believe the short-term outlook for BRCM is up and we have a 
chance for a quick earnings play.  In considering a new play 
in BRCM, recognize that this play is not necessarily for 
everyone, due to the price and volatility.  Look for a positive 
move in the major indices, the semiconductor industry and BRCM.  
Also check the volume prior to entering a new play in BRCM.  
Remember it will be a fairly short play as earnings are less 
than 9 days away.
 
In the news Kaufman Brothers initiated new coverage Friday 
with a Buy rating and a price target of $140, while Needham 
and company raised its rating from a Hold to a Buy with a 6-12 
month projection of $128.  One other interesting rating came 
out yesterday from Donald Cunningham at Gilmour & Associates 
as the analyst rated BRCM as a Sell.  You can bet the company 
doesn't give him the time of day after that call.

BUY CALL OCT-115 RDZ-JC OI=875 at $8.00 SL=6.25
BUY CALL OCT-120*RDZ-JD OI=974 at $5.00 SL=3.25
BUY CALL OCT-125 RDZ-JE OI=577 at $2.94 SL=1.50

Picked on Oct 5th at   $120.25     P/E = 308
Change since picked      +0.00     52-week high=$149.50
Analysts Ratings    6-12-0-0-0     52-week low =$ 29.00
Last earnings 06/99  est= 0.16     actual= 0.19
Next earnings 10-14  est= 0.21     versus= 0.09
Average Daily Volume =1.84 mln
Chart = http://quote.yahoo.com/q?s=BRCM&d=3m

****

ADBE - Adobe Systems Inc $114.69 -3.13 (+1.50 for the week)

Adobe Systems is the 4th largest US-based personal software 
company world-wide and are a leading provider desktop 
publishing software for the Internet.  They generate annual 
revenues approaching $1 bln with three products Photoshop, 
Illustrator, and PageMaker making up almost 60% of the 
sales.  Clients include graphic designers, professional 
publishers, other business users, and of course the average 
consumer.

This stock is coming off better-than-expected earnings from 
September 16th and has an upcoming 2:1 stock split.  The 
sheer momentum from that point carried ADBE closer to its 
split date on October 23rd.  Now it's really kicking into 
gear as the date fast approaches and the Internet sector 
shows more strength.  Both yesterday and today the stock set 
new highs with the latest 52-week record at $121.94 breaking 
through the near-term resistance of $114.69.  Support 
remains solid at $110. This is a simple split play, but it's 
still an Internet so expect volatility.

In the news last week, four different firms put in a word for 
ADBE last Thursday.  Bear Stearns reiterated an Attractive 
rating while Merrill Lynch reiterated their Near-term Accumulate 
and Long-term Buy ratings.  Prudential upgraded ADBE to an 
Accumulate from a Hold and issued a 12-18 month price target 
of $127.  And as a result of an Analyst Meeting last Wednesday, 
Hambrecht & Quist reiterated a Buy rating and issued a 12-month 
target price of $130 while also raising Year 2000 estimates 
to $3.65 from $3.55. 

BUY CALL OCT-110*AEQ-JB OI=722 at $ 7.00 SL=5.25
BUY CALL OCT-115 AEQ-JC OI=647 at $ 4.25 SL=2.75
BUY CALL OCT-120 AEQ-JZ OI=267 at $ 2.13 SL=1.00
BUY CALL NOV-120 AEQ-KZ OI= 95 at $ 6.88 SL=5.25

Picked on Oct 5th at  $114.69    P/E = 40
Change since picked     +0.00    52 week high=$121.94
Analysts Ratings    2-6-6-0-0    52 week low =$ 30.00 
Last earnings 08/99 est= 0.73    actual= 0.80 surprise +9.6%
Next earnings 12-16 est= 0.83    versus= 0.76
Average daily volume =  969 K
Chart = http://quote.yahoo.com/q?s=ADBE&d=3m



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

No new put plays today.



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

EMC - EMC Corporation $76.00 -0.50 (+3.13 for week)

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

Sunday's Write Up 

EMC is an earnings run candidate, that has been consolidating 
while the market sinks.  This has hindered the play somewhat 
but we are still seeing a very good trend emerge.  Friday we 
saw some light as the stock is attempting a break out.  Since 
midday on Thursday we have gone nowhere but up.  Resistance 
at $72 had been holding us down but Friday we broke through 
and ended right near the high for the day.  Volume was average 
as can be expected before an FOMC meeting and our next target 
for resistance is the 52-week high at $75.63. We don't expect 
to see this until after the FOMC meeting, but if the Fed doesn't 
kill the market, we should be off on the earnings run.  Remember 
that storage is the hot spot among computer hardware lately 
so investors could bid the stock up in anticipation.  The 
strength and momentum are encouraging on EMC.  Despite the 
negative comments on HP and DELL Friday, EMC held up well, 
trending higher throughout the day.  Currently support lies 
at the 10-dma at $71.50.  This could be a good entry point if 
we get there but make sure we bounce with volume before buying.  
As mentioned in Thursday's update, the company confirmed the
earnings date as being 10-20 before the market open.  Price-
wise, EMC is in split range however the company would need
authorization from shareholders to make it happen.  Place stops 
on your existing positions, as the FOMC meeting on Tuesday 
will cause uncertainty as to interest rate direction.

The PC and hardware industry has been under some pressure due
to recent earnings warnings and downgrades from Hewlett Packard
and Dell.  Erik Gustafson cited EMC as one of the places for
fund managers to be, indicating our societies transition from 
the industrial phase to the information phase.  The report
indicated that these fund managers are currently moving back
into EMC, as these types of stocks are ones that held up
mutual funds third quarter results. 

Tuesday's Write Up

EMC has been paralleling the market for the last two days, as
it trended up quite steadily to a new 52-week high of $78.  A 
look at a five minute daily chart shows the similarities in trend
to the NASDAQ and S&P.  EMC dropped with the Fed announcement to
adopt a tighter bias toward the economy but recovered from it's 
low, as did the markets also.  EMC's movement today show's 
investor interest and strength in the stock, as it remained well
above it's support of $72, and invited buyers on the dip.  
Although we remain bullish into earnings on Oct 20th before 
the open, be cautious and expect the market to consolidate a bit
more due to the Fed news, before heading higher into the earnings 
run.  Today David Takata of Gruntal and Co discussed the outlook 
for the Technology sector, and termed it exciting and 
unpredictable.  He did list EMC as one of the stocks to follow 
with good potential due to the Internet craze.  Protect your 
profits with stops and confirm a positive market and stock 
direction before playing.


BUY CALL OCT-65 EMB-JM OI= 7185 at $11.38 SL=8.75
BUY CALL OCT-70*EMB-JN OI=14729 at $ 6.63 SL=4.25
BUY CALL OCT-75 EMB-JO OI= 8209 at $ 3.00 SL=1.50
BUY CALL NOV-70 EMB-KN OI= 1349 at $ 9.00 SL=6.75
BUY CALL NOV-75 EMB-KO OI= 2271 at $ 6.00 SL=4.25

Picked on Sep 12th at   $68.13    P/E = 78
Change since picked      +7.88    52 week high=$76.50
Analysts Ratings    14-9-1-0-0    52 week low =$20.81
Last earnings 07/99  est= 0.24    actual= 0.27 
Next earnings 10-19  est= 0.27    versus= 0.19 (whisper=$0.31)
Average daily volume = 5.4 mln



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

Markets Rally Then Fade As New Worries Surface..

Monday, October 4

U.S. markets moved higher a day ahead of the Federal Reserve's
key interest-rate meeting, on news of telecom and technology
mergers. The Dow Jones industrial average ended up 128 points
at 10,401 and the Nasdaq composite jumped 58 points to 2,795.
The S&P 500 index gained 22 points to 1,304. In the broader
market, advances led declines 1,759 to 1,243 on active volume
of 795 million shares on the New York Stock Exchange. In the
bond market, the 30-year U.S. Treasury bond rose 17/32 with
the yield falling to 6.09%.

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

Gemstar         GMST   NOV62C/NOV70C  $6.00  debit  bull-call
Dell Computer   DELL   NOV55P/NOV45P  $8.00  debit  bear-put
Yahoo!          YHOO   OCT210C/200C   $1.00  credit bear-call
Allied Waste    AW     MAR12C/NOV12C  $1.12  debit  calendar

Our most exciting play of the day was definitely Gemstar. The
stock traded in a small range early in the session and started
moving up with the broad market rally. Everything looked great
until the announcement of a $9.2 billion merger with TV Guide.
The stock dropped almost $8 to $76 on the news and everyone is
curious about the future financial affect of the deal. Analysts
will be all over this new agreement so be prepared for upgrades
and downgrades, new earnings estimates and price targets. Dell
moved lower for most of the morning but rebounded to close up
$0.75 for the day. Our target entry was easily achieved in the
afternoon session.

Yahoo! was our next candidate and it didn't disappoint. YHOO
moved higher at the open, allowing for entry prices as high
as $1.12 credit for the suggested position. It fell lower at
midday and recovered at the close to finish down $4. Tomorrow
should be just as exciting. Allied Waste traded higher in the
morning session but also fell near the close. Our new calendar
spread was available at the recommended entry price.

Portfolio plays:

The Federal Reserve's policy-making group meets tomorrow to
decide whether to raise interest rates for a third time this
year. Analysts are speculating that the Fed will not raise
the borrowing rate, based on the slump in the Dow, which is
down about 10% from its August high. Today's decline in bond
interest rates was favorable for banking and financial stocks.
They were among the strongest Dow components and one of our
bullish (credit-spread) issues, American Express (AXP) was up
over $6 to $137. Merrill Lynch (MER), another portfolio play,
also moved up $3 with the brokerage group.

There was lots of activity in our calendar spreads portfolio
and most of the excitement was based on merger speculation in
the telecommunications industry. The industry's biggest long
distance phone companies were in the news and stock in Sprint
(FON) moved up $3 on reports it was entertaining rival bids
from MCI WorldCom and BellSouth. Bell Atlantic (BEL) was also
affected by the news, climbing over $3 to a new high at $69.
As we said last week, BEL was on the verge of a break-out and
remained at the top of our list for adjustments. Our neutral
calendar spread is short at $65 and this change of character
will put the position in jeopardy unless it remains below $70.
The roll-up to the $70 strike will require additional capital,
currently about $1.50 debit, but it would increase the upside
profit range to coincide with a bullish technical outlook for
the stock. We will watch this one closely for any indication
of future direction before making the final move.

3Com Corp (COMS) was our other candidate for adjustment (from
last week) and today it rallied again, climbing over $1 in the
morning to the $30 range. The position pricing was favorable
for a move to the higher strike and our current debit, after
the transition to a NOV-$30 call is $1.38. Viatel (VYTL) also
rebounded today, climbing with the broad market rally to just
over $28. Our current short option is safely OTM at $30 and
the play is now profitable with a $1.38 credit. Even C.R Bard
(BCR) performed well, giving back in some of those big gains
made on Friday. Now our sold option is well above the current
stock price. Let's hope it stays in a small range for the next
two weeks.

Most of our bullish debit issues moved higher during the day.
Quest (QWST) climbed almost $3 dollars on the telecom activity,
moving to a recent high near $33. Our bullish debit spread is
now comfortably ITM and you should consider closing the spread
near maximum profit. Barnesandnoble.com (BNBN) is safely ITM
and now has a $2.38 credit available for an early exit. Tuts
Systems (TUTS), Unify (UNFY), and IDT Corporation (IDTC) all
rebounded with the small-cap technology sector and appear to
have a reasonable chance of a profitable outcome. Starbucks
(SBUX) and Network Associates (NETA) have us worried as they
failed to make an upward move even in today's bullish market.
A sell-off after the interest rate announcement will affect
these issues and we suggest you close any that are profitable
to protect gains and limit losses.

All of our long-term positions benefited from today's bullish
activity. Motorola (MOT) and Sun Microsystems (SUNW) were the
big winners but issues such as General Motors (GM), Solectron
(SLR) and Computer Associates (CA) also participated in the
rally. Even Polaroid (PRD) joined in the fun. Biogen (BGEN)
has been looking bearish as of late and the small pre-earnings
rally may be just the time to roll-forward with some insurance
for any future downside moves. A credit of $2 is now available
for the roll-out to a NOV-$90 position, the lowest strike that
is available for next month. Exxon was our only loser in this
category, down $1.56 to $73.

Tuesday, October 5

Industry leading stocks were mixed Tuesday after the Fed moved
closer to tightening rates in the future. The Dow ended almost
unchanged at 10,400 after falling from an early 100-point gain
on news of the committees decision. The Nasdaq composite index
was up 3 points to 2,799 while the S&P 500 index fell 3 points
to 1,301. In the broader market, decliners led advancers 1,783
to 1,222 on active volume of 954 million shares on the NYSE. 
The benchmark 30-year U.S. Treasury bond fell 1-9/32 while the
yield rose to 6.18%.

Portfolio plays:

The markets survived the FOMC interest rate announcement with
a moderate amount of selling. Helping to fuel a rally ahead
of the Fed's decision were a slew of company upgrades and some
favorable earnings reports from industry leaders. Despite the
decision by the Fed, many investors were focused on positive
company news rather than the future economic outlook.

One of the big events today was the news that MCI WorldCom
(WCOM) would buy Sprint (FON) for $115 billion in stock and
assumed debt. The new company will be called MCI WorldCom,
and should have about 30% of the $90 billion long-distance
market, certainly a formidable rival to industry leader AT&T.
The move affected all of the stocks in that group including
our plays on Bell Atlantic (BEL) and Qwest (QWST). BEL was
previously a candidate for upward adjustment but fell almost
$4 on the news. QWST had been up almost $2 during the day but
retraced its bullish movement near the end of the session.

There were some excellent moves in our long-term portfolio.
Cabletron Systems (CS), Polaroid (PRD) and The Limited (LTD)
all bounced back from recent declines. General Motors (GM)
also continued higher while Computer Associates (CA) fought
its way back to $61; slightly above our sold option in the
LEAPS/CC's play. Sun Microsystems (SUNW) continues to amaze
with its climb to the heavens and I not sure that anyone can
say exactly when or where it will end.

Micron Technology (MU), one of our (bullish) credit spreads
was up another $5.68 to $8 after it reported that quarterly
losses were far less than the Street analysts were expecting.
The spread was very conservative with the sold strike at $50.
Gemstar (GMST) dropped another $6 today even after an upgrade
by Lehman Brothers. The brokerage raised its price target for
GMST to $150 and commented that Monday's proposed acquisition
of TV Guide is a major strategic positive. That may be true
in the long run but it won't placate unhappy investors in the
interim. I have no idea what will eventually occur with this
issue and thus you will have to make your own decision about
the future of the stock and the probability of recovery before
the November expiration.

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


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

I had a few requests this week for longer-term plays. Here are
some low-cost, conservative positions on issues with excellent
potential and recent signs of technical consolidation.

GBLX - Global Crossing  $25.19     *** Where To From Here? ***

Global Crossing is the world's first independent global provider
of state-of-the-art Internet and long distance telecommunications
facilities and related services utilizing a network of undersea
and terrestrial digital fiber optic cable systems. The company is
the first to offer "one-stop shopping" for customers to multiple
destinations worldwide. Currently, they operate as a "carriers'
carrier", providing tiered pricing and segmented products to
licensed providers of international telecommunications services.

In late September, Global Crossing completed its $10 billion
acquisition of Frontier (FRO) in a deal that will help link the
company's worldwide fiber optic network. The new company now has
an complete end-to-end global fiber-optic network connecting all
the major cities on five continents, with $2-billion in combined
contract backlog, and one of the largest web hosting operations
in the world along with a slew of next generation services on
the cutting edge of the telecommunications industry. Hmmm..

The key is to use all that glorious potential in a new telecom
market that is ruled by giants. Only time will tell if this small
independent company can compete (or benefit from) behemoths like
MCI Worldcom and AT&T or if they will join forces with smaller,
well established corporations such as BellSouth (BLS) and Bell
Atlantic (BEL). We do like they way investors are starting to
accumulate this issue at the recent low prices.

PLAY (conservative - bullish/debit spread):

BUY  CALL JAN-17.50 QGV-AW OI=686  A=$8.62
SELL CALL JAN-22.50 QGV-AE OI=6050 B=$3.75
INITIAL NET DEBIT TARGET=$4.62 ROI(max)=62% B/E=$22.12

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

****

EGRP - E*Trade Group  $24.94     *** Finding A Bottom? ***

E*Trade is a leading provider of cost-effective, secure online
discount brokerage services. E*Trade offers automated order
placement, portfolio tracking and related market information
and news on the Internet, and through online service providers
CompuServe and America Online, as well as direct modem access,
touch-tone telephone and interactive television.

E*Trade has been ranked as the #1 online brokerage by Gomez
Advisors, Lafferty Information and Research Group, PC Magazine
and Smart Computing magazine. Now the company plans to expand
its global presence by launching branded web sites in the top
20 financial markets worldwide, and has now taken a key step
toward becoming the first online global trading network with
a recently completed acquisition of TIR Holdings.

E*Trade also recently announced a global strategy to develop
powerful, proprietary tools that enable individual investors
to manage their personal finances more effectively. Together
with Confluent (a new subsidiary), E*Trade will create a new
innovative online product; the Personal Financial Information
Manager, that will be available through the E*Trade web site.

E*Trades Personal Financial Information Manager will enable
investors to develop a personal command center for managing
and tracking important financial events. Users will be able
to automatically track specific corporate events, including
earnings announcements, stock splits & dividend declarations
based on their personal portfolios. Investors will also have
the ability to organize personal financial information and
transactions such as automated deposits, bill presentment
and payment and automatic investing plans.

We favor the recent technical base near $22 and the increase
in buying pressure. The long time frame and excellent option
premiums will allow plenty of opportunity to reduce the cost
basis after the new year begins. Upside profit potential for
a bullish break-out is also favorable.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL APR-25 QGR-DE OI=9932 A=$6.88
SELL CALL JAN-30 QGR-AF OI=3353 B=$3.12
INITIAL NET DEBIT TARGET=$3.50 TARGET ROI=50%

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

****

LGTO - Legato Systems  $45.44     *** Cheap Speculation ***

Legato develops, markets and supports network storage management
software products for heterogeneous client and server computing
environments. LGTO sells its products through both its direct
sales force and through well-known manufactures such as Banyan,
Compaq, Data General, NEC, Siemens, Silicon Graphics, and Sun 
Microsystems.

This position is based on favorable option premiums and a solid
technical history. The issue has recovered after testing support
levels earlier in the week and should be able to sustain a small
share price growth over the next two months. The stock achieved
a 52-week high (near $50) in early September and will eventually
test that range again. The risk/reward outlook for the spread
offers an excellent opportunity for low-cost speculation.

PLAY (conservative - bullish/calendar spread):

BUY  CALL DEC-50 EQN-LJ OI=357 A=$4.12
SELL CALL NOV-50 EQN-KJ OI=21  B=$3.25
INITIAL NET DEBIT TARGET=$0.75 TARGET ROI=50%

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


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

Monday, October 4

Our new positions, Allstate (ALL) and U.S. Air (U) both jumped-up
at the open and remained higher for most of the day. Allstate was
the first to succumb to sellers and it ended the session exactly
where it began. The suggested debit was available on that issue.
US Air was quite a different story. It moved higher in the first
few minutes and never looked back. The position may have been
available to those opened the sides individually but the lowest
simultaneous order was near $8.12. Here are the new positions:

Allstate  ALL  APR25C/APR25P  $5.50  debit
U.S. Air  U    MAY25C/MAY25P  $8.12  debit

Portfolio plays:

Many of our straddles were active during the first two days of
this week's inflation and news-driven market. Volatility and
volume continues to dominate trading and Tuesday's session was
very intense for most investors. Technology issues moved to the
extremes and it was hard to guess where they would end the day.

One of the best performing stocks was Lycos (LCOS) and Tuesday's
move gave us a new winner in the straddles portfolio. The debit
straddle traded at $19 credit during the session and that may be
just the beginning with the new technical trend (bullish) of the
issue. Federal Express (FDX) continues to recover on lower crude
oil prices and the slumping transport sector may finally be in a
rebound mode. The overall credit for the position was near $11.50
at the highs of the day, a $1.75 profit for two weeks. Another
recovering issue is Ames Department Stores (AMES) and the credit
for the January straddle traded as high as $9.50 during the day.
This one appears to be changing character quickly so you should
consider the possibility of an early exit on the bearish option.
Donaldson, Lufkin and Jenrette (DLJ) started to recover slightly
on Monday and we made note of the price of the bearish position
for future reference. It traded as high as $12.50, but that was
not enough to pay for the entire straddle, as we intended to do
originally. Williams Company (WMB) also continues to recover but
a new test will occur at the $40 resistance level.

Good Luck!



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

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