Option Investor
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Daily Newsletter, Tuesday, 10/12/1999

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The Option Investor Newsletter         Tuesday  10-12-99
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)
************************************************************
        10-12-99           High     Low    Volume Advances Decline
DOW    10417.10 - 231.10 10648.80 10417.10   772,437k   853  2,162
Nasdaq  2872.43 -  43.52  2923.32  2869.44 1,004,092k 1,491  2,391
S&P-100  686.24 -  11.52   698.30   685.43    Totals  2,344  4,553
S&P-500 1313.04 -  22.17  1335.77  1311.80            33.9%  66.1%
$RUT     424.68 -   5.51   430.46   424.67            
$TRAN   2961.49 -  64.53  3026.58  2959.38
VIX       24.60 +   2.55    25.45    22.17
Put/Call Ratio       .68
*************************************************************

Look out below!

I told you on Sunday it was too good to be true. Everything was
coming up roses but the smell was not the same. The market was ripe
for a negative event. When the Nasdaq set a new high on Monday and
the Dow could only manage a -1.64, our destiny was clear. The 
negative news swamped the airwaves today starting with the earnings
warning by Raytheon. Citing fixed price contract over runs that
they would have to pay, the defense and aerospace company really
smelled up the markets. Other stocks in the sector included both
Boeing (BA) and United Technology (UTX) which are both Dow stocks.
Boeing dropped -2.31 and UTX lost -3.44 to start the Dow on its
downward slide. 


 

 

 

The day only got worse from there. The interest rate worries
bled over from the bond market and yields flirted with 6.24%
putting further pressure on the market. With the Nasdaq up 
+33% for the year and a rate hike in our future, it was just
too much for some investors who tried to beat the rush to the
exits. Many must have gotten the Intel news before the fact
with over 44 mln shares traded before the market closed. 
Well more than twice the average daily volume. 

Oil also contributed to the rate fears again today after
soaring for the second day in a row. Rising oil prices contribute
to higher inflation as the price is passed on to the consumer in
thousands of products. The concerns that OPEC was cheating or
would raise output appear to have evaporated.

Another fly in the ointment today was the reported military
coup in Pakistan. We do not really have any economic impact
from the conflict but they are a nuclear power. Nobody wants
to have a power struggle over who has the bomb. Still, any
uncertainty weighs on the market.

The real stinker today was the Intel disaster tonight. Yes, 
it impacted us today as traders fled tech stocks "just in
case" Intel missed it's numbers. But that is unthinkable, 
right? They did not warn so that means they will make their
number, right? Sorry folks! The biggest chip maker in the 
world took on Amazonian proportions tonight. According to
Intel they had a great quarter. Revenue up +8.5%, record
shipments and gaining market share (sound like Amazon?) but
they were not able to make their estimates. Posting only
a $.55 vs the official estimate of $.57 and the whisper number
as high as $.62. After all this was the best third quarter in
years and Intel was expected to show the results of the booming
PC market. The booming market however put Intel into a price
crunch. They had lower average selling prices and lower gross 
margins. They cut the Celeron chips aggressively to garner
market share of a PC product where they were not making a 
reasonable profit. (Sound like Amazon?) Sorry, Intel, you
are not considered an Internet stock and real world profit
margins apply to you. Enough complaining. They promise to
have a great fourth quarter. A lot of good it will do us
tomorrow!

Intel traded down to $70 in after hours trading from a close
of $76.69. In case you haven't looked, the S&P futures for
tomorrow are already down -11.00.  It is not as bad as it
seems because Intel is the third largest company in the S&P
at 2.52%. This means that any major change in the price of
Intel will directly impact the S&P. What is causing the problem
is the dozens of other tech companies that will also be painted
with the Intel brush and immediately be suspected of missing
their earnings. Their stock prices fall in anticipation and
you have a major event. Dell for instance is 1.25%, MSFT 4.36%,
IBM 2.09%, CSCO 2.0% and on and on. Pretty soon you have 20%
of the S&P on a decline. Some of this will be white washed
by morning but the result is not going to be pretty.
In after hours Dell lost -1.50, CSCO -1.25, QCOM -4.00, 
MSFT -1.56. Some of these recovered from these levels but the 
impact at the open will be the same. 

Remember, we are almost right at the anniversary of the 1929
October crash, and only a week away from the anniversary of
the 1997 October crash. The market psychology is changing.
We went from a strongly bull market just last week to a "look
out below" mentality. The earnings, except for Intel, are
still in the 19% range and we still have hundreds of companies
to announce. All of a sudden, it does not matter. It is old
news and nothing new is on the horizon except for negative
events. The Fed and the European Central Bank are both poised
to raise rates. We have Greenspan speaking on the state of the 
economy on Friday. (An event you dream about after having pizza 
for supper.) We have the PPI on Friday and CPI next week. We have
Retail Sales, Import and Export prices on Thursday. Industrial
Production and Capacity Utilization on Friday. I do not see
anything good to propel the markets upward do you? And don't
forget, Y2K is only 55 trading days away. The Nasdaq also 
entered a negative formation today by closing below the low of 
the previous record high day. In theory we should have held above
the low to confirm the new high. (In reality it could have just
been profit taking from the six day run.)

Now put on your rose colored glasses. Surely saner heads will
prevail by morning. It was only two cents! And Intel did promise
a better fourth quarter. We are also sitting right on significant 
support at 10400. The next major support is 10200, just an 
intraday jog away. Analysts were complaining that we never had
a serious back to back drop last month to get rid of the rest
of the weak holders. Maybe they get their wish on Wednesday.
The -231 drop today was the largest drop since May 27th. Put
another reflex action on the calendar for tomorrow and you go
right back to oversold and right where we were ten days ago.
Better yet, just drop Intel for a -$10 loss and let the rest
of us go on with business as usual. (I can wish, can't I?)

This is a tough call. Do you sell at the open with the idea
that 10,000 is only a tick away, or do you hold on for a
quick recovery? I wish I had a crystal ball and could tell 
you what the Dow will be on Friday but I don't. 

The last piece of hope I will leave you with is this. Friday
is expiration Friday and "historically" this provides an 
upward bias for the week. We are looking at this as an entry
point opportunity in several stocks. Dell and GTW will take
an immediate drop at the open and maybe more as the week
wears on. We are adding both of them as call plays tonight
with the idea of target shooting them on weakness. Another
sidelight could be Broadvision. We have been criticized for
not listing BVSN as a pick as it blazes a trail toward it's
3:1 split. I have repeatedly said we will not list stocks
that have had double digit gains on a newsletter day. The
option premiums have been inflated so much that they are
grossly over priced. BVSN has been adding +$10 a day since
Oct 1st. Well if you want to play BVSN, tomorrow is your 
chance. It was down -$13 intraday today and recovered to 
finish -5.88 at the close. It will surely dip at the open
and provide yet another entry point. Before you spend the 
night tossing and turning over this opportunity, let me
remind you that the Nov-$170 call BDV-KN is $24. (BVSN=$176)
(This is not an official play because of the option price) 

If you are in cash, use caution buying the dip. Wait for
a rebound before putting your cash in the trap. I have vivid
memories about jumping in at the close after a big multiday 
decline in Oct-1997 with the idea that "it can't go any lower" 
and waking up the next morning to the futures lock limit
down at -27.00.  Trust me, you do not want to go there!
If you are not in cash or puts then hold your breath at the
open and hope for a quick recovery. Many times, panic selling
at the open will be the worst price of the day. 

Good luck, sell too soon.

Jim Brown
Editor



************
New feature:
************

Recently we have added several new research analysts whose 
primary function is to look behind the headlines on major 
stocks and report the real news and sentiment. 

Because of article size and newsletter space restrictions we
cannot include these research reports in the email version.
Please visit the site daily to access these reports.

Here are some samples from Monday & Tuesday.


Stock News - Monday, October 11, 1999
It's Beginning to Look a Lot Like an Internet Christmas 
September Retail Sales Presage Strong Holiday Season for eTailers 
http://www.OptionInvestor.com/stocknews/101199_1.asp


Stock News - Monday, October 11, 1999
Telecom Update: Bell South to Bust Qwest Merger? 
After last week's announcement of the blockbuster MCI WorldCom 
(WCOM) and Sprint Corp. (FON) merger, rumors ran wild about 
who's next. 
http://www.OptionInvestor.com/stocknews/101199_2.asp


Stock News - Tuesday, October 12, 1999
Investors flock to online broker services and away from online
broker stocks. It's become clear that more and more investors 
are heading to the Internet to get their trades executed. 
http://www.OptionInvestor.com/stocknews/101199_3.asp

Stock News - Tuesday, October 12, 1999
Ask Jeeves Lands the Deal of its Young Life
Yesterday Software giant Microsoft (MSFT) and tiny question 
answering service Ask Jeeves (ASKJ) announced an eyebrow raising 
deal. 
http://www.OptionInvestor.com/stocknews/101199_4.asp


Stock News - Tuesday, October 12, 1999
Calling Up the Internet -Oracle introduces wireless Internet 
software. Larry Ellison is up for the count. Four years after 
launching a failed campaign to promote network computing over 
PCs, the flamboyant chairman and CEO of Oracle Corp. (ORC) is 
back with a new software program that allows users to access 
the Internet and conduct e-commerce over wireless phones and 
other wireless devices.
http://www.OptionInvestor.com/stocknews/101199_5.asp



************************************
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 12, 1999 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
DOW Industrials   10,750  11,320  10,417    BEARISH   9.23      
SPX S&P 500        1,350   1,420   1,313    BEARISH   9.16       
OEX S&P 100          675     735     686    Neutral  10.05      
RUT Russell 2000     440     465     425    BEARISH   9.14       
NDX NASD 100       2,320   2,380   2,527    BULLISH   9.03   
MSH High Tech      1,120   1,180   1,268    BULLISH   9.03   

XCI Hardware       1,035   1,050   1,066    BULLISH   8.24    
CWX Software         750     800     885    BULLISH   9.03         
SOX Semiconductor    470     500     523    BULLISH  10.05          
NWX Networking       555     585     625    BULLISH   9.17       
INX Internet         450     510     524    BULLISH  10.07   

BIX Banking          690     710     595    BEARISH   7.23    
XBD Brokerage        410     440     380    BEARISH   7.23    
IUX Insurance        645     660     542    BEARISH   7.23         

RLX Retail           915     960     889    BEARISH   7.23     
DRG Drug             365     390     379    Neutral  10.07        
HCX Healthcare       745     785     745    Neutral  10.08     
XAL Airline          180     190     148    BEARISH   5.21      
OIX Oil & Gas        290     305     287    BEARISH  10.08         


 
Posture Alert    
Higher interest rates and a falling dollar led to a broad market 
sell-off Tuesday. Most of technology sold-off in the last one 
hour, as pressure from the Dow finally caved in on the rest of the 
market. The loser board was plentiful, and was led by the Internet 
Index (-3.32%), the Dow (-2.17%), and the NDX (-2.02%).  The only 
winner today was Oil & Gas, which was up marginally after being 
punished the last two weeks. After the close, semiconductor 
bellwether Intel missed expectations by 2 cents, but did make 
positive comments into the next quarter. Either way, look for the 
SOX to make a big move tomorrow and have a spillover effect on 
everything else. 


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

/members/marketposture



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

Tuesday, October 12, 1999

In the Danger Zone!

Can we give the bond guys another day off? Just when you thought 
it was getting warm and sunny, a thundershower drops on you from 
nowhere. That seems to be the feeling after today, as the DOW and 
the broad market gave back many of the gains of late, thanks to 
the help of the Treasury market. With the bond market getting 
Monday off, they came back today with a vengeance, and whacked the 
30yr Treasury. The long bond now stands at 6.226%, just off the 
52-wk high of 6.272. This is not a good selling point for this 
market, and for this market to rally higher we need the treasury 
to hold and rally back. If we see new highs in the bond, we'll 
feel more down days just like today.

To add insult to injury, Intel came out tonight after the close 
and missed by 2 cents, and was trading down -5 in after-market 
activity. This was surprising and not helpful for this market; 
and will probably cause another big drop in the broad market 
tomorrow. Motorola announced earnings as well, but did come 
in-line with expectations. However, Motorola's result was the same 
in after hours, trading down -4. Not exactly a great start to the 
busy earnings week.  

The combination of two disappointing earnings, with the fact that 
the yield on the long bond is getting into dangerous territory, is 
not a good combination. In case you missed it, John Bollinger 
turned defensive today on CNBC and suggested that we may be at the 
end of the current bullish run. In an interesting comparison, he 
tracked the NASDAQ over the S&P over the past five years. The 
chart showed a parallel pattern until the Oct 98 low, when the 
Nasdaq clearly outpace the "quality issues within the S&P 100 by a 
big margin. He suggested that this might represent a form of a 
speculative bubble. Next, he referenced the total open interest at 
the CBOE. He presented a chart that showed the average open 
interest over the five-year period had stead growth until the last 
2 quarters when the average open interest has been jumping 
exponentially. He is concluding that this may confirm the 
speculative bubble theory. Not exactly what you want to hear, 
especially after tonight's earnings.

Now let's get back to Intel and Motorola. The only saving grace 
for these two companies will reside in their conference call with 
the analysts. Now before you panic, remember that Intel missed 
last quarter's earnings as well, and like tonight, the stock was 
trading down in after-hours. However, the conference call last 
quarter was very positive, and Intel's stock rallied back during 
the normal trading session the next day and closed up. Take a look 
at the chart below, and look at the nice gains it made after their 
last "disappointing" earnings miss. Not to bad!


 

Now, we are not stating that Intel will trade higher tomorrow, but 
are reminding you not to get too caught up in the CNBC hype. The 
same hype surrounded Intel last quarter, but all will depend on 
the conference call. Wall Street always likes to look 6 months 
down the road, and if they see Intel & Motorola with impressive 
growth, tonight's after hours trading will be turn out to be 
meaningless. If their conference calls stink, then tonight's after
-hours trading might look like a bargain for sellers wanting out. 
We already know that the sentiment for these two companies were 
low, but only time will tell if it was for a good reason.   

    
BULLISH Signs: 

Pessimism on Earnings:
We should see a solid third quarter from many companies, yet their 
stock prices do not reflect this upside potential. 

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

Posture Alert:
The Internet Sector (INX) has finally broken resistance, and has 
joined the four-horsemen (Software, Hardware, Networking, 
Semiconductors) as BULLISH sectors in our market posture section.

Volatility Index:
The VIX is below the 25 benchmark and would indicate strength in 
the broad market. 


Mixed Signs: 

Russell 2000 & S&P 500:
The RUT and SPX are showing early signs of basing, but have yet to 
prove that they can hold these levels. 

Earnings Season:
Earnings season is still early, but we should have a stellar 
earnings performance this month. Yahoo absolutely crushed all 
expectations, but Intel missed, and Motorola only came in-line.


BEARISH Signs:

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

Miscellaneous Uncertainty:
Y2K, inflation, higher interest rates, slowing corporate earnings, 
earthquakes, U.S. Dollar uncertainty, are all leading to an 
abundance of uncertainty for professionals and investors alike.
  
Advance/Decline Line:
The A/D line continues to be poor and is getting worse.


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 680-780)
Date                 Open Interest     Change %    Alert

Friday, September 17      34,361          - 
Friday, September 24      84,724        +146.5%
Friday, October    1     108,460        +215.6%
Friday, October    8     125,019        +263.8%


Market Sentiment at a Glance     Friday     Tues
Indicator                        (10/8)     (10/12) Alert


Pinnacle Index (OEX):          

Underlying Support  (700-720)      4.2       3.6
Underlying Support  (670-690)      1.9       2.5
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7        .7
CBOE Equity P/C Ratio               .5        .6
OEX P/C Ratio                      1.2       1.3


Peak Open Interest (OEX):

Puts                              670        
Calls                             700        
P/C Ratio                         2.08


Market Volatility Index (VIX):	

CBOE VIX                         24.53


Investors Intelligence:

Bullish                         41.00%  *
Bearish                         36.80%  *


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                       (10/8)      (10/12)

Overhead Resistance (700-720)     4.18       3.58

OEX Close                       698.45      686.24

Underlying Support  (670-690)     1.88       2.49
                     

Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Based on 10/12, overhead resistance is firm, and underlying 
support is picking up. 

 
Put/Call Ratio                  Friday     Tues
Strike/Contracts                (10/8)     (10/12)


CBOE Total P/C Ratio             .69       .69
CBOE Equity P/C Ratio            .49       .57
OEX P/C Ratio                   1.22      1.32


Peak Open Interest   Friday           Tues
Strike/Contracts     (10/8)           (10/12)

Puts                 670 / 20,807    670 / 23,399
Calls                700 / 11,288    700 / 11,235
Put/Call Ratio         1.84            2.08


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 12, 1999                        24.53 


 

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
 
Oct.  6, 1999                             41.0        36.8



******************
DAILY RESULTS LOCATED IN SECTION TWO
******************



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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
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  10-12-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

I have been a subscriber for a little more than a year and have 
admired your candor and clarity on trading options. I have also 
envied your success. So the description in last Sunday's (10/10/99)
 "Jim's Plays" section about your Yahoo put experience was a 
surprise to me. But more than a surprise, it was a confidence 
builder. I was impressed that you told us all about your big goofs 
(more than one, it seems!), even the amount of the loss. Your 
willingness to be open about a big mistake tells me that you are 
not trying to fool us or hide your own errors. When I make a good 
trade its not hard to tell my wife all about it. When I make a bad 
trade, its always tempting to forget about it before I get
home. Thanks for being so open.

David Hollrah
Houston, Texas

(I tell my wife, "don't come knocking if you see my stock droppin"
to paraphrase another song. If she walks into my trading office
she can tell in a heartbeat if I am up or down and if she should
turn around and beat a swift retreat. Wives are like that!
Jim)

*****

I love "Jim's Play's" column. Since he has expanded the column 
and included his insights behind every trade, I have learned so 
much. One question ---> Could his column become a daily? 
Good trading, 
Glen Holman

(I am thinking about it but the format may have to be changed-Jim)

*****

Thanks!!!! Anyone who has traded for any length of time has more 
than one story like yours. I certainly do. Had a terrible time 
with Amzn earlier in the year. My loss won't help you feel any 
better, but I'm sure you have helped many of us who have had 
similar episodes. So, never wonder whether you should have shared 
your losses with us. It is the hardest thing you can do, and in 
my opinion, increases your credibility. There are plenty of 
traders who advertise their wins, but you never hear of a loss. 
What is even more important than learning from our/your mistakes, 
is the psychological changes that occur, and how we deal or not 
deal with them. We begin to doubt our abilities, decisions and 
everything about our trading. It affects our personal relationships,
job performance, and a myriad of other small coping abilities. As 
I learned from early in my trading career: If my wife can tell 
whether I made or lost money when I walk in the door, then I 
shouldn't be trading. That is definitely a hard criteria to 
maintain, (an emotionless trader) but an essential requirement 
in becoming successful. In the long run, a severe loss can cause
a consistently winning trader into a loser, or even worse an 
ex-trader. The ability to maintain your psyche, is just as 
important as tech. or fundamental analysis. Thanks for sharing. 
I'm sure this topic will stimulate more e mail responses than 
any other. Tim Doucet M.D. 

(you would not believe how much mail I received - Jim)

*****

Jim: 
I just wanted to thank you for your frank and candid disclosure 
of the week's Yahoo! trades. I find myself similarly situated, 
this after just about busting out of trading and taking a month 
and a half off to try and better my perspective and learn from 
my erroneous ways. I got back in and had a very successful 
September, but blew it on a couple of stupid moves, one of which 
was being SURE that Yahoo! would go south late in the day of its 
earnings announcement, the other of which was being ABSOLUTELY 
CERTAIN that since it didn't happen then, that it would on 
Thursday, so, of course, I held over earnings!! Besides having 
lost sleep through most of the week and week-end, I'm now REAL 
$$ shy in my trading account, and I'm also REAL shy about pulling
the trigger on any new trades. 

Nevertheless, your 'fessing up on the Yahoo! trades really helps 
me think, momentarily, -- (Sorry, please don't take offense, I 
don't really believe that you are) -- that I'm not the sole AH 
out here. How come when we read them there are only 10 rules, 
but when we break 'em it seems like we break 100?????? 
Thanks.  Dan McCarthy

(They are only rules when you are telling someone else how to trade.
We ignore them because we need more experience!! That is
expensive experience!! - Jim)

*****

Dear Mr. Brown,

I've been a subscriber since Jan. '99 and it is because of your
courage to admit mistakes that I have been, and will remain a
subscriber. Your Yahoo debacle last week was the kind of disaster 
every option trader/investor faces sooner or later. Your willingness
to share this gut-wrenching experience with your readers is 
absolutely the secret of your success with OptionInvestor.com. 
The market teaches us never to assume anything, but we all do 
assume that events that have occurred 8 out of 10 times will 
occur again, and then the market corrects our assumptions. The 
most important thing you can teach us is that you can't be a 
winner every time.  Reed Erskine

(Assume - ass = u & me)

*****

Jim, 
Thank you for having the courage and integrity to tell us about 
your YHOO blunders this past week. I only lost $2K, but am still 
feeling like quite the bonehead for my own decisions on YHOO puts.
This truthfulness is what keeps me as a subscriber, because anyone
who claims to win at this game all the time has zero credibility 
with me. I anxiously await the open on Monday. Friday afternoon 
when several positions of mine were looking quite nice, I just 
couldn't shake the feeling that something was amiss. So, I sold 
too soon. Within the last five minutes I took juicy (for me, they 
were juicy) profits off the table on both AOL and RNWK. Jerry

*****

I really appreciate Jim's candid discussion of YHOO this week. 
That was more helpful than any 10 'success stories', because 
knowing enough to have confidence that an error is not being 
made is a precursor to being ready to go after the home run 
plays. Thanks, Peter

*****

Sunday Oct 10 
Once again Jim I feel compelled to reiterate my honest and 
heartfelt THANK YOU for your Sunday update.By giving so much
of your true self to your readers you will receive 10fold back. 
Yahoo or not! Stacy (Big time short on Yahoo and CMGI!!)

*****

Jim, 
I really appreciated your willingness to share your Yahoo debacle. 
For the first time in a long time, I read that section THREE TIMES.
I couldn't help smiling, not because it was funny, but because it 
was reassuring to know that even someone with your experience feels
like I DO so very OFTEN. This is the kind of input that makes your 
newsletter worth every penny I pay, and more. Please keep sharing 
with us, even when the results are less than great. (Hopefully 
they will not be this bad anytime soon.). 
Hope to meet you sometime, 
David Currie



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

Daily Results

Index      Last      Mon     Tue    Week
Dow     10417.06    -1.58 -231.12 -232.70
Nasdaq   2872.43    29.38  -43.52  -14.14
$OEX      686.24    -0.69  -11.52  -12.21
$SPX     1313.04    -0.81  -22.17  -22.98
$RUT      424.68     2.48   -5.51   -3.03
$TRAN    2961.49   -55.69  -64.53 -120.22
$VIX       24.60     0.43    2.55    2.98

Calls                Mon     Tue    Week

JDSU      133.13     2.19    1.56    3.75  JDSU, still flying high
ADBE      118.06     5.38   -1.94    3.44  Intraday new 52-wk high
BRCM      122.44     5.44   -2.31    3.13  Dropped, drifting lower
HGSI       88.50     3.88   -1.63    2.25  A play for Billy the Kid
VOD        51.44     2.13   -0.69    1.44  Still a good sector
NT         58.06    -0.19    1.31    1.13  Great news, sore fingers
DELL       45.50     0.06   -0.06    0.00  New, PC sales are good
XMCM       55.13    -0.88    0.88    0.00  An impressive comeback
SNE       155.69     0.50   -1.44   -0.94  Dropped, turning down
GTW        51.50    -0.38   -0.63   -0.25  New, one for your radar
NOK        98.25    -0.19   -1.06   -1.25  Great relative strength
TFSM       45.63     1.13   -2.88   -1.75  Merger rumors cool down
QCOM      212.06     8.56  -10.44   -1.88  Looking for solid entry
ITVU       42.38     1.00   -3.13   -2.13  Possible re-entry point?
SUNW       90.44     0.06   -2.19   -2.13  Dropped, rays dimming
VRTY       65.56     0.75   -4.31   -3.56  Dropped, violates 10-dma
AXP       145.25    -0.81   -3.63   -4.44  Held support at $145
RNWK      107.31    -4.25   -3.44   -7.69  Dropped, a run cut short
DCLK      128.88    -4.13   -3.63   -7.75  Dropped, breaks support
AOL       114.00    -0.75   -7.06   -7.81  AOL perches on support

Puts

YHOO      173.88   -10.75   -7.50  -18.25  Post earnings plunge!
CMGI      103.81    -2.88   -5.81   -8.69  New, on spending spree
SNDK       54.25    -1.06   -4.69   -5.75  New, look out below!!
AMZN       84.94    -0.88   -3.44   -4.31  New, sector play
BA         39.63    -0.06   -2.31   -2.38  New, falling from sky
WPI        27.75    -0.06   -1.19   -1.25  A case of the blues
MOB        95.69     0.94   -0.31    0.63  Mobil slips with market
SLB        56.06     1.81   -0.81    1.00  Oil rising to the top?



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:
*****

RNWK $107.31 -3.44 (-7.69) The earnings run for RNWK was cut 
short this week by an overall fear of interest rate hikes, a 
weak dollar, and sector momentum that fizzled out.  Profit-
takers stepped up to the plate to take the cash off of the 
table with the overall market now in consolidation mode, led
by the Internet Stocks.  For example, today YHOO was down 
$7.50 and AOL was down over $5.  As we reported on Sunday, 
the last two previous earnings reports greeted the shares of 
RNWK with a serious sell-off, on April 12th there was a 35 
point drop.  Well so far it has only dropped about 8 points 
but we are not waiting around for the rest of the 35.  We have 
seen this damage before and have learned from past history to
close out a position of this type and regroup after the 
momentum returns.  Friday RNWK hit a 52-week high at $115.50,
that is our current resistance point that was no where to be
found this week so far.  Although we could see a bounce at 
these levels, it is not worth the risk with the overall 
sector being damaged. 

VRTY $65.56 -4.31 (-3.56) Friday's consolidation period 
continues and does more then simply slow our momentum.  It 
pretty much kills it.  Verity has done more than provide us 
with a buying opportunity as it suffered a big loss in the 
market today.  VRTY has violated its 10-dma and shows no signs 
of recovery, closing only pennies above its low of the day.  
We recommended waiting for a rebound before entering a play 
and VRTY never presented us with one.  With Intel falling 
short of earnings, we believe its only going to get worse 
from here in the short-term.  

DCLK $128.88 -2.31 (-7.75) Our earnings run for DCLK has 
softened up the past two days.  Shares of DCLK have lost $7.75
so far this week.  The $130 support level held up pretty well
until the final hour of trading today when the broader markets 
began to deteriorate, so did DCLK.  The merger talks concerning
DCLK and TFSM have also begun to taper off as well.  The one
positive from the past two days of trading is the volume has
been extremely light averaging just 1.6 mln shares per day.
DCLK gave us the opportunity last Friday to take some money
off the table and we hope you did just that.  DCLK has 
pulled back over $10 since its intraday high on Friday.  If
you still have a position in DCLK please move you stops up 
near today's low as the next major area of support is down 
near $120.  Given the weakness in DCLK the past two days
we will drop the Internet advertising company from our play 
list ahead of earnings on Thursday.

BRCM $122.44 -2.31 (+2.19) Shares of BRCM have been spinning
its wheels for the first two days of the week.  After drifting
lower for most of the session Monday some buyers did step in,
driving the price of BRCM shares over $126.  This morning
BRCM tried to make its way higher, hitting $128.13 but as the
broader markets began their decline BRCM joined in.  With the 
weak earnings in Intel and the decline late today in the price 
of BRCM stock, we will drop the chip maker from our call list 
for the time being.  If you still have a position in BRCM keep 
your stops very close as BRCM closed near the $120 level that 
has provided support in the past.  Remember BRCM announces 
earnings after the close on Thursday.

SNE $155.69 -1.44 (+0.50) With the weak outlook for the market 
Sony is not going to continue for us in the short-term.  On 
Friday Sony (SNE) gapped down to $156.63 and has pretty much 
traded there since.  On Monday it appeared we were going to 
break out at the end of the day but there was too much selling 
pressure in the market today and it took Sony with it.  Sony 
opened down $0.50 and the slide continued the rest of the day.  
Volume was low at only 108k so you could make a case for profit-
taking but with the weakness in the market we are not confident 
it will take on its high set back on Sep 21 at $160.50.  Lately 
Sony has been trading flat and today closed below its 5-dma.  
We will look for strength before visiting this stock again. 

SUNW $90.44 -2.19 (-2.13) This momentum turned earnings play 
has provided us with a wide scope of opportunity to net 
lucrative profits.  SUNW finished with a satisfying record of 
$14.49, or +19% overall profits since we first picked it on 
August 28th at $76.19.  Earnings are confirmed to report on 
Thursday, October 14th, after the bell and we do not recommend 
holding over an earnings' announcement.  Plus it's unlikely at 
this point that SUNW will move up significantly in the next 
couple of days.  Therefore, we decided to drop it tonight.  


PUTS:
*****

No dropped puts today.



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

XMCM $55.13 +0.88 (+0.00) Hey, we are Even Steven for the 
week.  Considering the major sell-off today our current 
situation doesn't look so bad.  What makes today's trading 
sessions more impressive is the comeback made by the stock.  
After trading as low as $52.50 in early morning trading, 
XMCM came back, closing the day fractionally higher.  This 
in itself was a feat and demonstrates the actual strength 
of the stock.  Look for this strength to continue as earnings 
announcements continue to beat expectations within the 
Internet sector.  For investors looking to take advantage 
of the situation, look for entry points at $52-$53.  Both 
the 200 and 10 day moving averages reside at this level, 
making a nice base for support.  The next resistance level 
would be $60, but is still a few points away.  To protect 
your gains, you may want to increase your stops as the 
stock approaches this level.  With a little help from the 
broader markets, lets see if we can break this resistance 
point.        

AXP $145.25 -3.63 (-4.44) Well, the bears took control of the 
markets and raked havoc in most sectors today.  AXP couldn't 
escape the triple digit loss on the Dow, which held most 
stocks for a loss.  Despite the slight setback this afternoon, 
one good sign was AXP held support at $145.  Many times 
investors set limits to buy stocks at even prices, which 
would explain the stocks ability to hold at this point.  The 
next real support area for AXP is the 10-dma or $142.  This 
price would be a good entry point for investors placing new 
trades.  The biggest factors' influencing our play are going 
to be movements in the bond market and investors perceptions 
of future interest rates moves.  With additional economic data 
(PPI) being released on Friday, investors remain worried about 
future rate hikes.  Working in our favor, however, is the 
continued release of good earnings reports by various companies 
(except INTC).  AXP announces their earnings on October 25th, 
which is less than two weeks away, see if we can muster an 
earnings run before then.    

NOK $98.25 -1.06 (-1.25) We finally have a solid entry point
for Nokia!  Nokia has had a rather mellow start to the week 
trading down slightly, with lighter than average volume.  As 
we mentioned on Sunday, we were expecting to see a brief 
consolidation period for Nokia before continuing its upward 
trend.  We believe that is what we are seeing now and look for 
Nokia to finish this pullback before again picking up the pace.  
Nokia has shown good relative strength despite the market and 
seems to be maintaining support right around $98.  Earnings 
are set to be announced one week from Thursday.  We have all 
heard the saying "choose your friends wisely", and following 
this advice seems to be working quite well for Nokia.  On Monday, 
Nokia announced plans to begin working with IBM in the race to 
combine wireless technology with e-commerce and Internet access.  
Today, Intel announced plans to team up with Nokia to make 
television set top-boxes which will provide access to the Net.  
Nokia also released information pertaining to the testing of 
their WAP products with Mitsubishi Electronics. 

NT $58.13 +1.38 (+1.13)  Another new 52-week high!  Nortel 
continues to set new highs, have big volume and the news it 
needs to keep it going.  Nortel had a great Tuesday in spite of 
the market and was trying to set new support just above Monday's 
high, right around $58. If you are playing NT, it is imperative 
that you exercise caution.  With Intel falling just short of 
earnings estimates and Motorola meeting theirs yet falling 
short of the whisper, NT could have a rough day in the market 
on Wednesday.  However, NT has nothing but good news of its 
own and therefore should have the momentum to keep it moving.  
Whoever has been writing the press releases for Nortel Networks 
is probably spending their evenings with their fingers on ice.  
The good news just keeps on coming for Nortel, who has been been 
taking advantage of the Telecom '99 conference, rubbing elbows 
and signing deals.  Today, Nortel finalized a contract with Colt 
Telecom to design, supply, install and support of Colt's pan-
European network, a deal first announced in May.  LambdaNet 
Communications announced that they have awarded Nortel a $100 
million contract to build a high speed optical network. 

ITVU $42.38 -3.13 (-2.13) Before the sell-off began in the 
shares of ITVU this week, the stock traded as high as $46.88
which was up over 12 points from our recommended price about
two weeks ago.  As reported in Sunday's newsletter we were
expecting momentum to continue in the shares, because of the
bullish indicator's that were firmly in place from Friday's
activity.  A positive breakout, followed by higher highs is 
very bullish.  This scenario remained in place, but only on
Monday.  So what happened today?  Why the sell-off?  Well 
the profit-takers stepped up to the plate as interest rate 
fears resurfaced in the overall market.  The sell-off was lead 
by the tech stocks.  With ITVU tight trailing stops were a 
must and you might have been stopped out on today's pullback.  
If you were stopped out, look for a recovery in the shares at 
current levels for a possible re-entry point.  The stock closed 
down over 3 points on strictly profit-taking.  We believe the 
technical bullish scenario remains in tact, and today's dip has 
provided another buying opportunity.  With the earnings report 
just around the corner on Oct. 28th we are looking for another 
leg up before then.  Before entering any new plays make sure to 
confirm that the momentum to the upside has resumed.  Remember 
the breakout to the upside is strictly based on momentum.  Short-
term support is around the $42 level, with resistance at $45.81.

TFSM $45.63 -2.88 (-1.75) Well the rumors concerning the merger
between TFSM and DCLK have lightened up this week.  We don't
know if the rumored merger will take place or not.  After 
starting the day out lower yesterday, TFSM tried to regain
the strength from late last week.  Traders pushed the price
up to equal Friday's high at $49.50 only to see it fall back
late in the day.  Actually with the lack of any news concerning
the merger or any new rumors, shares of TFSM have held up 
pretty well.  As we mentioned Sunday the latest move up in
in the price of TFSM has been primarily speculative and driven
by rumors.  If there is no announcement about a merger or 
further rumors on the street, we would look for shares of TFSM
to fall back to support levels near $40.  We would be cautious
about opening a new play in TFSM as it did close near its low 
of the day.  Volume the past two days has been better than 
normal, averaging 885K.  If you didn't get stopped out Monday 
or today keep your stops close as there may be more of a move 
to the downside.  However if we get new rumors shares of TFSM 
could take off like a rocket so keep your eye on this one.

ADBE $118.06 -1.94 (+3.44) Investor enthusiasm for ADBE was 
evident as the stock advanced $5.38 yesterday while flirting 
with last week's highs.  The strong downdraft on the Nasdaq 
today had little affect on ADBE.  Yes it gave back $1.94 in the 
last hour of trading, but not before setting another 52-week 
record at $122.  On both days volume was moderate as ADBE 
maintained this higher price level.  Near-term support is at 
$114 and $115 with the 10-dma ($115.39) in the same proximity.  
There's only about two weeks left in this momentum/split play.  
ADBE will split 2:1 after the close on Tuesday, October 26th.  
In the news, Adobe announced it extended the company's 
Professional Publishing Platform with an editorial application, 
InCopy (TM) and also, the unveiling of the newest version of 
its photo-editing software, PhotoDeluxe Home Edition 4.0 for 
Windows, which includes a new 3D capability.

AOL $115.50 -7.06 (-7.81) Profit-taking was in full-swing today 
as interest rate concerns once again plagued the tech stocks.  
Even AOL wasn't impenetrable.  In a steady descent on weak 
volume, the stock lost over $7 of its recently acquired gains.  
So now AOL is perched on its near-term support of $115 just 
above the 10-dma ($113.92).  Firm support is still at $109 but 
any decline to this level should raise red flags.  Earnings are 
just around the bend confirmed for October 20th, after the bell.  
Recall this earnings play took on a twist when it reached 
historical split-levels above $120 and thus presented the 
possibility of a split announcement around earnings.  We still 
have our fingers crossed.  There is a scheduled Shareholders' 
Meeting on October 28th to vote to increase the number of 
authorized shares to 1.8 bln to 6 bln.  In the news AOL and the 
Seagram Companies (VO) have signed a cross marketing deal to 
install AOL kiosks at Universal's Islands of Adventure theme 
park in Florida offering AOL demonstrations and direct links 
to two of the Universal Web sites.

QCOM $212.06 -10.44 (-1.88) QCOM set another record high on 
Monday at $224.69 after the company announced it would use a 
portion of its $1.4 bln in cash to invest in companies that 
would speed the further acceptance of its CDMA technology.  This 
news event certainly gave a jolt to this already strong momentum 
run and QCOM tacked on $8.56 to close at $222.50.  AG Edwards 
wasn't as hot on the stock and downgraded QCOM to a Maintain 
Position from an Accumulate.  Today QCOM succumbed to heavy 
profit-taking amid the interest rate worries of investors. 
Consequently the stock suffered a $10.44 set-back, but only 
after it ironically peaked at yesterday's closing price level 
($222.50).  Tomorrow's uncertain market may offer solid entry 
points into this HIGH RISK and VOLATILE INTERNET play.  Remember 
there's still time for this momentum play to run right up to 
its earnings' date confirmed for November 2nd, after the bell.

JDSU $133.13 +1.56 (+3.75) Bucking a strong NASDAQ headwind 
today, JDSU flew onward.  While the price movement has been 
good for our option price, we haven't been able to target shoot 
this one anywhere under $130 (yesterday's opening price) since 
we picked it Sunday, making a profitable entry difficult.  Even 
with an ascending price, volume is down substantially since 
last week.  And though support inched up to $132 even in today's 
turbulence, resistance was found at $135.  In short, the trading 
range is getting a bit narrow and tapering volume is preventing 
more strong moves up.  It's time to watch the downside and set 
those stops at $130.  JDSU still provides a critical product 
in the photonic revolution, making for a strong long-term hold.  
But for the play, everything will have to in our favor (strong 
A/D line, market/sector/stock moving up) and volume must swell 
again as the issue moves over $135.  Or for you risk tolerant 
types, stick to target shooting in the $125 range.  Don't try 
to force a play on a flat stock.  As we're fond of saying, 
missed money is better than lost money.  If you keep track, 
earnings are tentatively scheduled for October 28 after the 
close.  Remember the 2:1 split on December 29 too.

VOD $51.44 -0.69 (+1.44) Sporting a nice $2 gain as NASDAQ set a 
new record yesterday, telecom issues, including VOD, led the way.  
While fighting today's downdraft the sector fared much better 
than others, but VOD still gave back a part of Monday's gain.  
After 4 "up" days in a row, which tacked 13% on VOD's price, a 
little profit-taking isn't out of line.  Technical indicators 
are still deep in the positive zone and volumes are still far 
above the ADV (thanks to the 5:1 split last week) but have been 
falling since.  Be a bit cautious if volume tapers off.  It may 
signal that the big recent move is near an end.  Short-term 
support is at $49.50; resistance is at $53.  Despite the split, 
VOD still likes to gap at the open, so how do you know when it's 
safe to get in?  You never know for sure, but you can increase 
your odds by looking for a little volume and price surge in the 
last 15 minutes of trading to see what the pros are doing.  The 
spikes are generally from the "buy on close" orders, and are 
roughly indicative of where they think the price will move.  
Of course, confirm market direction first.

HGSI $88.50 -1.63 (+2.25) Yesterday, support was at $85; today 
at $88, despite stiff market opposition.  While yesterday's 
close over $90 was near the top of the trading range, today 
HGSI finished just $0.50 off the low, yet significantly above 
yesterday's reported low of $81, also its 10-dma.  New support 
seems to be $84-$85.  Frankly, the market has a strong chance 
of temporarily heading south for a couple of days, thanks to 
Intel and interest rate fears rubbing off on everything around 
it.  With that in mind, set those stops to protect any profits 
you have or (for you daredevils) target shoot at support ($84).  
Volume is down and there is no news.  Because of the volatility 
of this issue, the high spreads on bid/ask, and the thin OI, 
this play is for gunslingers only.

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


The Option Investor Newsletter         Tuesday  10-12-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

SLB $56.06 -0.81 (+1.00) An upgrade for SLB on Monday may have 
helped the stock temporarily but the upgrade may be helping 
us with a good entry point.  The upgrade came from First Union 
who changed their rating from a Buy to a Strong Buy.  Lehman 
analysts also upgraded oil services stocks on Monday but did 
not mention SLB specifically.  Oil prices (which are probably 
the real catalyst) have risen both days this week.  This is 
to be expected from the 6-day drop it had endured.  The question 
now is can oil continue to rise?  With a lot of mis-information 
floating around relative to OPEC's resolve in maintaining their 
production quotas, it is difficult to determine the fundamentals 
to this commodity.  What we do know is that the 10-dma sits 
at $58.50 and should be resistance.  In fact, SLB ran in to a 
bit of resistance at $58 today as well.  These levels should 
be considered for entry points.  We will have oil inventories 
released on Wednesday which should add further direction to 
oil prices.  We expect prices to roll over again but caution 
is advised due to all the uncertainty.  

YHOO $173.88 -7.50 (-18.25) Profit-takers took center stage 
today, closing the markets on a lower note.  Yahoo investors 
were in the same boat, selling shares, producing nice profits 
for our puts.  Our post earnings play is working like a charm 
now that YHOO has rolled over.  It took a couple trading 
sessions before it kicked into gear but now it's in full swing.  
Profit-taking on the broader markets was icing on the cake, 
adding fuel to the declining stock.  YHOO, with little resistance, 
fell though its 10-dma at $179 and is heading for the next 
support level at $168.  If history is any indication of the 
future, the stock should have no trouble breaking this level 
as well.  When placing new trades, watch for slight intraday 
spikes in the stock.  The last few trading sessions Yahoo has 
closed near its low, leaving little room for bargain hunters.   
The stocks downward momentum should continue, especially if the 
broader markets head south.  Protect profits by decreasing the 
recommended stops proportionally to movements in the stock.

WPI $27.75 -1.19 (-1.25) After getting a technical bounce on
Friday of last week, this week the shares of WPI continued the 
downtrend.  The shares opened the week at the $29 level and 
as of today traded to a low of $27.63, before closing slightly 
off of the days lows at $27.75.  There has been no recent news 
on the company since they reported back on Sep 13th that their 
earnings to be announced on 11/04 would be 6 or 7 cents lower 
than expectations.  That same day they received a downgrade 
from "Brown Brothers"-(long term Neutral).  The shares have 
been depressed every since.  At these levels we look for the 
downtrend to continue, and remain consistent to the downside 
below the $30 level.  The volume has been rather light in the 
recent trading sessions, so keep your trailing stops tight if 
you enter a short position.

MOB $95.69 -0.31 (+0.63) It pays to be a little patient!  Mobil 
started the week on the upside as oil prices rebounded a little 
from last weeks slump.  Today looked stronger until the market 
turned and Mobil went with it.  You should of got a good entry 
in the afternoon but it is not too late to move in tomorrow on 
continued weakness.  Mobil pushed up to a high today of $97.06 
testing short-term resistance only to fall back down and closed 
below its 10-dma.  With the weakness in the markets, Mobil (MOB) 
should start its downward test of the 200-dma at $93.65 and 
continue to its next support at $90.  



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

DELL - Dell Computer Corp $45.50 -0.06 (+0.00 for the week)

Dell Computer is the world's #1 direct-sale computer vendor and 
one of the world's top PC makers.  Therefore it's understandable 
that the company designs, develops, manufactures, markets, 
services, and supports a variety of computer systems including 
desktops, notebooks, workstations, network servers, and storage 
products.  Dell's clients include the government, corporations, 
the medical and education industries, as well as the individual 
consumer.  Founder Michael Dell is still the CEO and maintains 
a 14% stake in the company.

This is the play for Dell.  We're expecting the Nasdaq to tank 
tomorrow as a result of Intel, the mother of all chipmakers, 
missing earnings by 0.02 cents and thus, creating bargain buying 
in the hardware sector.  Intel was down over $7 in after hours 
trading, but did state in their report that PC demand overall 
still remains strong.  So our goal is to target shoot Dell at 
$40 and then catch a ride up when the market recovers after a 
few days of struggling.  Also, earnings for the company are 
about a month away expected on November 11th (not yet confirmed) 
and should be in-line with analysts' expectations.  The wild 
card here is the degree in which the market will fall tomorrow.  
DELL has lots of support at different levels between $38-$44.  
For risk-tolerant investors, you may want to target shoot an 
entry point.  Otherwise, wait until we list options below. 

Dell is expected to sign a five-year, $8.5 bln supply pact with 
South Korea's Samsung by this Friday for thin-film-transistor 
(TFT) liquid crystal displays (LCD) to insure against future 
display supply shortages.  This is an important investment deal 
because Dell's "just in time" manufacturing style on one hand 
reduces operating costs yet is hit hard when supplies are 
limited.  As part of this deal, Dell will also invest in $220 
mln in convertible bonds (conversion set at 30% premium to last 
Friday's closing price).  In other news, CEO Michael Dell sold 
4 mln shares of his company stock on September 13th and 14th for 
$47.77 raising about $190.3 mln.  Shares have fallen about 4.6% 
since that time.  But keep in mind this insider selling isn't 
unusual and DELL has had lots of profits to take off the table 
in recent years.

***NO OPTIONS LISTED YET***

Picked on Sep 12th at     $45.50    P/E = 59
Change since picked        +0.00    52 week high=$55.00
Analysts Ratings     13-13-5-0-0    52 week low =$24.25
Last earnings 07/99    est= 0.17    actual= 0.19 surprise +11.8%
Next earnings 11-11    est= 0.20    versus= 0.14
Average daily volume = 25.70 mln
Chart = http://quote.yahoo.com/q?s=DELL&d=3m

****

GTW - Gateway Computer $51.50 -0.63 (-0.25 this wk)

When you are #2, you try harder (or so went the Avis commercial 
of 20 years ago).  Now it's Gateway's turn to pick up the slogan.  
They are the #2 direct merchant of PC's (no middlemen) behind 
Dell.  Founder, Ted Waitt and company have become extremely 
creative in getting PC's into the hands' of consumers in order 
to jumpstart sales and close the gap.  They have added brick 
and mortar stores as a place for consumers to test-drive 
equipment before buying and are pioneers in the "cheap PC/free 
Internet" revolution.  While they've dropped the "2000" from 
their name, they still use Holstein cow spotted boxes.  (Ted 
says it was a coin toss between the family dog and the cow...
...Sparky lost).

First of all, we are not putting this play up for readers to 
execute tomorrow but you should keep it on your radar screen.  
Here's the deal: We think Intel will dig a big crater, which 
will affect the market over the next couple days and take its 
customers with it.  We expect GTW to take a short-term hit.  
The good news is that GTW reports earnings on October 21 and 
we should get an earnings run, especially since GTW has in the 
past surprised substantially to the upside.  Here's the plan: 
DON'T BUY GTW AT CURRENT PRICES!  Wait for the market to inflict 
its damage before taking a position.  GTW has strong support 
at the $41-$44 range, but it may not get there - maybe more 
like $47-$48.  Watch the movement over the next day or two to 
pick an entry according to your risk profile.  Our job as 
traders is to wait patiently for GTW to come to us.  There is 
still time, so don't rush it.  We have purposely left out strike 
prices out until the dust settles.  By all means, choose your 
own at will.

The news is Intel earnings.  GTW is fundamentally sound, but 
won't escape the vortex until investors decouple from the bad 
news and begin to focus on GTW earnings.

***NO OPTIONS LISTED YET***

Picked on Oct 12 at     $151.50    P/E = 42
Change since picked       +0.00    52 week high=$54.75
Analysts Ratings     12-7-2-1-0    52 week low =$21.25
Last earnings 07/99   est= 0.20    actual = 0.48 surprise +140%
Next earnings 10-21   est= 0.28    versus = 0.28
Average daily volume = 2.19 mln 
Chart = http://quote.yahoo.com/q?s=GTW&d=3m



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

CMGI - CMGI, Inc. $103.81 -5.81 (-8.69)

CMGI is one of the chief architects of the Internet.  What 
began as a direct marketing firm has become a prolific investor 
in the future of the Internet.  CMGI's venture capital are 
@Ventures, a savvy trend-spotter boasting a portfolio with 
stakes in more than 40 Internet companies (including Lycos 
and Raging Bull).  It also owns 83% of search engine AltaVista.  
CMGI's Internet Group includes a string of majority-owned 
companies (including Engage Technologies, Planet Direct) and
offers services such as Web hosting.  About 80% of CMGI's 
revenue comes from fulfillment and mailing list services.

Last Friday CMGI capped off a great week ending slightly down 
to close at $112.50, up over 12 points for the week.  This week
has been a different story.  The Internet stocks slipped as a
whole, amid profit-takers stepping up to the plate after last
weeks run.  As for CMGI, we can link the sell-off to a 
combination of sector weakness and the announcement that CMGI 
will be putting $100 million into an ad-campaign that is going 
to last over a year.  This campaign will be a promotion of its 
Alta Vista search Engine prior to taking it public.  This little 
spending spree could take away from earnings.  Going into the 
trading week, the technical picture looked promising to the 
upside with a move above the $115 level for bulls and to the 
downside, support levels were sitting near the $106 level.  
That level has now been broken.  The shares now sit at $103.81, 
with support now sitting first at $100 followed by support 
at $95.  We believe CMGI is going to test current support levels 
in the present market conditions.  Going forward, if interest 
rate fears persist, we expect the selling to continue in the 
high flying stocks like CMGI.  Confirm the positive momentum 
and direction in the overall sector before taking a position. 

BUY PUT NOV-110 GCB-WB OI=414 at $11.25 SL=9.00
BUY PUT NOV-105*GCB-WA OI=334 at $ 8.63 SL=6.63 

Average Daily Volume = 4.9 mln 
Chart = http://quote.yahoo.com/q?s=CMGI&d=3m

****

SNDK - Sandisk Corp $54.25 -4.69 (-$5.75 this week) 

Sandisk designs, manufactures and markets flash memory data 
storage products for industrial, communications, highly portable 
computing and consumer electronics.  The company's products 
include removable and embedded memory cards for such products 
as Eastman Kodak's digital cameras and mobile communication 
devices made by Nokia and Siemens. 

Look out below!  As Intel goes, so does just about everything 
else (in techs) with it!  Sandisk is looking ready to sell 
off even more in the face of Intel missing their earnings 
numbers.  Today ,even before the Intel news, SNDK got a head 
start.  From the open the intraday chart shows a perfect slide 
to the downside with a kicker at the end as if the support 
stopped and the cliff began.  Sandisk dropped -$17.25 on 9/23 
due to the Taiwan earthquake but could not rally back and 
continued to drop as the news played out.  On Oct 4th, SNDK 
hit support at $53.13 and bounced off with a nice climb to 
resistance of $70 only to reverse course and retest its support 
today closing right on it.  Now with the Intel news, Sandisk 
will be continue to slide and we feel it will find new support 
at the $50 level.  Volume today was average which indicates 
moderate selling and not panic selling so we would consider 
this a momentum play based on news.  Remember, good news lasts 
two to three days while bad news can last one week to months.  
Lets not get too excited about the potential drop as the news 
is only sector related and not a direct hit on Sandisk.  Should 
you decide to play this one keep your stops tight and stay 
defensive.  Not recommended for those who cannot watch this 
one intraday as it could turn on a dime with any recovery in 
the market or sector. 

BUY PUT NOV-60*SWQ-WL OI=55 at $10.13 SL=8.00
BUY PUT NOV-55 SWQ-WK OI= 8 at $ 7.13 SL=5.00 low OI
 
Average daily volume = 5.75k
Chart = http://finance.yahoo.com/q?s=SNDK&d=3m

****

BA - Boeing $39.63 -2.31 (-2.38 for week)

Boeing is the world's largest maker of commercial jets and 
the #1 aerospace company.  Boeing's commercial aircraft include 
the 767 and 747 as well as the 737 - the best-selling jetliner 
in aviation history.  The company's military aircraft include 
the F/A-18 Hornet strike fighter, the F-15E Eagle fighter-
bomber, the C-17 Globemaster III transport, and the AH-64D 
Apache Longbow helicopter.  Boeing's space operations include 
communications satellites, Delta rockets, and the Space 
Shuttle.  Boeing also is the prime contractor for the 
International Space Station. 

Boeing investors are becoming impatient as they wait for the 
company to announce the latest quarterly earnings.  Many 
investors have anticipated the moment and left for the exits 
by selling their positions.  The last few trading sessions 
provide proof that investors are not willing to hold the stock 
through the earnings announcement.  Thursday is the big day 
Boeing investors are waiting for.  The company is still 
trying to recover form a half-billion dollar loss in the 
fourth quarter in 1997, which ushered in its first full-year 
loss in 50 years.  Adding to these problems is trouble within 
the industry.  Raytheon, one of Boeings competitors, announced 
that profit margins were shrinking from 15% to 12%.  This isn't 
a good sign BA, because a portion of their business consists 
of that similar to Raytheon.  For these reasons we have decided 
to add BA as a put play.  Thursday, analysts are looking for 
earnings of 48 per share.  However, we anticipate once the 
announcement is made there will be little support for this 
falling stock.  With the Dow having triple digit losses today 
and BA being a component of the index, we expect BA to follow 
today's trend to even lower levels.  When placing trades, look 
for slight spikes in the stock.  $40 is the 200-dma for the 
stock, which would be a good entry point for this play.  The 
next support level is a $33, giving a few points to ride the 
stock down.  Lets see if we can break this support as easily 
as the last.  

BUY PUT NOV-45*BA-WI OI=3855 at $5.88 SL=3.75
BUY PUT NOV-40 BA-WH OI=3845 at $2.25 SL=1.00
BUY PUT NOV-35 BA-WG OI= 882 at $0.56 SL=0.00 High Risk!

Average Daily Volume =  900 K
Chart = http://quote.yahoo.com/q?s=BA&d=3m

****

AMZN - Amazon.com $84.94 -3.44 (-4.31 this wk)

Amazon.com comprises the Internet's #1 music, #1 video, and 
#1 book retailer.  Amazon.com opened its virtual doors on 
the World Wide Web in July 1995 and today offers Earth's 
biggest selection with online auctions, toys, electronics, 
free electronic greeting cards and more than 4.7 million book, 
music-CDs, video, DVD, and computer-game titles.  Amazon.com 
seeks to be the world's most customer-centric company, where 
people can find and discover anything they may want to buy 
online.  As part of its efforts to provide the best shopping 
experience for customers, Amazon.com provides secure credit-
card payment, personalized recommendations, streamlined ordering 
through 1-Click technology, and hassle-free auction bidding 
with Bid-Click.  Now, if they could just turn a profit!

It used to be "as goes GM, so goes the country".  Now it's 
"as goes YHOO, so goes the Internet sector".  YHOO took a $10 
nosedive yesterday following blow out earnings last week.  It 
was only a matter of time before other issues, including AMZN 
came to the same party.  It doesn't help that a jittery bond 
market can also sway this interest-rate-sensitive issue just 
waiting to get nailed by Greenspan's passing car.  In short, 
the Internets are on the move.  It won't help either that 
Intel's earnings will cast a long shadow in the technology 
market over the next few days.  The good news is that AMZN 
will report earnings on Oct 28th.  Thus we may see an earnings 
run after the hand-wringing and despair runs its course.  But 
until then we have a good put play opportunity.  Support is 
at $75.  Technically speaking, we are in the positive, but 
RSI just gave the sell signal.  Volume, though a little low 
compared to the ADV, should step up tomorrow in the down 
direction, drafting behind Intel.  This play should be good 
for only a few days as a result.  Buy this one on any strength 
in tomorrow's action.  Or don't buy it all if your stomach 
doesn't like roller coasters.  It is volatile, making it an 
inherently risky play.

No news that will move the price...just a bad report from 
Intel and sector weakness.

BUY PUT NOV-85*YQN-WQ OI=1077 at $8.25 SL=6.25
BUY PUT NOV-80 YQN-WP OI=1552 at $5.88 SL=4.00

Average daily volume = 12.14 mln 
Chart = http://quote.yahoo.com/q?s=AMZN&d=3m



*********************
PLAY OF THE DAY - PUT
*********************

YHOO - Yahoo! $173.88 -7.50 (-18.25 for wk)

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

Sunday's Write Up

Friday was a good day for the markets as most stocks closed 
the week on a higher note.  However, mixed unemployment numbers 
created confusion among investors most of the day.  Yahoo 
investors were no exception, the stock traded lower for most 
of the day but managed a small rally to close the session on 
the upside.  Since Wednesday, when Yahoo posted better than 
expected earnings, investors have been rewarded by the recent 
run-up in the stock.  Our plan is to take advantage of the 
post earnings depression that usually follows an earnings 
announcement.  However, strong market conditions have slowed 
the progress of our put play.  The stock shows resistance at 
$192, which is where Yahoo closed on Friday.  If the broader 
markets lose their momentum, Yahoo investors will be quick to 
close their positions, taking profits.  The stocks nearest 
support level is the 10-dma at $183, look for the stock to 
approach this level during a sell-off.  Like always, confirm 
negative direction from the stock prior to placing new trades.  
Even though we feel the stock will turn, as a word of caution, 
we recommend using the provided stops. 

Tuesday's Write Up  

Profit-takers took center stage today, closing the markets on 
a lower note.  Yahoo investors were in the same boat, selling 
shares, producing nice profits for our puts.  Our post earnings 
play is working like a charm now that YHOO has rolled over.  
It took a couple trading sessions before it kicked into gear 
but now it's in full swing.  Profit-taking on the broader 
markets was icing on the cake, adding fuel to the declining 
stock.  YHOO, with little resistance, fell though its 10-dma 
at $179 and is heading for the next support level at $168.  
If history is any indication of the future, the stock should 
have no trouble breaking this level as well.  When placing 
new trades, watch for slight intraday spikes in the stock.  
The last few trading sessions Yahoo has closed near its low, 
leaving little room for bargain hunters.   The stocks downward 
momentum should continue, especially if the broader markets 
head south.  Protect profits by decreasing the recommended 
stops proportionally to movements in the stock.

BUY PUT NOV-175*YHV-WO OI-1243 at $13.13 SL=10.25
BUY PUT NOV-170 YHV-WN OI-2056 at $10.63 SL= 8.00
BUY PUT NOV-165 YHV-WM OI=1621 at $ 8.50 SL= 6.25

Average daily volume = 9.05 mln
Chart = http://quote.yahoo.com/q?s=YHOO&d=3m 



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


The Option Investor Newsletter         Tuesday  10-12-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

Investors Flee On Earnings Fears..

Monday, October 11

The markets were mixed on Monday as the Nasdaq rocketed to new
record highs Monday, spurred by rallies in Internet stocks. The
Dow Jones average ended at 10,648 while the Nasdaq index jumped
29 points to 2,915. In the broader market, declining issues led
advances 1,564 to 1,364 on light volume of 656 million shares
on the NYSE.

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

Sapient       SAPE   OCT100C/OCT95C   $0.62  debit  bear-call 
Zoran         ZRAN   OCT30C/OCT25C    $0.68  debit  bear-call
JDS Uniphase  JDSU   NOV100C/NOV110C  $8.93  debit  bull-call

Our new plays were a mixed lot on Monday morning as two of them
were bumped from the list in the first few moments of trading.
Comerica (CMA) opened lower and the option premiums on the sold
position were gone immediately, more likely a case of misquoted
options then a move in the underlying. Regardless, the play was
unavailable. Fastenal (FAST) was a great pick but the stock fell
almost $3 before the open, preventing us from entering the play
at a potentially profitable debit. Sapient (SAPE) was much more
cooperative, allowing an easy entry at the target and trading as
high as $0.88 during the day. Zoran (ZRAN) was lower during the
morning session and the suggested price was not available. The
highest credit observed was $0.68. JDS Uniphase (JDSU) paused in
the first few minutes of trading, just long enough to salvage a
reasonable entry at $8.93 debit.

Portfolio plays:

Yahoo! (YHOO) was our main focus for the session, falling over
$10 after the recent post-earnings rally. The credit spread is
now safely OTM and should expire profitably at the end of the
week. Our favorite calendar spread position, Bell Atlantic (BEL)
moved down to the sold (short) strike, falling $1.12 to close
just above $65. We are expecting BEL to trade in a fairly small
range through Friday. Legato (LGTO) made a nice move, climbing
over $2 to the sold position at $50. The new volatility spread
is already trading at a 75% profit, in only one week. Consider
closing that play to protect gains and limit future losses. One
of our smaller issues, Zoltek (ZOLT) has moved back near the
sold strike at $7.50 and should offer an excellent opportunity
for the roll-out to November options.

The rest of the portfolio was rather dull but there was bullish
activity in some of our recently slumping issues. Gemstar (GMST),
IDT corporation (IDTC) and Network Associates (NETA) made solid
gains with the technology stocks. Long-term positions, Motorola
(MOT) and Solectron (SLR) also had favorable moves in a week of
upcoming earnings reports.

Tuesday, October 12

U.S. stocks fell sharply Tuesday as fears of unrealistic earnings
expectations drove selling to a frenzy. The Dow Jones industrial
average ended down 231 points at 10,417 and the Nasdaq composite
lost 43 points to close at 2,872, a day after a new record high.
In the broader market, declining issues outnumbered advances 21
to 8 on moderate volume of 772 million shares on the NYSE. The
30-year Treasury bond fell 16/32, boosting the yield to 6.23%.

Portfolio plays:

Blue-chip stocks fell lower today on negative expectations for
upcoming earnings reports and concerns about interest rates in
Europe and the United States. Our long-term portfolio suffered
a ruthless blow when a warning by Raytheon, one of the largest
aerospace and defense companies, said that earnings this year
and next would fall short of expectations. The news caused many
of the institutional investors to punish stocks in that sector
and trading in Raytheon stock was halted. General Dynamics (GD)
was down almost $5 to $58 and while our January calendar spread
will eventually recover some of the loss, many GD shareholders
may not. Another issue that continued downward today was Yahoo!
(YHOO). The stock price fell another $7 today, allowing traders
to lock-in profits in the short-term bearish credit spread.

Zoran (ZRAN) was quite active, moving in a $4 range that brought
for panic and joy, depending on which time of the day you viewed
the stock price. In the morning, it started lower then moved up
to the high of the day by noon, only to fall back $2 at closing.
We will watch this one tomorrow for any signs of a new rally or
sustained recovery. One of our other recently troublesome plays,
C.R. Bard (BCR), fell back nicely today, settling in the low $50
range for a solid 50% profit in the neutral calendar spread. Our
other (older and now bullish) position is struggling near the
break-even price, but that was due to some inept trading and not
the activity of the underlying issue.

Today was the report date for Motorola (MOT) and with the recent
rally, the LEAPS/CC's play was a good candidate for roll-out to
November. A $2.75 credit was available for a move to the NOV-$95
options. After the session, MOT reported third-quarter profits
in line with expectations and exceeded year-ago performance on
growth in its digital wireless-phone operations. Third-quarter
earnings were $332 million, or $0.53 per share, compared with
$40 million, or $0.07 a year-ago. It will be interesting to see
how investors react to the report in the weeks ahead.

The majority of the portfolio was red (negative) but this is to
be expected after some of the recent technology rallies and the
inflated expectations of a major earnings week. We hope that the
market will find a happy medium in the next few days and provide
some short-term stability for the few remaining adjustments that
need to be made as we approach the October expiration date.

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


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

PMCS - PMC Sierra  $88.62     *** Earnings Play ***

PMC-Sierra develops and markets high-performance semiconductor
system solutions for advanced communications industries. Their
products are used in broadband communications infrastructures
and high bandwidth networks. The company is a leading supplier
in the communications infrastructure and networking markets
and also provides fast ethernet integrated circuits to the
networking markets.

PMC Sierra's marketing strategy involves maintaining close
relationships with its customers and designing cutting-edge
technology to meet their needs. They market their products
through manufacturers' representatives and all of their
products are manufactured by independent foundries and chip
assemblers. Their wafers are outsourced to companies such
as Taiwan Semiconductor Manufacturing, the focus of much
attention over the past few weeks. PMCS reports on Thursday
and some analysts suspect that earnings will not be favorable
because of the Taiwanese earthquake. The consensus estimate
is $0.24 per share and the whisper number is $0.28.

The stock has traded in a choppy consolidating trend since
the earthquake as it struggles to retain recent gains. New
fears about the company missing earnings and the battering
of HIFN (down $50 on a reduction of orders by Lucent) will
keep investors from running this one up in the short-term.
Tomorrow may provide a technical bounce that drives traders
into the cheap OTM call options, thus increasing the credit
in this position.

PLAY (aggressive - bearish/credit spread):

BUY  CALL OCT-105 SQL-JT OI=643 A=$1.06
SELL CALL OCT-100 SQL-JE OI=972 B=$1.62
INITIAL NET CREDIT TARGET=$0.62 ROI=14% (3 days)

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


***************
TECHNICALS ONLY
***************

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy. Current news and market
sentiment will have an effect on these positions so review each
play individually and make your own decision about the future
outcome of the stock price.

****


LGE - LG & E Energy Corporation  $22.69   *** Rangebound? ***

LG&E Energy is a regulated electric and gas public utility that
engages in the generation, transmission, distribution, and sale
of electric energy and the storage, distribution and sale of
natural gas in Louisville and adjacent areas in Kentucky. Their
operations of Energy Systems' subsidiaries are located throughout
the United States and also include investments in other parts of
the world.

This play is simply based on the historical price of the stock
and recent volatility (option premiums) in that sector. The long
term outlook is neutral and the generous time frame provides a
favorable profit potential with relatively low risk.

PLAY (conservative - neutral/calendar spread):

BUY  CALL MAR-22.50 LGE-CX OI=3   A=$3.12
SELL CALL NOV-22.50 LGE-KX OI=576 B=$1.75
INITIAL NET DEBIT TARGET=$1.25 ROI TARGET=50%

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

****

WFC - Wells Fargo  $41.69     *** Up And Down, Up And Down ***

Wells Fargo is a diversified financial services company providing
banking, insurance, investments, mortgage and consumer finance
through stores and other distribution channels across North
America. They provide personal, responsive service by connecting
customers to essential financial services 24 hours a day, by ATM,
phone or personal computer, as well as through a growing network
of traditional and supermarket branches.

Options activity has been higher than normal in rumored partners
Wells Fargo and Comerica (CMA) and since we couldn't get in on
the Comerica play, we decided to try the opposing position. If
WFC decides to buy CMA, which we don't think will happen anytime
soon, the stock would probably make a significant move. We will
protect to the downside and hope for little or no action outside
of its current range, in this long-term position.

PLAY (conservative - bearish/diagonal spread):

BUY  PUT JAN-42 WFC-MY OI=169 A=$3.25
SELL PUT NOV-40 WFC-WH OI=302 B=$1.21
INITIAL NET DEBIT TARGET=$1.88 TARGET ROI=50%

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


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

The straddles section has been rather quiet for the past few days
as the majority of our broad market issues have again moved into
range-bound trends. The short-term resistance for the transport
sector appears to have been tested on Monday and with the recent
rally, our two airline straddles achieved profitable exit prices.
Fedex (FDX) traded at $12.50 credit and US Air (U) moved up near
$10.75 credit on Monday, both offering 25% returns for less than
one month; US Air provided that return in one week. Some of our
other issues haven't fared as well as we would prefer but overall
the section is performing better than expected.

Our new position for this week (from Sunday's edition):

Hartford Insurance  HIG  MAR40C/MAR40P  $7.31  debit  straddle


Strategies:

Recently, I have received a few questions regarding Tom Gentile's  
method (Optionetics) for straddle positions. Here is a summary of
the characteristics of his plays and some hints on how (and when)
to exit each position.

Straddles are designed to take advantage of both a rising and
falling market. The strategy is initiated when both a call and a
put at the same strike price are bought with the same expiration
date. The Straddle buyer expects the combined price of his call
and put to rise over the time frame he holds the trade. To make
a profit, the Straddle buyer would need to sell his straddle at
a higher price than he originally paid for it. The prices of
Straddles rise 2 ways. First, the underlying asset could make a
big move that is greater than the price of the entire straddle,
forcing it to gain value. Second, the Straddle can gain value by
higher demand of the actual strike prices held. This means that
the prices of both the call and put increase in value because of
more buyers than sellers. This is called a volatility increase.
The risk of holding a straddle is that time decay will set in
causing the price of the straddle to drop in value. We have a 3
part system that we use in determining markets that have breakout
potential for good straddle buys. The 3 criteria that we use are:

1. Market consolidation - We scan optionable stocks and look for
markets which appear to be consolidating. Market consolidation
occurs when buyers and sellers come to the same agreement on
price for a particular stock, which results in less violent moves
over time. This gives the chart a look of a wedge or pennant
formation. These wedges, while they are hard to predict exactly
which way the market is going to break out to, will normally
break out one way or another, which is great for straddle
traders.

2. 	Cheap option premiums - We search for the cheapest option
premiums by looking at implied volatility lows relative to their
high and low ranges over time. The great thing about buying
options premiums when the implied volatility is lower is that
you are further reducing your time risk over the life of the
trade. Once this is determined, we merge this information with
the rule 1 above to further filter the stocks down.

3. 	Impending News - This can be anything from an earnings report
to a government report, depending on the straddle play. After
filtering stocks with those straddle criteria, we find the few
stocks that meet our low risk / high return strategy.

Our Exit Strategy: If the Straddle gains a profit of 50% or more,
OR, exit 3 days after the earnings report is released, whichever
comes first. Keep in mind that by exiting this way, we still
retain most of the premium on the straddle if we are wrong and
the market does not move.

Good Luck!



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SEE DISCLAIMER IN SECTION ONE


DISCLAIMER

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

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