Option Investor
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Daily Newsletter, Thursday, 10/14/1999

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The Option Investor Newsletter         Thursday  10-14-99 
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)
************************************************************
        10-14-99           High     Low    Volume Advances Decline
DOW    10286.60 +  54.40 10343.00 10133.70   882,654k 1,142  1,838
Nasdaq  2806.84 +   5.57  2821.69  2766.46 1,015,492k 1,760  2,051
S&P-100  672.04 +   0.84   675.41   663.07    Totals  2,902  3,889
S&P-500 1283.42 -   2.13  1289.59  1267.75            42.7%  57.3%
$RUT     419.31 -   0.01   420.68   416.88            
$TRAN   2914.49 -   7.02  2934.55  2894.01
VIX       27.34 -   1.54    30.43    26.53
Put/Call Ratio       .76
*************************************************************

A funny thing happened on the way to the PPI report...

A rally broke out!  The markets tried to rally on the open but 
the selling was not over. We quickly slid back into the red and 
dropped below the critical 10200 level. Next support is at 10100 
and traders everywhere started holding their breath. The main 
catalyst for the morning drop was yet another economic report 
showing a larger increase than expected. The retail sales, core 
rate, came in at a whopping +.6% and the bond markets went into 
shock at the open. 


 

As you can see by the chart we had a mini-capitulation event as
many leaders quickly dropped to new lows propelling the Dow back
to levels not seen since the September lows. We did not make it 
to the 10087 again but came within 50 points to 10133. That brought
several technical events into play. At 10133 we were right at the
magic -10% correction off the years highs. This is a normal rally
point as bargain hunters jump in on the assumption that the 
"correction" is over. At the sound of the 10% gun the buyers 
started coming back into the market. The rally however, was short 
lived. We quickly climbed back to the magic 10300 level which we
have had trouble penetrating in the past. After several attempts
to move higher, fear of the dark (and Greenspan) gave new life to
the sellers and we eased off again. 

The second less technical buy signal was the expected relief rally
syndrome. After a -600 point intraday decline since Monday's high,
the overbought conditions had quickly reverted to oversold. Itchy
mouse fingers can only stand so much of a drop in their favorite
stocks before greed overcomes caution and speculators trying to 
catch a falling knife jump into action.

The following chart shows the third technical which was the retest
of previous support/lows. In the last month we have bounced off
the 10200 level five times with only one major intraday penetration.
Therefore anything under 10200 becomes buyable for the aggressive
investor. Same song, second verse with the Nasdaq and 2775. That
level served as both support and resistance several times over the 
last month. Absent any external influences the markets would 
probably have traded up from here. The key word here was "absent." 
Sorry!


 

 

After the close we had some very good earnings announced by SUNW
which would have helped the markets tomorrow but they will be 
overshadowed by two things. The PPI report tomorrow will be the
key economic report for the week but after the Greenspan speech
tonight it may be a non-event. Estimates are for an increase in
the core rate of inflation by +.05% but rumors surfaced all day
that it may be much stronger. A strong PPI on top of the speech
will simply grease the skids to a sub 10,000 Dow.

Lets get to it. After the close tonight Alan Greenspan did what
he is famous for and Greenspammed us again. Speaking to a group
on Measuring Financial Risks in the 21st Century Mr G. warned
that financial institutions about an over reliance on stock values.
He also said banks and financial institutions need to do more
to prepare for a sharp decline in stock prices. Now, he never 
said "a decline is imminent" but he kept using terms like 
"speculative bubble", "eventual selling panic", etc, etc, etc.
He did what he does best. Speak in $2 words and imply impending
doom without actually forecasting it. Was anybody listening?
As evidenced by the S&P futures the entire world was sitting
with their finger on the Globex trigger. Futures went from -.80
at the release of the report to -18.00 and dropping fast 30min
later. Turn out the lights, the party is over!

I could go on and on about the earnings events of the day and the 
mergers and buyouts but at this point it is immaterial. Short of 
a negative PPI in the morning the die appear cast. It is totally
possible that the spin doctors will convince many traders by 
morning that this is the same old tired speech with just a few 
more adjectives and the carnage might not be as bad as expected. 
Just remember that the Intel missed earnings only tanked the 
futures less than 10.00 points. Only the master of disaster can 
knock off almost -20 points with complex sentence structure.

Here is the next challenge. The Dow is in a negative formation
with little or no chance of breaking out. The down trending line
on the top is projected to provide upward resistance ending around
9900 by mid November. The bottom support line, depending on where
you count the bottom on Sept 28th, puts lower resistance at 9500
to 9700 in the same time frame. We all know that a break under
10000, which could happen in the morning, or worse a close under
10000, which could also happen tomorrow, would accelerate the 
decline. It would take a major rally to break out of this channel
on the upside and I can't think of any positive event in the near
future that would spark such a rally.


 

Now before you start digging for the sleeping pills and Maalox
I would remind you that it is always darkest before the dawn. 
There are many hours of darkness before morning and you know how 
we traders are. The optimists are already burning up the modem 
lines looking at chart after chart and preparing for another 
"buying opportunity."

They might get a real buying opportunity if the PPI is stronger
than expected. The bond yields today touched 6.33% and some 
analysts are now calling for a 6.5% yield soon. After hovering 
around 6% for six months and causing much aggravation in the 
stock market the bonds have hit lows not seen since Oct-97. If 
bonds continue to rocket to over 6.5% then the bull market as we 
know it could be hamburger.

Even though the major indexes are only down 9% from their highs 
the broader markets are in a full bear correction. The Dow is
down -9.8% from its high, Transports -22.8%, S&P -9.3%, Nasdaq 
-3.7% (since Monday), and the Russell-2000 -9.8%. These numbers
are masking the fact that 59% of the S&P stocks are below their 
Jan 1st levels. 70% of the NYSE are below their 200DMA and 30% 
of the Dow are below the January levels. The advance/decline line 
hit a three year low this week and even today, with the Dow and 
Nasdaq finishing positive, was negative with only four advancers
for every six decliners. Did you realize the S&P closed negative 
for the day? This is a very negative environment and we may find 
every relief rally harder to maintain as the year draws to a close.

The game plan for tomorrow? Sleep in. Be skeptical of any rally
that does not close above 10300 on good volume until the climate
changes. Hopefully you did not buy into the relief rally today 
and you are still in puts or cash. Did you know there are no stop
losses to worry about on cash?  

I just checked. The futures have rebounded to only -13.00. See,
it is not as bad as you thought. Only -13! What was I worried 
about anyway?

New tag line tonight, not the usual "sell too soon". Tonight's
admonition is "don't buy too soon!"

Good Luck

Jim Brown
Editor



**********
STOCK NEWS
**********

Thursday, October 14, 1999

Going Mobile: Wireless Internet Access Offers Massive Growth
Investors looking to cash in on tremendous growth in the Internet 
might take a cue from some of the world's largest technology 
companies, who moved en masse this week to stake an early claim in 
one of the sector's most promising areas: wireless Internet access.

http://www.OptionInvestor.com/stocknews/101499_1.asp


Thursday, October 14, 1999

Death Takes a Holiday
Few industries make people as uncomfortable as the funeral 
industry. 

http://www.OptionInvestor.com/stocknews/101499_2.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, 
at 5:30PM 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 
several 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 - Thursday, October 14, 1999 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
DOW Industrials   10,750  11,320  10,287    BEARISH   9.23
SPX S&P 500        1,350   1,420   1,283    BEARISH   9.16
OEX S&P 100          670     725     672    Neutral  10.05
RUT Russell 2000     440     465     419    BEARISH   9.14
NDX NASD 100       2,320   2,380   2,471    BULLISH   9.03
MSH High Tech      1,120   1,180   1,234    BULLISH   9.03

XCI Hardware       1,000   1,025   1,038    BULLISH   8.24
CWX Software         750     800     871    BULLISH   9.03
SOX Semiconductor    470     500     518    BULLISH  10.05
NWX Networking       555     585     608    BULLISH   9.17
INX Internet         450     500     509    BULLISH  10.07

BIX Banking          690     710     575    BEARISH   7.23
XBD Brokerage        410     440     372    BEARISH   7.23
IUX Insurance        645     660     527    BEARISH   7.23

RLX Retail           915     960     861    BEARISH   7.23
DRG Drug             365     390     369    Neutral  10.07
HCX Healthcare       720     785     721    Neutral  10.08
XAL Airline          180     190     146    BEARISH   5.21
OIX Oil & Gas        300     315     291    BEARISH  10.08


 
Posture Alert    
The yield on the 30-year treasury continues to make new highs, 
and as such, this market continues on its roller coaster ride 
down.  With the Producer Price Index due out Friday morning, and 
such a negative sentiment on the market in general, we would look 
for another volatile trading session ahead. Leaders today include 
Semiconductors (+1.57%), Internet (+1.49%), and Brokerage 
(+1.30%), which have all lost significantly this week and were due 
for a little relief. Currently, there are no changes in posture, 
but several sectors are on the verge of breaking down, so stay 
tuned. 


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

/members/marketposture



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

Thursday, October 14, 1999

The Bears are closing in!

All is well that ends well, and this week is not over yet. The 
bears are pounding on the door, and their camp is getting larger, 
but we know how quick they retreat and hide. The bulls, however, 
need some major help in the bond market, as everyday represents a 
new high for the Treasury. Interest rates/inflation have been the 
biggest threat to the bulls' big long party, and with the Producer 
Price Index due out tomorrow, and the Consumer Price Index due out 
next week, only time will tell who will win the short-term tug-of-
war. Once the PPI comes out, look how the bond market reacts, for 
it seems to be dictating (once again) how stocks will react. The 
negative sentiment is really building, so to see a rally during 
the next couple of trading days would be very likely if the bond 
stays put or rallies. 

The Investors Intelligence survey came out yesterday, and surprise, 
surprise; bearishness continues to increase at a robust rate. 
Bullish investors now stand at 39.2%, while bearish investors stand 
at a close 37.5%, with the rest at Neutral.  Pretty soon, Bearish 
investors will be greater than bulls. This has not been seen since 
(a real shocker here), October 8, of 1998, when bears led bulls by 
42%/38%. If you look at the chart below of the Nasdaq, we 
highlighted when bearishness last surpassed the bulls. Boy, we all 
wish we had bought leaps on our favorite technology stocks back on 
this date!!! Can you say never work for anybody again! 


 

To continue on the bearish sentiment, the Nasdaq broke new highs 
just this week, with only 39.2% of the people surveyed being 
bullish. What will happen if, in the next several months, we get 
back to bullishness of 55% or better? Nasdaq 4000, DOW 13,000? 

Some other observations we have witnessed this last week is that 
positive news/earnings is not being rewarded (maybe with the 
exception of Apple Computer), while bad news is absolutely 
destroying stocks. Look at Unisys, HI/FN,  Abercrombie & Fitch, 
Tyco Int'l, etc. These stocks just gave 6 months or 1 years' worth 
of upside away, in just a couple of days. The risk/reward ratio of 
holding anything into earnings just is not worth it. You are 
currently not getting rewarded, but will quickly get demolished. 
So continue on the cautious side, and if inflation stays put, be 
patient, because bears are known for their quickness when hiding.

   
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. 


Mixed Signs: 

Volatility Index:
The VIX is above the 25 benchmark level, but continues to show 
good support @30, then 32-33.
 

Earnings Season:
Earnings season is still early, and we have mixed results so far, 
with Intel being the negative bellwether for the week.


BEARISH Signs:

X-Factor:
Currently, good news is not rewarded very well, while negative 
news or even rumors will destroy a stock. We have witnessed this 
last week with issues such as HI/FN, Abercrombie & Fitch, and 
Unisys.

Interest Rates:
The yield on the 30-yr Treasury is breaking new highs, and will 
need to see a nice rally before stocks can advance.

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.

Russell 2000 & S&P 500:
The RUT and SPX are still very weak, with both breaking support 
levels.


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      Thurs  
Indicator                        (10/8)     (10/12)   (10/14)  Alert

Pinnacle Index (OEX):          

Underlying Support  (700-720)      4.2       3.6       5.7
Underlying Support  (670-690)      1.9       2.5       1.4
                    

Put/Call Ratios:

CBOE Total P/C Ratio                .7        .7        .7
CBOE Equity P/C Ratio               .5        .6       1.6
OEX P/C Ratio                      1.2       1.3       1.1


Peak Open Interest (OEX):

Puts                              670        
Calls                             700        
P/C Ratio                         1.03

Market Volatility Index (VIX):	

CBOE VIX                         27.38



Investors Intelligence:

Bullish                         39.20%  *
Bearish                         37.50%  *


The Power of Sentiment Analysis

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

 
OEX Pinnacle Index              Friday      Tues       Thurs
Benchmark                       (10/8)      (10/12)    (10/14)

Overhead Resistance (700-720)     4.18       3.58        5.73

OEX Close                       698.45      686.24     672.04

Underlying Support  (670-690)     1.88       2.49        1.40
                     

 
Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Based on 10/14, overhead resistance is heavy, and underlying 
support is losing steam. 

Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (10/8)     (10/12)    (10/14)

CBOE Total P/C Ratio             .69       .69        .68
CBOE Equity P/C Ratio            .49       .57       1.57
OEX P/C Ratio                   1.22      1.32       1.13


Peak Open Interest(OEX) Friday           Tues            Thurs
Strike/Contracts        (10/8)           (10/12)         (10/14)


Puts                 670 / 20,807    670 / 23,399     670 / 17,228
Calls                700 / 11,288    700 / 11,235     700 / 16,668
Put/Call Ratio          1.84            2.08             1.03




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 14, 1999                        27.38 


 

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
Oct. 13, 1999                             39.2        37.5
  


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

Daily Results

Index     Last    Mon     Tue     Wed   Thu    Week
Dow    10286.61  -1.58 -231.12 -184.90 54.45 -363.15
Nasdaq  2806.84  29.38  -43.52  -71.16  5.57  -79.73
$OEX     672.04  -0.69  -11.52  -15.04  0.84  -26.41
$SPX    1283.42  -0.81  -22.17  -27.49 -2.13  -52.60
$RUT     419.31   2.48   -5.51   -5.36 -0.01   -8.40
$TRAN   2914.49 -55.69  -64.53  -39.98 -7.02 -167.22
$VIX      27.34   0.43    2.55    4.28 -1.54    5.72

Calls             Mon     Tue     Wed   Thu    Week

KIDE      54.50   7.00    1.75    1.00  4.50   14.25  New
XMCM      60.94  -0.88    0.88    2.25  3.56    5.81  A trooper
ADBE     118.19   5.38   -1.94   -1.06  1.19    3.56  Rebounds
GTW       55.13  -0.38   -0.63   -0.19  3.81    2.38  Resilient
JDSU     132.00   2.19    1.56   -5.69  4.56    2.63  steely-eyed
SYMC      40.00   2.50   -1.03   -0.25  1.31    2.53  New
TXN       85.00   4.19   -5.19    0.50 -0.50   -1.00  New
DELL      44.34   0.06   -0.06   -1.06 -0.09   -1.16  Good buy
VOD       48.31   2.13   -0.69   -1.94 -1.19   -1.69  Straddling
NT        54.81  -0.19    1.31   -2.13 -1.13   -2.13  Grab some
ITVU      42.25   1.00   -3.13   -2.50  2.38   -2.25  Steller
TFSM      44.06   1.13   -2.88   -2.13  0.56   -3.31  Dropped
NOK       95.38  -0.19   -1.06   -1.00 -1.88   -4.12  Held firm
HGSI      80.75   3.88   -1.63   -4.50 -3.25   -5.50  Caution!
AOL      114.63  -0.75   -7.06   -2.63  3.94   -6.81  Snap back
AXP      142.00  -0.81   -3.63   -3.25  0.00   -7.69  Hanging on
QCOM     204.03   8.56  -10.44   -7.72 -0.31   -9.91  High risk!

Puts

YHOO     173.38 -10.75   -7.50   -5.94  5.81  -18.75  Supported?
AMZN      79.59  -0.88   -3.44   -5.00 -0.34   -9.66  Under water
CMGI     104.25  -2.88   -5.81   -3.81  4.25   -8.25  Entry point
CNXT      68.88   4.03   -5.09   -3.06 -1.94   -6.06  New
SNDK      54.00  -1.06   -4.69   -8.00  7.75   -6.00  Dropped
WPI       29.00  -0.06   -1.19    1.56  0.31    0.00  Dropped
SLB       55.25   1.81   -0.81    0.63 -1.44    0.19  Turned
BA        43.63  -0.06   -2.31    0.88  3.13    1.63  Dropped
MOB       97.63   0.94   -0.31    0.75  1.19    2.56  Dropped



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


CALLS:
*****

TFSM $44.06 +0.56 (-3.31) Shares of TFSM have drifted sideways 
to lower for the past two sessions.  The rumors concerning the
merger or buyout by DoubleClick have all but died out.  TFSM 
continued with a pattern that has grown all to familiar in 
the past few sessions, of falling to the low of the day in the
first 3 hours of the day and recovering into the close.  Today
24/7 Media did announce its involvement in a project with IMAKE
Software and Services to build a next generation Online Ad 
Delivery System for TFSM.  That may be good for the future of 
TFSM but today it didn't do much for the price of the stock.  
TFSM has been a tricky play but did provide us with lots of 
opportunity to make a profitable trade.  It was a trade based 
entirely on rumor and speculation, which can be explosive but 
also very risky.  We will continue to keep our eye on TFSM, but 
will drop the play from our list for now.



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



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

The Option Investor Newsletter         Thursday  10-14-99   
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


**********************************
DROPS - CONTINUED FROM SECTION ONE
**********************************


PUTS:
*****

BA $43.63 +3.13 (+1.63) Well, we took a chance that Boeing 
would report bad earnings today and unfortunately it didn't 
pay off.  There was a lot of mis-information out regarding 
the company's earnings but they cleared it up today.  BA 
reported earnings of $0.56 a share verses expectations of 
$0.49 per share, beating estimates by $0.07.  Investors 
rewarded the stock for its good report by purchasing shares, 
driving share prices higher.  As a Dow component, Boeing's 
share increase accounted for a large portion of the rise in 
the Dow.  Because the near-term outlook for the stock has 
improved dramatically, we have decided to end this play and 
recommend others with more potential.  

MOB $97.63 +1.19 (+2.56) We can't seem to get a cap on this 
gusher!  Mobil just will not come down as long as oil prices 
are going up.  Even though Crude was down a tiny -0.60 cents 
today, Mobil (MOB) charged on up on strong volume.  Yesterday 
news hit that inventories fell more than 7 million barrels last 
week.  The expectations were for 1.25 million so the surprise 
drove prices higher.  Even though today did not continue the 
ascent, we are dropping Mobil until things shake out and we 
get a clear direction to the downside.  MOB opened down, 
indicating there was going to be some selling but the buyers 
stepped in and drove the stock to resistance at $98.  Hopefully 
you waited for the entry point, which never came. 

SNDK $54.00 +7.75 (-6.00) What a play this turned out to be.  
With earnings coming out flat and the outlook of future earnings 
weak due to Taiwan earthquake you would thing Sandisk would 
have continued down today right?  Wrong!  The stock opened down 
but only to turn on a dime and rally.  The bottom was hit at 
9:40am today.  Now if you did not grab a hefty profit yesterday,
you definitely should of been stopped out this morning, locking 
in a nice gain.  It appears that the news is out on SNDK and 
the stock was ready to bounce back after huge declines over the 
past couple weeks.  Due to the huge reversal we have to say 
this put play is over for now. 

WPI $29.00 -0.31 (+0.00) We had a nice run in WPI but it is
starting to get boring.  The drift this week has been settled
to the upside.  Over the past two weeks, WPI has bounced off 
of the current resistance point at the $26.50 level twice and 
does not seem to want to penetrate in the short-term.  Although 
the overall technical pattern remains weak and the volume and 
moneystream still remain depressed, it is time to move on 
from this one.  There has been no market moving news that has 
been reported, that would create any interest in the shares.  
For instance on Tuesday it was announced that the FDA began an 
inspection of the Watson's Corona, California facility.  The FDA 
informed Watson that the inspection is a follow-up to the 
agency's last inspection to verify corrective actions taken by 
Watson to address FDA observations made earlier this year.  This
had no effect on the shares.  At this point it looks like the 
sellers have taken a break and we will be exiting the play.



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

I have been a subscriber for quite some time and just want to say
that you folks are the best and most sincerely honest advisory 
service that I have ever known. You are up front with your advice
and never hide wrong trades or suggestions which is appreciated. 
However, I have a question or two in regards to Intel's recent 
earnings release. It seems that just about everyone is 
dissappointed but is it really dissappointing? Analysts said that 
gross profit margins declined and that was troubling. In fact, 
gross profit margins did decline, from 58.9% to 58.7%, a drop of 2 
tenths of 1%! I don't see the significance of this. Revenues were 
up 9% which more than offset this profit percentage decline if it 
can be called that, which means that the actual profit dollars 
were in line with expectations if not slightly higher. In addition, 
Intel's CFO, Andy Bryant, said they were pleased with 3rd qtr 
results and said the 4th quarter would be strong with around a 
2% increase in profit margins. This is from the horse's mouth so 
to speak, and in my opinion has a lot more credibility and 
validity than all of these so called analysts or in laymen's terms, 
fortune tellers or carnival hucksters. The great companys of this 
world like Microsoft and GE do not have profit margins anywhere 
near 60%. AMD, a so called competitor, loses millions every day, 
year in year out, is greeted warmly when they report lower losses, 
but losses none the less. It appears to me that those so called 
experts who are negative to Intel, are either short the stock, own 
puts, or are looking to buy at lower levels. Thank you for your 
time and I hope that you have a moment to reply.

Rocket

****

Thanks for your question, it is one we debated in length on 
Tuesday after Intel released their report.  We also feel that 
INTC had a good quarter and they have a positive future with 
the continuing boom in the Internet and thus computer sales.  

The reason we have heard so much negativity towards INTC's 
earnings report is what it means to market sentiment.  The 
market is in a consolidation/correction phase that is even 
more unstable because it is October and we have Y2K quickly 
approaching.  We also have had two interest rate hikes and the 
potential for one more hanging over our head.  To combat all 
of these fears was the prospect of strong 3rd quarter earnings 
to drive stock prices.  We have seen some reports from a 
few of the Dow components and Internets like YHOO but Intel 
is the first of the big names that produce huge profits.  
If they were unable to meet estimates (and really we want 
to see them beating estimates), that somewhat eliminates our 
one catalyst to drive stock prices higher.  

So analysts and investors are using Intel as the measuring 
stick to gauge how good other earnings reports might be.  

I hope that helps with your question.  SUNW beat estmates 
by .02 cents after the close on Today so maybe that will 
help to reaffirm the outlook for strong 3rd quarter reports.

Thanks,

Ryan Nelson
Asst. Editor 

****

I love this service, I have made money and I have lost money 
(through stupid mistakes) and I appreciate your honesty in telling
us about your losing trades, so that we may learn in the process. 
That is what I feel makes this service the best I have seen and 
used.

Thanks again
Richard 

****

Dear Jim, 
Once again those who really don't get it write to complain to you 
that Broadvision is not a current pick. I find a great deal of 
humor in that logic but I really am sorry that you have to deal 
with those type of letters. I do believe Broadvision was a pick 
of Option Investor when it was around 90.00 per share. I know this
because I read about the play in Option Investor. I rolled the 
stock buying 500 shares here and there and by selling and buying 
back naked puts. From August through most of September I played 
Broadvision and made over 19,000.00. In fact I followed the rules
and sold to soon the last time at 122.00. The next day Broadvision
took off on its way to 180.00 and has really never looked back. 
Sure I wish I had stayed in longer but I followed the rules and 
have a great profit to show for it. I haven't played it since 
because it has become to rich for my blood. Also I feel it has 
a huge downside potential after posting such strong upward gains.
I completely agree that this stock is not currently a 
recommendation. One last point. About 25 to 40 percent of the 
plays I do come from choices I have seen on Option Investor. That 
leaves me finding the other plays on my own. I have developed my 
own style and favorites along with your suggestions. Sometimes I 
think these people who write and complain to you can only play what 
you suggest because they haven't learned to fend for themselves. I 
hope they learn to fish before they drown in their own stupidity. 
Thanks for all the good work you do. 

Sincerely, 
Ralph 

****

I just need to get this off my chest .... I think I'm still in a 
daze. - From Sunday nights writeup -->Furthermore, bad decisions 
lead to more bad decisions. When you realize that you are reacting
to events instead of planning for them, you have lost the battle.
Boy is that right! ... I did a dumb thing .. I've been hovering 
around up 60 to 70% for the year (started options Aug98(bad timing))
... Moved to playing only the OEX mid year 20 to 40 contracts 
usually. The beginning of this week I had 115K ... Then Monday I 
tripped ... I told myself I wasn't going to trade until the Fed 
anouncement .. I then end up buying 20 calls (in the spread) about
5 mins to the annoucement (greed I guess) ... another 20 calls... 
It's already going up and I've already made money .. but I hold 
...Bam.. But I hold .. Buy 40 more calls now that it turns around 
... The next day (wed) I sell a little early and take a small minor
loss... If I'd have held I could have made money .. Now I start 
stumbling all over myself ...I start trading way too much trying 
to get back the losses.. 15 orders (20 contracts each) of the same
calls/puts buy/sell all at losses about 3/4 of $1 .. So Thursday 
(the edge of the cliff) I buy 80 puts .. sell them later for about
$1 loss. Towards the end of the day I say F#@! IT! and by 120 
contracts OEX 705 calls at 3 1/2.. As soon as I do the market 
starts dropping .. I wait a little .. I say F#@! IT! .. buy 
another 100 at 3. Way too much emotion by now ... I go to sleep 
(Almost forgot to set the alarm.....would have been a good thing!)
.. Wake up .. Futures are up .. but they came back down and the 
bonds are selling off ... Maket opens .. CNBC reporting how many 
downgrades and had bad it looks ... I see the option open at 2 3/8 
... I'll just hold until after at least the first hour or two .. 
I don't listen to myself and sell 100 at 1 3/4 (saying I just sell
half) at 10:00amEDT... 15 minutes later I sell my other 120 at 
1 1/4 (the low of the day) .. at 11:19EDT .. I buy 80 puts to try 
and make up something (anything!!) .. As soon as I do the market 
starts shooting up again (I'm in total shock by now) .... I sell 
them for about 1 1/2 point loss at 12:30 ... So what I've done all
year is gone and I'm in the red on top of it .. from being up 
about 60% (115K) in the black to being down 50% (35K) in red just 
like that! Now I've got to make it up but I don't have much money
so I guess it's going to take awhile......... The worse part is I 
felt before listoning to CNBC that the market would go up and that
I would hold through any weakness .. only to not do that then 
seeing that I was right and could have gotten off at just a 
fractional loss. Has anyone else done anything this stuipd and 
was able to turn it around!!?
Anyway, Thanks for reading ... Still Dizzy ...

(Name Witheld)

Dizzy, you made us dizzy just trying to contemplate the sequence 
of events. Unfortunately almost all of us have lived the exact 
same scenario just maybe not to the same excess. Rest assured 
that anyone can come back from a defeat as long as they have two
things. Capital and the right attitude. No amount of money will 
make up for a wrong attitude. Once you have the right attitude you
can work miracles with very little money. You just have to 
absolutely be very strict and avoid emotional trading. (see above) 
Emotional trading will kill you. We would suggest not trading the 
OEX. As you know from experience a direction change in the market 
will knock -1.50 off the spread of an OEX option in a heartbeat. 
If you have capital restrictions $1.50 can be a lot of money. 
Stick to stocks with good trends, buy in the money if you can 
afford it and sell too soon.   Jim



*****************
PICK NEWS - CALLS
*****************
*** ONLY PLAY CALLS WHEN MARKET RECOVERS ***
*** ONLY PLAY CALLS WHEN MARKET RECOVERS ***
*** ONLY PLAY CALLS WHEN MARKET RECOVERS ***
*** ONLY PLAY CALLS WHEN MARKET RECOVERS ***


XMCM $60.94 +3.56 (+5.81) This one's a trooper.  So far XMCM 
has weathered the storm, which is amazing considering the 
severity of the recent decline in the broader markets.  Even 
Intel's lower than expected earnings announcement wasn't 
enough to keep this bull down.  If the broader markets were 
to turn, imagine the possibilities for XMCM.  The stock broke 
its resistance level at $60, which proved to be just another 
bump in the road.  The next resistance point for the stock is 
$67, lets see if we can reach this point as easily as the last.  
When placing new trades, wait for slight dips in the stock.  
A good entry point at this time would be $58, as we did get 
small intraday pullbacks during today's trading session.  
With the bears running wild, its comforting to know you own 
one of the few remaining bulls.  There was no additional news 
to report at this time that would alter our play.   

AXP $142.00 +0.00 (-7.69) Thanks to today's comeback by the 
broader markets we live to play another day.  AXP closed the 
day unchanged despite the rising bond yield, which continues 
to hurt both the financial sector and our play.  Today, bond 
yields jumped to new two-year highs, luring money into 
Treasuries and out of stocks.  Investors had the same 
intentions with AXP until it hit its 50-dma at $38.  At this 
point the stock bounced and didn't look back.  This is a good 
sign going into tomorrows trading session, which should pick 
up right where it left off.  However, keep in mind that 
another piece of our current economic condition will be 
released tomorrow.  The PPI numbers will be released prior to 
the opening of the market.  With unnerved investors flooding 
the market right now, look for another day of volatile trading.  
When entering new trades, if possible, wait for a slight 
pullback in the stock.  $140 would be a good entry point 
however, if the bulls are released by good economic data, 
go with the flow and enjoy the ride.    

NOK $95.19 -1.88 (-4.13) It has certainly been a rough couple 
of days in the market for our cellular stock play.  Nokia 
dipped on Thursday posting big volume and violating its 10-dma.  
Nokia did manage to maintain support just above $94.50, a 
support which held firm last week, offering a solid entry 
point.  So, what could possibly be dragging the king of mobile 
phones down?  Well, fears of rising U.S. bond yields have had 
an adverse effect on the Latin and European markets while adding 
pressure to ADR's as well.  Nokia has had to contend with these 
fears while trying and stay afloat in a topsy turvy US market.  
Merrill Lynch has added Nokia to their "Focus One" stock list, 
stating that they like the fact that Nokia continues to hold 
a 9-12 month lead over their competition.  On Wednesday, Hewlett 
Packard revealed their wireless strategy along with a list of 
24 partners that they will be working with to bring about their 
e-services initiative, which of course, included Nokia.  Nokia 
issued a statement on Wednesday regarding the licensing of the 
software used in 3Coms Palm organizer.  Nokia has also announced 
that they will develop a line of cellular devices that will 
utilize the Palm computer operating system.  They will be joining 
forces with Philips Electronics and Handspring to develop the 
hand-held computer/cellular phone.  Watch for the return of 
positive momentum before entering a new play. 

NT $54.81 -1.13 (-2.13) If you are a dedicated CNBC watcher, 
you will understand what I am referring to when I say that 
Nortel spent the day trying to "come together".  Nortel had 
some momentum at the opening but took a turn and headed south 
for a bit, providing some room for a good entry.  NT then tried 
to follow the market up taking a few bounces off of a support 
set right around $54, closing down just over a dollar and just 
slightly above its 10-dma.  As long as NT does not violate its 
10-dma this could be an ideal time to make an entry.  Watch for
confirmation of continued positive momentum before making a new 
play.  On Wednesday, Nortel announced the launching of a new 
high speed network for Staples.  Also Nortel announced that 
Telergy had become their first North American customer for NT's 
Fraud Solutions System.  On Thursday, Nortel was selected by 
DSLnetworks to provide their Shasta 5000 Subscriber Service 
System.  
 
ITVU $42.25 +2.38 (-2.25) The bullish indicators that were in 
place for the shares of ITVU have remained steady in the midst 
of a volatile session for the stock.  Profit-takers continue
to step to the plate, but support has been strong in the shares,
holding up well today at the $42.25 level.  The trading pattern 
in the shares of ITVU remains consistent with the blue chip 
internet stocks that tracked higher today.  There have been no 
violations of the current positive technical pattern in the 
shares thus far, so look for higher prices to continue.  Short-
term support is sitting around the $40 level, with resistance 
at $43.38.  With tomorrow's PPI number to be announced before 
the trading day begins, and it also being a Triple Witching 
Friday, expect there to be major volatility in the sector.  
Look for the momentum in the shares to give you some direction 
after the first hour of trading to determine whether to enter 
a new position.  Confirm a positive technical pattern in the 
midst of what could be an up and down day.  Keep trailing stops 
tight to protect profits.    

QCOM $204.03 -0.31 (-9.91) Volume on this lucrative momentum 
play has been in continual state of fluctuation and at times 
has even dipped to as low as 50% of its ADV.  So it's hard to 
interpret this factor when citing the stock's losses over the 
past three days.  QCOM remains strong above the 10-dma ($201.03) 
- an indicator the stock hasn't sunk below since the play's 
inception mid-September.  And today the Internet sector showed 
a little spunk towards the end of the day but consider waiting 
until after the PPI numbers and the market confirms upward 
direction before using this current level as an entry point. 
Internets are very HIGH RISK PLAYS AND ALWAYS VOLATILE.  
Remember what first gave this stock a kick in the pants? - and 
yes, I know many of the loyal readers already know this.  It 
was the company's announcement that it was proactively seeking 
a buyer for its mobile phone manufacturing unit.  Well today 
this important proposition resurfaced once again.  In an 
interview at Telecom '99 in Geneva, Chairman and CEO Irwin 
Jacobs stated that both US and foreign companies have expressed 
a serious interest in acquiring the unit and some deal is 
likely to be reached by the end of the year. 

ADBE $118.25 +1.19 (+3.56) ADBE held up well amid the Internet 
sector's tailspin on Wednesday and today took back the quick 
loss.  The stock's spread has narrow the past 2 days remaining 
bound within range of only 4.31 points.  Volume was average as 
ADBE continued to maintain this new price level above near-term 
support ($114 and $115) and the rising 10-dma ($116.01).  This 
is good news considering the uncertainty of the market and 
skittish investors.  Keep in mind our momentum/split play is 
quickly coming to an end.  ADBE splits 2:1 after the bell on 
October 26th and you should consider having your positions 
closed out by then to avoid the risk of any post-split decline. 

DELL $44.34 -0.09 (-1.16) For the newcomers, our strategy on 
DELL is to target shoot the stock at different levels of its 
support between $38 and $44 and then ride up the recovery.  On 
Tuesday we added this play based on the heels of after-hours 
news that Intel missed its earnings' numbers by 0.02 and thus, 
would drag down the Nasdaq creating buying opportunities in the 
hardware sector.  Since then volume has been rather light for 
the stock, but DELL shed $1.15 sending it just a smidgen above 
its 10-dma ($43.89).  It's notable that twice in the past couple 
months DELL has fallen to its 200-dma ($41.44) prior to a 
significant rebound.  But know that there are no guarantees 
this is the bottom.  Remember if the market turns positive then 
the techs will be the first to respond so pay close attention 
to market sentiment.  

AOL $114.75 +3.94 (-6.81) AOL snapped back today taking in a 
little more than it gave up in yesterday's strong market 
decline.  Even though AOL recaptured some losses, it has 
suffered significant profit-taking this week amidst interest 
rate concerns and worries over 3Q earnings.  Technically yes, 
AOL is showing strength just a hair below near-term support of 
$112, under the 10-dma ($115).  However firm support is visible 
at $109 and if the PPI numbers are inflationary tomorrow then 
look out below.  Plus recall that unless we hear of a split 
announcement in the next few days that could drive up the share 
prices, this play ends when the company reports earnings next 
week on October 20th.  In the news, Motorola (MOT) and AOL 
announced they with team up to provide instant wireless 
messaging.  Accordingly, they will use AOL's instant messaging 
application on MOT's advanced wireless devices.  If final terms 
can be reached soon then we could see the new product in early 
2000.

JDSU $132.00 +4.56 (+2.63) After yesterday's sell-off and ugly 
close, you'd have had to be a steely-eyed, cold blooded machine 
(the risk tolerant type) to take a position in JDSU at $126 
(today's low) before it closed $6 up from the low.  Per Tuesday's 
update, we hope you got out at $130 and were able to get back in 
at the low of the day.  Stronger than average volume suggests, 
this is still a favorite of investors and money managers, with 
strong long-term prospects.  Technically, JDSU is getting a bit 
flat from the last four arduous days on the NASDAQ.  However, 
earnings are scheduled October 28 after the close, into which we 
could easily see further gains.  Support at $125-$126; resistance 
at $135.  Conservative types (relative term for this play) may 
want to wait for the strong move over $135 with volume.  Or for 
the strong stomached, buy the dips where your risk tolerance 
allows.  Also, remember they have a 2:1 split scheduled further 
out on December 29.

VOD $48.31 -1.19 (-1.69) What the market giveth, it taketh away.  
As we noted Tuesday, "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".  Volume continues to taper, the price 
falls below support.  In a down market with as big a price move 
as VOD has experienced following the 5:1 split, this isn't a 
surprise.  The reason we keep it on the list is that the wireless 
phone sector is still showing strength (it is the future Internet 
frontier since there are far more wireless devices worldwide than 
PC's).  Furthermore, after the market's big fall over the last 4 
trading days, it's due for a bounce.  We're sitting right on the 
10-dma at $48 to boot, which should provide added support.  Since 
VOD is walking the fence, we suggest caution.  Enter only if the 
market, sector and stock make a solid bounce.

HGSI $80.75 -3.25 (-5.50) We had cautioned that a temporary 
southern migration of stock prices might ensue and to keep your 
stops set.  Brave souls could target shoot at $81.  If you fit 
that profile, you got your wish and then some as HGSI touched 
the $77 range today.  While it recovered to rest just below its 
10-dma support of $81, to be comfortable re-entering this play, 
we need to see an immediate bounce from here with an increase 
in volume (it's been well below the ADV of 515K lately).  Or 
else, we'll have the meat wagon and a pine box ready for Sunday.  
Another reminder: because of the volatility of this issue, the 
high spreads on bid/ask, and the thin OI, this play is for 
skilled surgeons only.

GTW $55.13 +3.81 (+3.38) There was not as much fallout from the 
Intel earnings bomb as investors thought might be.  GTW never 
went any further south than $50.31 (which also happens to be the 
10-dma) - much more resilient than we thought.  Following this 
really short term hit, GTW's volume and price are on the rise 
into earnings, scheduled for October 21 after the close 
(confirmed), just five trading days away.  It's time to take 
a position (so long as the market cooperates); thus we offer 
strike prices tonight.  Given the short time horizon until the 
announcement, we'll want to be out of the play prior to, since 
we never recommend holding over earnings.  The logic is that if 
the price swells into the event, investors will then be free to 
take a profit, which they generally do once the news is out, 
especially if the company just meets the Street estimates or 
(God forbid) falls short.  One more point to bolster our outlook 
for GTW: It climbed steadily throughout the day, cutting through 
market noise to close near its high of the day on volume 38% over 
its ADV.  Of course, the market should be in our favor before 
we enter.

No news right now to inspire the play - just earnings.

BUY CALL NOV-50 GTW-KJ OI=1141 at $7.88 SL=6.00
BUY CALL NOV-55 GTW-KK OI= 554 at $5.13 SL=3.25
BUY CALL NOV-60 GTW-KL OI= 405 at $3.13 SL=1.50



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

YHOO $173.38 +5.81 (-18.75) Another wild ride on the markets 
continue to confuse investors whether to buy or sell.  Yahoo 
investors were no exception to this current trading pattern.  
The stock finished the trading session on a higher note 
however, did traded lower at one point in the day.  Even though 
the stock closed the day on the upside we feel this is only a 
slight stall to even lower levels.  With so much uncertainty 
within the broader markets, another down day is inevitable, 
it's just a question of when.  Tomorrow, Producer Price Index 
numbers will be released, which should influence the market 
and our play one way or another.  If the numbers are above 
expectations, expect a negative reaction by investors.  
Continue to use caution with this play.  The possibilities 
of lower levels exist for YHOO, however, keep your stops tight 
to be safe.  Support is sitting at $165 where it bounced 
twice this week.            

SLB $55.25 -1.44 (+0.19) The upgrade from Monday has finally 
worn off for SLB and the stock has rolled over.  This is what 
we suspected on Tuesday and we had some nice entry points.  
The overall weak market has produced a severe lack of buyers 
in all areas.  We are likely to see the weakness continue.  
Oil prices ended lower today and SLB is nearing short-term 
support at $54.  This level is where you may want to close 
up your positions to lock in profits but, before you do, check 
the market sentiment and oil prices.  Poor performance in both 
areas could mean that $54 won't hold and you may want to stay 
in the play.  After $54, mild support is at $53 before more 
strength at $50.

CMGI $104.25 +4.25 (-8.25) Today the Internet blue chippers 
pushed there way higher, though rising interest rates kept 
the mood somewhat cool toward the rest of the Net sector.  The 
bounce back today in the shares of CMGI was due to this stock 
being down well over 10 dollars intraday for the week, as well 
as the news that AdForce (ADFC) surprised Wall Street when the 
online advertising services company came in with a narrower 
than expected loss of 34 cents vs. projections of 38 cents.  
What seems to be good for AdForce is good for its proposed new 
owner: CMGI, which is buying Adforce.  With the fear of more
interest rate hikes and an overall market that just cannot 
wait to sell off and go lower with any sneeze of negative 
news, we believe this was a one day event for CMGI.  This 
price surge today has provided us another possible entry point 
for another move to the downside.  The shares traded up today 
but there was no real conviction.  Until the $106 level is 
broken, the risk reward to the downside remains in our favor.  
Going forward we expect the selling to continue in CMGI.  But 
as always confirm momentum and direction in the market before 
taking a position.  Especially tomorrow, with a PPI announcement 
and a Triple Witching expiration.


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

PICK NEWS - PUTS - CONTINUED IN SECTION THREE

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




SEE DISCLAIMER IN SECTION ONE




The Option Investor Newsletter         Thursday  10-14-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

AMZN $79.59 -0.34 (-9.66) As other Internets (YHOO, AOL, CMGI) 
came up for air today with some nice gains, AMZN is still under 
water.  Though it found support around $78.50 on two occasions 
today, the highs got lower throughout the day indicating that the 
trend is likely to remain down.  This put play is working out 
nicely, even as C.E Unterberg Towbin began coverage with a Buy 
rating in yesterday's downdraft.  While support remains at $75, 
today was the second day that AMZN has failed to close above its 
10-dma of 81.94, even as its volume has squeaked back up to match 
its ADV.  Until Internet analyst and investors alike get the 
great news (Christmas will again occur in December this year - 
a tongue and cheek comment we credit to briefing.com) and the 
earnings run gets started (scheduled for October 28), AMZN could 
go lower.  However, we need to exercise a bit of caution since we 
noted on Tuesday that this would be a short-term play based on 
sector weakness.  Tomorrow is option expiration day, which tends 
to hold up stock values.  Couple that with a semi-recovering 
Internet sector and we have a road map that could lead us out 
of the jungle rather quickly.  Keep those stops set if AMZN 
decides to join the rest of the sector in the upward movement.



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

KIDE - 4Kids Entertainment $54.50 +4.50 (+14.25 this week)

*** ONLY PLAY CALLS WHEN MARKET RECOVERS ***

4Kids Entertainment is a vertically integrated entertainment 
based company.  KIDE provides a wide range of services.  KIDE 
designs, develops, and produces toys.  It also handles 
international merchandise licensing media buying and planning,
television distribution and production.  KIDE is responsible 
for the licensing of World Championship Wrestling and the very 
popular Pokemon.

This is a simple momentum run that has shown resistance to the 
recent market declines and no signs of tiring.  Saying that KIDE 
has been in a short-term uptrend would be an understatement.  
KIDE has been a mover and a shaker, reaching a new 52-week high 
on what has seemingly become a daily basis.  KIDE has been 
closing at or near the high of the day and this, combined with 
big volume, is indicative of continuing strong investor demand.  
There is no resistance in sight for KIDE, however, with such a 
big move lately, we must note the possibility of future profit-
taking.  If this does happen it could potentially create an 
ideal situation for making an entry ahead of an earnings run.  
We believe there is support right around $50 which would also 
make for a good solid entry point.  We expect earnings to be 
announced November 11th and will confirm this with the company 
as we get closer.

What is making KIDE so hot?  Analysts are pointing their fingers 
at the Japan born Pokemon toy craze.  For an expert opinion, I 
turned to my eight year old nephew who at once began spouting 
off more information on Pokemon then is currently available 
anywhere on the Internet.  KIDE distributes the animated tv 
show, Pokemon of which, the success seems to be endless.  Shares 
of KIDE appear to be along for the ride.  Many expect the 
popularity of Pokemon to continue well into next year.

BUY CALL NOV-45 IUK-KI OI= 70 at $14.13 SL=11.25 Strong vol today
BUY CALL NOV-50*IUK-KJ OI=210 at $11.38 SL= 8.75
BUY CALL NOV-55 IUK-KK OI= 67 at $ 9.00 SL= 6.75 Strong vol today

Picked on Oct 14th at $54.50     PE = 38                           
Change since picked    +0.00     52 week high=$54.50 
Analysts Ratings   0-0-0-0-0     52 week low =$ 1.67                  
Last earning 08/99  est= N/A     actual= 0.36                             
Next earning 11-11  est= N/A     versus= N/A                            
Average Daily Volume =  682K
Chart = http://quote.yahoo.com/q?s=KIDE&d=3m

****

SYMC - Symantec Corporation $40.00 +1.31 (+2.53 this week)

*** ONLY PLAY CALLS WHEN MARKET RECOVERS ***

Symantec's grip on the software security market is as tight
as Network Associates; the two continually duke it out for
the #1 status.  Its Norton utility software (more than half
of sales) for individual and networked PCs helps computer 
users perform housekeeping functions, such as controlling
viruses and restoring, backing up, and organizing files.
The company also makes products that help PC users work 
from remote locations.  Symantec is spinning off its Internet
tools business.  Distributor Ingram Micro accounts for 33%
of sales.  Symantec is using acquisitions and technology pacts
to mount a push further into the corporate computing market.

Symantec announced yesterday that BUY.COM, a leading Internet
retailer and e-commerce portal site, had named them vendor of
the year.  The vendor of the year award is a tribute to a 
company that places value on creativity, revenue growth and 
overall quality of the relationship.  Also the S&P Wealth
Web site, named Symantec there "Stock of the Week", and have
called the stock a compelling value in the software industry.
Thanks to a big push to sell its software online there revenues
increased 166 percent for the June quarter.  Looking forward
to this month's earnings report to be announced on Oct 20th
(next Wednesday), the shares have surged there way to a 52-week
high this week at $40.18 and currently sits right under that 
level at $40.  The volume has picked up tremendously with all
of the positive news and with a positive outlook anticipated
for next week's earnings.  

With the positive technical pattern firmly in place, we want to 
position ourselves for the probable push to new highs ahead of 
the earnings report.  That gives us 4 more trading days to play 
this one.  The positive momentum, accompanied by the strong 
volume in the shares should give the shares a boost.  Confirm 
continued momentum before entering a new position.  The current 
resistance level is $40.18, support is at $38.50.  

BUY CALL NOV-35*SYQ-KG OI=178 at $4.88 SL=3.13
BUY CALL NOV-40 SYQ-KH OI=257 at $3.00 SL=1.50
BUY CALL NOV-45 SYQ-KI OI= 55 at $1.19 SL=0.00 High Risk!
BUY CALL JAN-35 SYQ-AG OI=525 at $7.38 SL=5.63
BUY CALL JAN-40 SYQ-AH OI=167 at $5.00 SL=3.25

Picked on Oct 14th at   $40.00     P/E = 34
Change since picked      +0.00     52-week high=$40.13
Analyst Ratings      5-1-0-0-0     52-week low =$ 8.69
Last earnings 07/99  est= 0.44     actual= 0.45
Next earnings 10-20  est= 0.42     versus= 0.19
Average daily volume =  896 K 
Chart = http://quote.yahoo.com/q?s=SYMC&d=3m

****

TXN - Texas Instruments $85.00 -0.50 (-1.00 for the week)

*** ONLY PLAY CALLS WHEN MARKET RECOVERS ***

Texas Instruments is a global semiconductor company and a 
leading designer and supplier of digital signal processing 
solutions.  TXN has a 45% share of the market for digital 
signal processors.  DSPs convert signals such as sound and 
light into digital form and are used in cellular phones, VCRs, 
camcorders, cars and modems.  The company also makes analog 
chips, logic chips, microprocessors and micro controllers.  
It's pioneering digital light processor uses tiny mirrors to 
create an ultra sharp display for TVs, PCs and movie theaters.

Here we go again with this winner!  It seems we are adding this 
stock on a regular basis.  Just can't keep a good profit down.  
TXN touched down on support today and rallied back up as 
investors snapped up tech stocks after Apple Computer's (AAPL) 
great numbers.  With earnings coming up on Tuesday, Oct 19th, 
this would be a good time to catch a run into the announcement 
which is after the bell.  TXN has been in a nice rolling pattern 
lately and today it did a classic bounce off support.  We expect 
TXN to reach the $90 level into earnings, PPI willing.  There 
was a good amount of volume pushing down on the stock but 
bargain hunters looking for the next deal jumped on TXN and 
pushed the stock back up to the highs of the day.  

Techs in general have been holding up nicely in the face of 
the recent sell-off and TXN flexed its muscles today.  Keep 
a watchful eye on tomorrow's PPI report before jumping on 
this call play.  If we get a low number we could expect a 
sharp rally from here.  If not look out below!  This play is 
mainly momentum/earnings run related so keep your stops
tight and listen for sideswipes (bad news) at any turn.  And, 
as always, OIN does not recommending holding over earnings so 
plan your exits well.

BUY CALL NOV-80 TXN-KP OI= 696 at $8.38 SL=$6.25
BUY CALL NOV-85*TXN-KQ OI= 836 at $5.25 SL=$3.75
BUY CALL NOV-90 TXN-KR OI=2413 at $3.50 SL=$1.75
BUY CALL NOV-95 TXN-KS OI=1302 at $2.00 SL=$1.00

Picked on Oct 14th at    $85.00    P/E = 76
Change since picked       +0.00    52-week high=$94.13
Analysts Ratings      5-3-4-0-0    52-week low =$24.88
Last earnings 07/99    est=0.83    actual= 0.92
Next earnings 10-19    est=0.43    versus= 0.20
Average daily volume = 3.36 mln
Chart = http://quote.yahoo.com/q?s=TXN&d=3m



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

CNXT - Conexant $68.88 -1.94 (-6.06 this week)

Spun off from Rockwell International's semiconductor operations
in 1998, Conexant Systems supplies analog PC and fax modem 
chipsets.  Their other product divisions provide chips for 
personal imaging, wireless communications digital infotainment 
and network access.  Its main business has been the PC modem 
chip business, which recently has been in somewhat of a slump.  
Their continued expansion into the other product divisions 
seems to be helping pull the company out of the hole.  Customers 
include Compaq, Ericsson, Thomson, and Cabletron Systems.  
Industry competitors include the likes of Lucent, Siemens, 
and Texas Instruments.

Last Thursday a company called Hi/fn(HIFN) knocked the legs out 
from underneath the semiconductor industry after they announced
lower than expected first-quarter revenues.  If you owned stock
in just about any company in the SOX (semiconductor index) you
probably took quite a bath.  CNXT wasn't left out.  Shares of 
the chip maker closed last Thursday at $79.88 and Friday morning 
CNXT opened over $5 lower and hit $70.13 before rebounding into 
the close.  Monday CNXT continued its rebound back towards the 
$80 mark and then promptly began to deteriorate.  Most of the 
recent decline seems to have come on interest rate and earnings 
worries, as their has been no negative news on CNXT.  At least 
not any that has been reported yet.  Today the SOX managed a 1.5% 
increase while shares of CNXT lost just under $2.  The decline 
this week in CNXT has come on better than average volume at 
2.6 mln shares per day.  Technically there are a couple of other 
important points.  Up until today the $70 area has provided good 
support for CNXT and it has also closed under its 10 and 30-dma
at $75.64 and $76.53 respectively.  The next area of support for 
CNXT is in the $63 area and the chart doesn't look good.  One 
thing to keep in mind in considering a new put play in CNXT is 
they are scheduled to release earnings October 20th.  They did
beat their earnings estimates last quarter by about 42%.  
Analysts are looking for $0.29 this quarter.  The stock could 
turn around from here and make an attempt at an earnings run,
but at this time it doesn't look very likely.  As always assess
your risk profile before entering a new play. 

BUY PUT NOV-75 QXN-WO OI=262 at $11.13 SL=8.75
BUY PUT NOV-70*QXN-WN OI=561 at $ 7.88 SL=6.25

Average Daily Volume = 1.58 mln
Chart = http://quote.yahoo.com/q?s=CNXT&d=3m



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

AMZN - Amazon.com $79.59 -0.34 (-9.66 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!

Tuesday's Write Up

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.

Thursday's Write UP

As other Internets (YHOO, AOL, CMGI) came up for air today 
with some nice gains, AMZN is still under water.  Though it 
found support around $78.50 on two occasions today, the highs 
got lower throughout the day indicating that the trend is 
likely to remain down.  This put play is working out nicely, 
even as C.E Unterberg Towbin began coverage with a Buy rating 
in yesterday's downdraft.  While support remains at $75, today 
was the second day that AMZN has failed to close above its 
10-dma of 81.94, even as its volume has squeaked back up to match 
its ADV.  Until Internet analyst and investors alike get the 
great news (Christmas will again occur in December this year - 
a tongue and cheek comment we credit to briefing.com) and the 
earnings run gets started (scheduled for October 28), AMZN could 
go lower.  However, we need to exercise a bit of caution since we 
noted on Tuesday that this would be a short-term play based on 
sector weakness.  Tomorrow is option expiration day, which tends 
to hold up stock values.  Couple that with a semi-recovering 
Internet sector and we have a road map that could lead us out 
of the jungle rather quickly.  Keep those stops set if AMZN 
decides to join the rest of the sector in the upward movement.

BUY PUT NOV-85 YQN-WQ OI=1400 at $11.00 SL=8.75
BUY PUT NOV-80 YQN-WP OI=1674 at $ 8.00 SL=6.25
BUY PUT NOV-75 YQN-WO OI-1969 at $ 5.38 SL=3.25

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



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

Spread Strategies..

Over the past few weeks, I have received numerous requests for
explanations of the most common spreads (or combination plays)
and the basic strategies/techniques that are used in position
trading. Today we will review the primary spreads and some
definitions that are relevant to this type of option trading.

Spreads - An Overview:

In option markets there are many ways to trade for profit. One
strategy involves speculating on the direction in which the
underlying security will move. If a trader correctly predicts
the market direction and takes the appropriate position he can
expect to make a profit. But even when the market moves in the
predicted direction, owning the correct position (CALL or PUT)
in an option market will not necessarily be profitable. The
reason is, over short periods of time, (while the trader is 
waiting for the option price to move towards the theoretical
value) the position is at risk from a variety of changes in
the market which threaten his potential profit.

The majority of successful option traders engage in some form
of combination, position or spread trading and many investors
use spreads in an attempt to reduce the effects of short-term
volatility that goes with any option position. The techniques
benefit from the law of probability by enabling an investor to
hold option positions over longer periods of time and most of
these methods help maintain profit potential while reducing the
short-term risk. While there is no perfect position for option
traders, most successful investors learn to hedge their risk
in as many ways as possible, minimizing the effects of adverse,
short-term market movements.

Premium Disparities In Option Pricing:

A spread is a technique which involves the buying and selling of
simultaneous but opposing positions in different option series.
An experienced trader knows there is an identifiable relationship
between the different series and when the relationship appears to
be temporarily mispriced, the spread trader will try to buy the
underpriced position and sell the overpriced position. The trader
expects to maximize his profits as the prices of the instruments
return to a linear relationship. Another type of spread involves
the price relationship between different time periods or strike
dates. In its simplest form, it is called a calendar spread. When
this relationship is violated in the marketplace, a potential
opportunity again exists by selling the overpriced contract and
buying the underpriced contract. In its most basic form, position
trading provides investors with methods to benefit from mispriced
options, while at the same time reducing the effects of short-term
changes in market conditions.

Common Spreads:

Bull-Call (or call-debit) Spread: The bull-call spread involves
the purchase of one call and the sale of a higher priced call.
An investor who initiates the bull spread using out-of-the-money
calls for each leg of the spread is extremely aggressive. The
more conservative investor will establish the spread with the
lower call in-the-money and the higher call at-the-money, where
the greatest amount of (sold) time premium exists. An investor
can use this strategy when the outlook for the underlying issue
is bullish but a reasonable amount of downside protection is
required. In the newsletter, we prefer deep-in-the-money plays
for maximum downside protection while still retaining a small
but favorable profit potential. The most successful bull-call
plays this month were Newmont Mining (NEM), Barrick Gold (ABX)
and 3Com Corporation (COMS).

Bull-Put (put-credit) Spread: The bull-put spread consists of
the purchase of one put, and the sale of another put with a
higher strike price. An investor would use this strategy when
he believes that the stock price will remain above the strike
price sold at the end of the strike period. The position will
yield a credit and this is the maximum amount of profit the
investor can earn with this strategy. Because the spread is a
"credit" spread, a broker will require the investor to provide
collateral for the transaction. We generally favor short-term,
out-of-the-money positions for low risk, conservative returns.
Recently, we offered successful bull-put plays with American
Express (AXP), Philips Electronics (PHG) and Micron (MU).

Bear-Call (call-credit) Spread: The bear-call spread involves
the purchase of one call (higher strike) and the sale of a
lower strike price call. This spread also produces a credit
and the amount is the maximum profit gained in the play. The
spread remains profitable if the underlying security closes
below the lower strike price and the objective is for both
options to expire worthless. This position requires the same
collateral as the bull-put spread. Some examples of this type
of play are the recent bearish spreads in Yahoo! (YHOO), PMC
Sierra (PMCS) and Sapient (SAPE).

Bear-Put (put-debit) Spread: The bear-put spread involves the
sale of one put with a lower strike price and the purchase of
another put with a higher strike price. The sale of the lower
strike put reduces the amount of the initial debit but also
limits the maximum profit potential of long position. This is
a viable option trading strategy for investors who are bearish
on a particular equity. In the aggressive bear-put spread, an
out-of-the-money put is sold because the investor believes the
stock price is going down significantly. Our favored technique
involves the use of in-the-money options for both positions.
This month's best (bear-put) spread was the Sealed Air (SEE)
position, a $1.50 profit on $3.50 invested.

Calendar (Time) Spread: This spread can be created by selling
an option at a specific strike price and buying a longer term
option with the same strike price. The investor profits most
when the stock price is near the strike price at expiration.
The investor can then close the spread for a small profit by
selling the long position or continue the play by selling a
new (short) option against the current long position. He can
also hold the contract until expiration hoping the value of
the option will increase. The philosophy for using calendar
spreads is that time will erode the value of the short term
option at a faster rate than it will the long term option.
This type of spread play is one of the most conservative and
profitable positions available to novice traders and we offer
many candidates for this strategy each month. The most recent
calendar spread winners were Viatel (VYTL) and Legato (LGTO).

There are many other types of spreads and position trading
strategies but they require a much more extensive explanation.
We will try to cover some of these complex positions on an
individual basis at a later time.

Good Luck!



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

DISCLAIMER

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

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

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