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Daily Newsletter, Tuesday, 10/26/1999

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The Option Investor Newsletter         Tuesday  10-26-99  
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)
************************************************************
        10-26-99           High     Low    Volume Advances Decline
DOW    10302.10 - 47.80 10408.20 10300.90   878,370k 1,159  1,874
Nasdaq  2811.47 -  4.48  2859.92  2811.20 1,060,420k 1,896  2,057
S&P-100  678.67 -  3.71   689.28   678.51    Totals  3,055  3,931
S&P-500 1281.91 - 11.72  1303.44  1281.86            43.7%  56.3%
$RUT     415.79 -  1.97   420.22   415.70
$TRAN   2829.20 - 41.39  2879.70  2826.96
VIX       25.06 +  0.64    25.55    23.40
Put/Call Ratio      .54
*************************************************************

Big Changes in the Dow

Tradition gave way a little today as the Dow Jones Company added 
two NASDAQ stocks to the Dow Jones Industrial Average.  While many 
believe that the move to put Microsoft and Intel on the Dow is long 
overdue, the Granddaddy of market indices does not make changes 
often and when changes are made the new stocks typically come from 
the NYSE, where most big and well-established companies usually 
elect to list. The NYSE is probably at least a little disappointed 
by the change because this new development makes it even less 
likely that Microsoft and Intel will make the move to the Big Board 
and assume the M and I trading symbols that had been reserved for 
them. 

The big changes did not just include the two tech bellwethers.  
Four stocks were dropped from the Dow, including Sears, who has 
been on the index since 1924. Goodyear Tire, Chevron, and Union 
Carbide are the other blue chips being dropped for younger but 
bigger companies. Union Carbide is being swallowed by Dow Chemical 
and needed to be replaced anyway. Chevron was a natural choice to 
be let go also, since Exxon is also in the Dow and with only 30 
stocks, it probably is not necessary to have two large oil 
companies. Sears and Goodyear are doubtless disappointed about the 
decision, but not even they could assert that chain store retailing 
and tire making deserve more representation on the index than 
computer software and hardware.  Technology stocks now make up 
almost 25% of the Dow, which is probably a better representation 
of where the economy is headed in this "Information Economy."


 

Notice in the graph above how three of the four losers have 
significantly underperformed the S&P 500.  UK has done better
than the SPX only because of a buyout by DOW chemical.  In the
chart below, you can see that the new additions to the Dow 30 
have drastically outperformed the SPX with the exception of SBC.


 

There are still a lot of questions about what effect the changes 
will have on the Dow. Some believe it will make the index more 
volatile, and some critics say that it is just a move by the Dow 
to boost the performance of the index, which has lagged versus the 
NASDAQ, kind of like a fund manager arranges the fund's portfolio 
to try to improve performance. Others believe that the change will 
make Microsoft and Intel even bigger due to the popularity of 
indexing. These are all questions that will be answered over time 
but it is unlikely to create any real problems. Both Microsoft and 
Intel have steady earnings and are very well positioned.  At this 
point of their existence, none of the new Dow stocks are much more 
volatile than other Dow stocks, and they help to make the index 
more interesting. 

Home Depot and the Baby Bell SBC Communications were also added to 
the Dow, but were overshadowed by Microsoft and Intel. Home Depot 
is one of the great "American Dream" business stories of the past 
decade. It started trading in October 1988 at a split-adjusted 
price of about $1.25. Now it is over 70 and there are Home Depots 
everywhere. 

The big announcement gave the market, particularly technology 
stocks, a big boost in the morning. The NASDAQ shot up about 44 
points at one point, but like the other indexes, it had difficulty 
holding onto those gains. With the exception of a few days last 
week, today's action has been a recurring theme in the market. 
Stocks try to rally, but it met by selling because of interest 
rate fears, the weak dollar, comments by some economist or analyst, 
or some other worrisome factor. The markets are simply weak and it 
will take some strong catalyst, either a sharp sell-off followed 
by a rebound, or a quick drop in bond yields, or some other 
unforeseen event to get the market back to new highs.

The Dow was understandably weak today, due to the beating the 
stocks being expelled took. Since the changes to the Dow do not 
take effect until November 1, Goodyear, Sears, and Chevron will not 
be on anyone's must buy list until then. Goodyear suffered the most, 
dropping 8.6%, while Sears fell 6.3%, and Chevron fell 2.2%. Those 
losses along with a 4.8% decline for Wal-Mart made it very difficult 
for the Dow to generate any upward momentum. Union Carbide was not 
hurt very badly since their merger deal made their drop from the 
Dow inevitable. The Dow finished down 47.80, or .46%, at 10,302.13, 
which is more than 100 points off of the day's high. 

NASDAQ stocks gave back their early gains and finished lower on the 
day. After the initial boost from Microsoft and Intel, the NASDAQ 
spent the rest of the day slipping, closing near the low at 
2,811.47, down 4.48, or .17%, after trading as high as 2859. Just 
as a note, it is usually a bearish sign to gap higher and finish 
at the low for the day. Microsoft and Intel gave back their early 
gains and finished near their lows. Microsoft closed down .07 and 
Intel was up .18. The S&P 500 also lost ground today, finishing at 
1,281.91, down 11.72, or .91%.

Market internals were again weak, although volume was higher than 
yesterday. Declining stocks outdid improving stocks 18 to 11 on 
the NYSE and 16 to 15 on the NASDAQ. Volume on the NYSE came in at 
862 million and over a billion traded on the NASDAQ, with over 5% 
of the NASDAQ's volume coming from Microsoft and Intel. The volume 
today was about 10% higher than yesterday.

In other big news, former Treasury Secretary Robert Rubin decided 
to join Citigroup as a kind of third chief executive. Rubin vows 
he will never be CEO, but the current dual CEO situation makes 
Citigroup one of the most unusual executive situations around. It 
would be more entertaining if Microsoft and Oracle merged and Bill 
Gates and Larry Ellison became co-CEOs. Now that would be a lot 
of fun. But let's get back to Citigroup. Rubin will have no real 
responsibilities but will undoubtedly generate deals for Citigroup 
since Rubin has very important contacts all over the world. Shares 
jumped in anticipation of the announcement, trading over 50, but 
finished the day at $48.61, up .75.

Aside from the volatile precious metals sector, the retailing 
sector weighed most heavily on the market. With Sears being booted 
off the Dow a lower than expected Consumer Confidence and retail 
sales figures, most retailing stocks had a rough day. The CBOE 
Retailing index fell 4% today. It was the same story with oil stocks 
and the reaction to the snub of Chevron. The Oil index fell 1.9% 
today. Drug stocks also suffered with the AMEX Pharmaceutical index 
falling 2.4% and the Biotech index losing 1.8%.

Technology stocks held up better than most stocks today, but 
finished well of their highs. The PHLX Boxmaker index rose .48% 
and the CBOE Software index rose 1.1%. Internet and Semiconductor 
stocks were not as fortunate, with TheStreet.com Internet index 
dropping 1.2% and the PHLX Semiconductor index shedding .54%. 

On the earnings front Lucent Technologies announced earnings today, 
beating estimates by a penny and a 23% increase in revenues. They 
also announced they would split the company into four divisions in 
an effort to focus on the high-growth areas of optical networking, 
wireless communications, semiconductors and e-business. The stock 
was rewarded with a 5% rise in price. After the closing bell Compaq, 
Nortel Networks, eBay, and Anheuser Busche all announced earnings. 
Compaq beat their estimate by 2 cents, but their estimate had been 

revised downward several times. Nortel beat estimates as did eBay, 
but both were down in after-hours trading. As this report was being 
written, eBay was down over $10, which does not bode well for the 
Internet sector tomorrow.  

In spite of a slipping Consumer Confidence Index, bonds slipped 
again, due in part to some somewhat hawkish comments by a few Fed 
governors. The 30-year Treasury bond dropped 13/32, which pushed 
the yield up to 6.39%  Traders are still pessimistic about the 
outlook for bonds and nervous about Thursday's economic data. 
Without some interest rate relief it is hard to imagine a strong 
rally for stocks in the near future. 

The weak close at or near the low for the day makes it likely that 
the market will at least open a little lower tomorrow. Most traders 
will probably be reticent to take substantial positions ahead of 
Thursday's data, so most of us are expecting a lackluster trading 
day. According to First Call's estimates, third quarter earnings 
to date have exceeded analysts' expectations by 3.2%. There are 
still quite a few earning announcements over the next few weeks, 
but certainly we can't be disappointed with the results. The problem 
is expectation, which is what drives markets. Most analysts expected 
spectacular earnings, and simply meeting expectations does not 
usually generate a round of back patting and rewards. It says 
something about the weakness and temerity of the market when 
earnings can be over 20% higher than a year ago and it is not 
enough to lift the market. The Dow remains 5% lower than it was a 
month ago. 

Be careful going into Thursday. The indices might be in a trading 
range but individual issues are even worse off. Recent rallies have 
been narrow and declines have been broad. This is truly a stock-
picker's market and its better to stay on the sideline or cut a 
loss short than to get into a position that within a week or two 
forces you to decide to either take a loss or hold a position 
indefinitely (if you are trading stocks) and to expire worthless 
if you are trading options.  As today demonstrated, times are a - 
changin' and unless there are working crystal balls around, there 
are plenty of uncertainties. 

Good luck and happy trading

Chad Poulson
Research Analyst 



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

Tech IPOs Garner "Red Hot" Status

By Cindy Christ

While the media focused today on new names added to the Dow, IPO 
investors had their sights trained on Akamai Technologies, a 
sizzling IPO set to debut Friday on the Nasdaq.

Analysts expect brisk demand for shares in the Cambridge, Mass.
based company whose proprietary technology speeds up web content 
delivery and prevents site crashes caused by demand overloads. 

http://www.OptionInvestor.com/stocknews/102699_1.asp

****

Broadband is the Future of Internet Connectivity

By S.P. Brown

Competition and new technologies are quickly changing the Internet 
access landscape.  The current buzzword among Internet Service 
Providers (ISPs) is broadband.

http://www.OptionInvestor.com/stocknews/102699_2.asp



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

As of Market Close - Tuesday, October 26, 1999 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************
DOW Industrials   10,750  11,320  10,302    BEARISH   9.23
SPX S&P 500        1,350   1,420   1,282    BEARISH   9.16
OEX S&P 100          690     725     679    BEARISH  10.15
RUT Russell 2000     440     465     416    BEARISH   9.14
NDX NASD 100       2,320   2,500   2,466    Neutral  10.19
MSH High Tech      1,120   1,250   1,221    Neutral  10.19

XCI Hardware         950   1,050   1,006    Neutral  10.15
CWX Software         750     800     895    BULLISH   9.03
SOX Semiconductor    450     525     504    Neutral  10.19
NWX Networking       525     615     608    Neutral  10.19
INX Internet         450     525     491    Neutral  10.15

BIX Banking          660     690     609    BEARISH   7.23
XBD Brokerage        410     440     377    BEARISH   7.23
IUX Insurance        645     660     543    BEARISH   7.23

RLX Retail           915     960     837    BEARISH   7.23
DRG Drug             365     390     375    Neutral  10.19
HCX Healthcare       720     785     734    Neutral  10.19
XAL Airline          180     190     141    BEARISH   5.21
OIX Oil & Gas        280     315     289    Neutral  10.21


Posture Alert    

Apart from the Dow going digital, Tuesday's trading activity was 
very blasÚ. Sector leaders were limited, and include Software and 
Networking, which posted marginal gains; while downside leaders 
posted substantial one-day drops. Those included Retail (-4.02%), 
Healthcare & Drugs (-2.77% & - 2.38%, which have acted more like 
the internet sector these last several weeks), and Insurance 
(-2.34%). There are no current changes in posture.


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

/members/marketposture



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

Tuesday, October 26, 1999

Pledge Initiation!

So Intel and Microsoft will be added to the Dow Industrials, and 
joining with other technology bellwethers Hewlett-Packard and IBM. 
They will become the first two Nasdaq stocks in history to have 
this honor. Well, the first day of being a pledge wasn't so hot. 
After gapping up $3 at the open, Intel closed up ONLY +3/16 and 
Microsoft actually closed down -1/16! The third Dow pledge, Home 
Depot, didn't fare any better, closing down -1 ╝, four dollars off 
the highs. The only new pledge to hold was SBC, which has been 
beaten up so badly these last two months that today's positive 
close doesn't mean much. You might be asking, with such good news, 
shouldn't the market have closed on better terms? Actually, the 
better question you should be asking yourself is; where would the 
market have closed if this news didn't come out today? 


 

Anyway, the market looks poised for more potential downside 
pressure in the near term. If you take a look at the chart of the 
OEX, we have highlighted the 690 mark. This level has served as a 
key benchmark for the last 6 months. As you can see, each time it 
has broken this mark to the downside, or failed to break this 
level to the upside, we have been witnesses to significant selling 
pressure within the next couple of days thereafter. Another reason 
for the resistance at 690 is the high levels of call activity. 
Currently, option traders have the highest levels of optimism 
(as measured by open interest) for November series at the 690 
level. This in itself, with its short-term bullish implications, 
serves as minor resistance. Now we are not stating that we expect 
any major drops in the market, but we do look for a continuation 
in the trading range that we all have been experiencing these 
last several months. 

With major earnings season coming to a near-end and the yield on 
the bond breaking new highs, Wall Street will now solely focus on 
the Fed. However, Thursday does bring out a trump card with the 
Gross Domestic Product and Employment Cost Index. Should these 
economic indicators come out favorable and the Treasury finally 
rallies, then 690 for the OEX will be in our rearview mirror and 
hell-week for the pledges won't be so bad after all.

    
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 at a key moment, stuck right at the 25 benchmark. The 
VIX continues to prove that 32-33 is a great buying opportunity, 
and also shows that the low 20's have been a good exit point. 


BEARISH Signs:

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 back to highs.

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.

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

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

 
OTM Call Analysis

As we move closer to the November 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.


November Expiration Cycle
OEX OTM Call Analysis (Open Interest November 680-780)
Date                 Open Interest     Change %    Alert

Friday, October 15        39,072          -
Friday, October 22        61,250       +56.8%


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                       (10/22)     (10/26)

Overhead Resistance (685-700)     2.32       2.12

OEX Close                       685.63     678.67

Underlying Support  (660-680)     1.28       1.52
Underlying Support  (630-650)    12.66      11.60
                     
Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Based on 10/26, both overhead resistance and underlying support 
are light, which means we can easily rally 15 points just as 
easily as fall 15 points. However, should the market drop, we show 
great support at OEX 630-650. 


Put/Call Ratio                  Friday     Tues
Strike/Contracts                (10/22)    (10/26)

CBOE Total P/C Ratio             .69        .68
CBOE Equity P/C Ratio            .46        .46
OEX P/C Ratio                   1.67       1.18


Peak Open Interest (OEX)  Friday           Tues
Strike/Contracts          (10/22)          (10/26)

Puts                     640 / 11,789     670 / 11,184
Calls                    690 /  7,562     690 /  7,231
Put/Call Ratio             1.56             1.55


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 15, 1999    Bottom?             32.06

October 26, 1999                        25.06 


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

Oct. 20, 1999                             41.0        38.5



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

Daily Results

Index     Last     Mon   Tue    Week
Dow    10302.13 -120.32-47.80 -168.12
Nasdaq  2811.47   -0.57 -4.48   -5.05
$OEX     678.67   -3.25 -3.71   -6.96
$SPX    1281.91   -8.02-11.72  -19.74
$RUT     415.79   -0.93 -1.97   -2.90
$TRAN   2829.20    7.44-41.39  -33.95
$VIX      25.06    1.53  0.64    2.17

Calls              Mon   Tue    Week

KIDE      78.88    8.88 10.00   18.88 A fantastic playmate!
MACR      57.16    5.31 -1.03    4.28 Dropped, end on a positive
GMST      86.06    3.13  1.06    4.19 I see caution in the stars
CMVT     108.56   -0.75  4.50    3.75 Has all its ducks in a row
EMLX     142.00    7.38 -4.63    2.75 Big jumps; little rests
AMZN      81.25    4.13 -1.50    2.63 Dropped, earnings Wed.
SYMC      44.00   -1.56  2.25    0.69 New, now bigger than NETA
PCS       78.69   -0.75  0.56   -0.19 PCS adds GetThere.com
DELL      39.56   -0.69  0.38   -0.31 Upcoming earnings 11/11
TFSM      43.13   -1.44 -0.88   -2.31 Dropped, rolling over
WMT       53.25   -1.13 -2.69   -3.81 Don't discount Wal-Mart!
SEBL      92.56   -2.50 -1.44   -3.94 SEBL simmers for flavor
VRTS      89.81   -0.25 -4.13   -4.38 A little two-stepping
AMGN      75.94   -1.19 -4.00   -5.19 Stopped out early
QCOM     207.75   -4.63 -3.38   -8.00 Entry points for earnings

Puts

BBY       52.19   -1.63 -5.50   -7.13 Don't let the name fool you
GT        41.25   -1.50 -3.94   -5.44 New, kicked out of the Dow
JPM      121.38   -5.44  1.19   -4.25 Weakness ahead of new data
LTD       38.06   -1.44 -1.69   -3.13 New, retail sales fears
LTR       67.19    0.00 -1.69   -1.69 Tobacco jury news pending
CI        64.13   -0.50 -0.63   -1.13 Selling pressure dominates
ALD       52.38    1.19 -2.06   -0.88 New, breaking down again
PBI       46.00    1.00 -1.50   -0.50 Slowly but surely
BAC       58.31   -0.50  0.06   -0.44 Financials are weak
CMGI     103.56    4.13 -3.69    0.44 Ebay tanking after-hours 
EFII      40.00    4.00 -1.13    2.88 Dropped, flattened out
EXDS      77.13    3.38  0.06    3.44 Watch for profit taking




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


The Option Investor Newsletter         Tuesday  10-26-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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:
*****

AMGN $75.94 -4.00 (-5.19) As the song goes "you gotta know when
to hold them, and know when to fold them".  Well were are going 
to fold on this one.  We hope you stayed away from the first hour
of trading Monday.  If so AMGN never gave us a chance to enter.
After opening higher and hitting $82.56 in the first twenty
minutes of trading AMGN turned south and it has been all down
hill since.  AMGN stubbed its toe yesterday losing $1.19 and 
then fell out of bed today losing $4.00 to close at $75.94.
The last two days really put a crimp in our split run.  AMGN
splits 2:1, November 5th.  Could it turn around from here?
Possibly.  But with the decline the past two days we feel the 
risk isn't worth the potential rewards.  The stops got put 
to work early in this play and for now we will lick our wounds 
and look elsewhere for opportunities.  Bottom line is, we 
missed on this one.

TFSM $43.13 -0.13 (-2.31) We mentioned Sunday we would like to
have seen a little better follow-through on Friday from last
Thursday's strong move up.  Now you know why.  The past 2 days
shares of TFSM have struggled, losing ground this week.  This 
doesn't necessarily mean that TFSM couldn't continue higher,
but at this point the chart is starting to look weak.  The rumors
concerning a merger between TFSM have died off somewhat.  With
a speculative play like TFSM rumors are fine, but the market
needs to see some kind of conformation or the price of the stock
will die as well.  Our other interest in TFSM was for a potential
earnings run.  TFSM releases earnings November 9th, after the 
close.  It certainly isn't too late for an earnings run, and 
a run in fact may develop.  However for now we will stand aside 
and keep our eye on the advertising company as the recent 
weakness doesn't bode well for the price of the stock.

MACR $57.16 -1.03 (+4.28) It's the moment we have all been 
waiting for.  We finally broke the chains that held our play.  
Monday's trading session provided MACR with a spark that shot 
the stock almost 14 percent higher.  Investors were doing some 
last minute shopping before tomorrow's earnings announcement, 
providing us with some nice gains.  Hopefully investors were 
able to run with their profits before today's profit-taking 
went into affect.  Due to selling which usually follows suit 
with most earnings announcements, we recommend closing your 
positions.  For this reason, we too are ending this play and 
concentrating our efforts elsewhere.  Unfortunately, it has 
come to an end, but at least we ended on a good note.     

AMZN $81.25 -1.50 (+2.63) Despite a rising bond rate, this 
rate sensitive issue has been swimming upstream on its way to 
earnings, scheduled for release tomorrow after the close.  For 
those with nimble trading styles, we had an opportunity to 
catch an almost $6 move since switching from puts to calls 
last Thursday.  Even so, we never recommend holding a position 
over earnings, lest piranhas eat us after the fact.  For that 
reason, we're sending AMZN down the river tonight.


PUTS:
*****

EFII $40.00 -$1.13 (+2.88)  It looks as though EFII may finally 
be coming up for air as it has gained nearly $3 so far this week.
Though EFII was down today, late day trading flattened out a bit.  
EFII made a solid bounce at $39.25 and this could very well be an
indication of a possible end to the selling.  EFII closed on it's 
way up and we expect the positive momentum to continue into 
tomorrow.  Therefore it is time to end the play on EFII and move 
on to more profitable put plays.



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

CMVT $108.56 +4.50 (+3.75) So long S&P 400 Midcap and hello 
S&P 500!  As you no doubt heard, there were lots of changes 
in the indices this morning and CMVT is one stock reaping the 
benefits.  They were announced this morning as the company to 
replace Asarco who is being acquired by Phelps Dodge.  Even 
better, the change occurs after the close of business today, 
which means the fund managers will have to start buying right 
away.  That means we have another catalyst to drive this stock 
higher.  In total we are looking at an earnings run, a S&P 500 
addition and, dare I say, a stock split with earnings on 
Nov 30th (we will have to wait and see).  Talk about having 
all of your ducks in a row.  The volatility in the afternoon 
on Tuesday will be common as fund managers began to take a 
position and other investors take profits from a great one week 
run of $15.  Therefore, plan your entry points.  We see support 
at $106 and resistance at $112.50, which was hit today and is 
a 52-week high.

PCS $78.69 +0.56 (-0.19) We noted on Sunday that this play was 
based on technicals, with a good story to back it up.  Too bad 
the market hasn't cooperated.  Even so, the story just got better 
today as PCS added GetThere.com (travel site) to its budding 
collection of services available over Sprint's Wireless Web.  
Technically, MACD is still looking good, while the other 
indicators are struggling to play catch-up...pretty tough to do 
when the NASDAQ and DJIA have been down so far this week.  The 
good news is that PC has held support well at $78, despite volume 
falling to the floor (only one-third of its 1.7 mln share ADV 
traded today).  Apparently, investors are comfortable holding 
at this level and in no mood to panic out, despite a currently 
less stable market.  Overhead resistance is $79, its all-time 
high; the first support level is $78; next is $75.  We are more 
inclined to use $78 as a downside exit and $75 as the target 
if target shooting your entry.  Of course, confirm the bounce 
before making an entry.

QCOM $207.75 -3.38 (-8.00) Mild profit-taking continued this 
week and it isn't surprising since QCOM just hit its latest 52-
week high ($225.75) on Friday.  The downdraft offered a variety 
of entry points into this earnings play for those willing to bet 
on another surge in the upcoming days.  QCOM is still positioned 
well above its near-term support at $190 and $200 however, QCOM 
is now in close proximity to its 10-dma ($205.27).  Remember 
this play is over in five days.  Qualcomm will report its 
earnings next Tuesday, Nov 2nd after the bell and OIN never 
recommends holding over an announcement.  

SEBL $92.56 -1.44 (-3.94) The fire burning under SEBL set 
off by its powerful earnings' report and 2:1 stock split 
announcement last Tuesday is on simmer.  After hitting a new 
52-week high ($99.50) on Friday - for the 3rd consecutive day! - 
SEBL is experiencing some consolidation.  We alerted our readers 
that after the impressive gains last week the stock would likely 
pullback and effectively offer entry points into this split 
play.  Importantly, the two-day depression didn't push SEBL 
below its 10-dma (now at $89.16) or its firm support at $85 
which are good indications that SEBL has strength at these 
higher price levels.  The stock will split 2:1 on Nov 12th, 
after the bell.  In the news, Siebel announced its will use 
configuration technology created by ILOG.  The technology will 
provide existing software with increased intelligence, speed, 
and flexibility.

DELL $39.56 +0.38 (+0.31) Our technical play is still flat-
lining.  Since Monday, the trading range was tight between 
$39 and $40.63 on moderate volume.  And yes, we're still 
anticipating a rebound as earnings approach in the upcoming 
weeks.  Dell is expected to report on November 11th.  Yesterday 
Warburg Dillon Read reported that DELL could "post significant 
upside surprise in revenue growth" referring to preliminary 
September PC shipment data.  This is a great discovery after 
Dell reported a possible earnings shortfall last week resulting 
from a 25% rise in chip prices.  But the big news this week is 
that for the first time in history Dell surpassed rival Compaq 
computers (CPQ) as the leading PC maker in the US!  For the 3Q 
Dell claimed 17.1% of the PC market while CPQ slipped to 15.3%.  
Analysts note that CPQ does have the edge in the 4Q due to 
retail exposure however, this holiday season will be a tell-all 
as more consumers shop online.  In the industry, Micron (MU) 
and Compaq Computers have entered into a five-year, $20 bln 
supply deal.

KIDE $78.88 +10.00 (+18.88) Mo-mentum, mo-mentum, mo-mentum.  
What a fantastic start to a week!  KIDE has gained $18.88 in 
the last two days of trading and closed close to its high of 
the day, again with big volume.  Hopefully everyone is in and 
has taken advantage of this spectacular run because at this 
point, we caution entering any new plays.  With the stock 
making such a big move in the last two days, premiums are just 
too inflated to make a new entry a logical move.  For those 
that are in, be sure to adjust your stop losses to protect 
your profits, as there is bound to be some profit-taking in 
the near future.  So what on earth has KIDE stock moving like 
this?  We believe it is a combination of things.  Pokemon 
prepares to make it's big screen debut (which is licensed 
through 4Kids Entertainment subsidiary, Leisure Concepts Inc.) 
in time for the holiday movie season.  KIDE was also helped 
along by Topps (NASDAQ:TOPP), the creator and seller of 
collectible picture products, who announced expected sales of 
their Pokemon products for the year ending Feb 26th to be 
between $80 and $100M.  And finally, KIDE will be announcing 
earnings on November 15th (confirmed with the company).

GMST $86.06 +1.06 (+4.19) GMST spiked up at the open this 
morning to hit another new 52-week high and then retreated 
a bit to trade in a rather tight range throughout the rest 
of the day.  At this point, a new play is cautioned.  Should 
GMST make a breakthrough of $87, it would be a bullish indicator 
and a good point for the entry of a new play.  If you are 
already in, tighten your stops and prepare to exit the play 
should GMST drop through $85.  One of the probable reasons for 
GMST's rather flat day was the pending earnings announcement 
of TV Guide.  TV Guide, who recently announced plans to merge 
with GMST, reported a loss in third quarter profits after the 
close on Tuesday due to the costs incurred in the merger 
between TV Guide with United Video Group.    

WMT $53.25 -2.69 (-3.81) It looked as though Wal-Mart has 
finally decided to begin the earnings run that we have been 
expecting.  But instead WMT headed down in early trading 
before making a bounce at $51.50.  WMT then began a slow and 
steady move up, hitting higher lows and gaining momentum 
throughout the afternoon.  This may be time to make an entry 
to participate in the run however, it will be important to 
confirm continuing positive momentum before making a new play. 
After the close of the market today, a very optimistic outlook 
for the upcoming holiday sales season was released, specifically
mentioning WMT.  It noted that general retail sales are expected 
to rise 5-6.5% from last year, citing continuing economic 
strength and spend-happy consumers as the driving force behind 
the expected numbers.  On Sunday, an article was released 
pertaining to WMT's European presence.  It was stated that 
Wal-Mart's arrival is sure to incite major food retail pressure 
and a retail market "shakeout" due to the increased competitive 
retail conditions. 

VRTS $89.81 -4.13 (-4.38) It takes one step back to take two 
steps forward.  Veritas was off to a great start but has taken 
a breather before continuing.  When we picked this one on 10/21 
it had just broke over resistance and held it for two trading 
days.  Today with the negative sentiment in the over all markets, 
VRTS decided to pull back from its recent highs.  We believe 
that this is a rest for higher ground and VRTS is holding above 
the 10-dma at $88.75.  No negative news to support today's drop 
other than market weakness so any rebound will bring VRTS back 
in a big way as the split approaches.  Remember, VRTS will 
split 3 for 2 on Nov 19th.   

EMLX $142.00 -4.63 (+2.75) Emulex has a chart that looks like 
a stair case.  Big jumps with little rests.  The 10-dma ($133) 
has been the guide for this winner as it hasn't broken this 
level in the month of October.  Monday EMLX continued it's 
climb back to last week's high by putting on another +$7.38.  
Today EMLX opened up and was looking good for more profits 
but decided to take a breather with the rest of the market 
and closed down $4.63.  The volume was average indicating a 
little profit-taking from Monday's gains.  If there is continued 
weakness, we might see EMLX test the lows from Friday (around 
$136) before charging ahead into their shareholder vote on 
Nov 18th.  Stand ready to pick up a great entry price as EMLX 
will resume its climb on any market strength.


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

CI $64.13 -0.63 (-1.13) There is still no relief for CI from 
the down trend that has plagued the company in the short-term.  
So we are keeping the play and searching for new entry points.  
We've seen strong resistance at $66 and selling pressure that 
dominates the daily trading.  CI hasn't had any fresh news 
to trade on lately and the volume has been retreating which 
signals that CI is likely to drift lower.  Our original strategy 
remains in place which is to buy puts on the intraday bounce.  
You may need to pay attention though because the bounces are 
short-lived.  If CI can confirm the break below $64 that it 
began this afternoon, we should get a good move to the downside.  
Next support would be at $60. 

EXDS $77.13 +0.06 (+3.44) It was a mixed day on the markets 
as the bears finally took charge to the end of the day.  With 
interest rate fears still within the market, investors are 
hesitant to buy before Thursday's release of more economic 
data.  GDP and Employment Cost Index figures will be released 
before market open, which will be the determining factor for 
investors sentiment.  Like most traders, EXDS investors have 
remained cautious today, closing the stock fractionally higher. 
Despite the slight run in the stock on Monday, we feel that 
it's now in stall mode.  If the markets turn to the downside, 
expect EXDS to follow as investors begin taking profits from 
the recent run in the stock.  The nearest support level for 
EXDS is $72, the stocks 10-dma.  When the momentum turns south, 
watch for a pullback to this level.  Investors looking to place 
new trades should look for slight spikes in the stock, which 
will be available considering the volatile market conditions.  
The nearest resistance point is $80, which would be a good entry 
point.  Maybe Ebay's after hour sell-off is what we need to get 
the ball rolling, let's see.  In the news, EXDS announced it 
was going to team with United Messaging.  Ellen Hancock, 
president and CEO of Exodus said that United Messaging's 
expertise in the messaging area complements EXDS's in-depth 
knowledge of network infrastructure technologies. 

PBI $46.00 -1.50 (-0.50) Pitney Bowes continued to trade at
new yearly lows so far this week, dipping down today as low
as $45.38 before settling in to close at $46.00.  As we 
suspected there was an oversold bounce in the stock, that 
had the shares trading as high as $48.63, before the 
downtrend continued the course.  As noted in Sunday's report, 
the current target resistance level was at $49.00, which has 
not been violated thus far.  Going forward, in current market 
conditions, and with a number of economic reports to be 
announced this week that are forecasted to be negative, we 
expect the selling pressure to remain in place in the shares 
of PBI.  The question of performance going forward for the 
company still looms over there head, and analyst seem weary 
about taking big positions in the company going forward.  
Confirm the downtrend followed by good volume before taking 
any new positions, seeing that value investors could step to 
the plate. 

BAC $58.31 +0.06 (-0.44) The price surges in BAC thus far have 
ceased this week, although the Moneystream and Volume remain 
strong, they are beginning to turn over to the downside.  As 
the overall market remains mixed, the majority of stocks gave
back any gains that have been made this week.  The key negative
market issues still remain in place:  rising interest rates, 
corporate earnings, and the millennium Y2K bug.  With these 
factors heavy on the mind of most Wall street traders, and the 
bond market continuing to trade down, pushing the yield on the 
30 year treasury to 6.40%.  This does not add up well for most 
stocks, and especially for U.S. Financials and Money Center 
banks like BAC.  Ahead of the economic data to be announced on 
Thursday, BAC should continue to drift, and if the report 
comes in as expected the knife will fall hard and fast - watch 
your hands.  The shares still remain in a ripe position for 
trading with the resistance still in place at $59.50, and 
support down at the $55.63 level.  Continue to look for the 
downtrend confirmation, you might have to wait for the tug 
of war between buyers and sellers to cease. 
  
LTR $67.19 -1.69 (-1.69) The carnage in the Tobacco stocks 
returned as suspected this week ahead of the Nov. 1st jury 
decision on the class action suit against the industry that 
could lead to an estimate of $300 billion in punitive damages.  
In current market conditions, with the current state of the 
economy in question, there are not many short-term momentum 
investors rushing into Tobacco stocks like LTR.  Some value 
investors have stepped to the plate in the last few days, 
but with the uncertainty in the overall market and probable 
negative news for the industry next week, we believe that LTR 
should remain under pressure.  The downtrend should remain in 
place below the $71 level.  We are currently trading below 
a good entry point at $68.88, which was the high for the day.  
The downtrend has and should continue to reassert itself.
Look for lower-lows going forward.

CMGI $103.56 -3.69 (+0.44) The shares of CMGI remain volatile.
Yesterday saw the shares trading up heavily on the back of 
the news that AltaVista(company owned by CMGI)will spend $120
million in advertising through July.  Today with the overall
stock market still worried about rising interest rates and 
other market issues that seem to have paralyzed stocks over
this current short term, CMGI remained under pressure.   After
some early market momentum in the Bellweather Internet stocks, 
it gave back all of the gains from yesterday and today after 
profit takers stepped back into the market in a significant 
manner.  Although the volume in the shares were trading lower 
than average with the shares closing the day just above the 
lows at $103.56.  Ahead of the Economic Data to be announced 
on Thursday, the shares of CMGI should remain volatile with a 
bias to the downside.  There still has not been enough volume 
to go along with the intra-day price increases to sustain an 
upward trend in the shares of CMGI thus far.  We remain bearish 
going forward, but cautious because positive news has been 
interrupting the downtrend almost daily.  If you enter into a 
new position at this point, keep this one on your radar screen, 
it should be watched closely for intraday swings in momentum.  
Keep the stops tight.  Today's low $103.50 should be taken out
to the downside as trading resumes tomorrow.

JPM $121.375 +1.19 (-4.25) The clock is ticking and the primer 
is set!  With the up coming GDP report on Thursday we could 
see the bomb go off.  The Bond yield has been holding the line 
above 6.3% and even hit 6.4% on Monday.  The first time since 
October 1997!  As the next two economic reports come out (Wed. 
Durable goods, Thurs. Real GDP), the Federal reserve will take 
a hard long look and at the drop of a hat can, and probably will, 
raise rates soon or by at least the next FOMC meeting.  Banks 
are starting to break down and JPM is looking weaker and weaker.  
Monday JPM opened down and closed at its lows.  If you entered 
the trade be patient as our profits will come soon.  Today JPM 
popped up in connection with the news that former U.S. Secretary 
of the Treasury Robert E. Rubin will be joining forces at 
Citigroup in a newly created three-person office of the chairman.  
Even with this news, JPM did not hold onto its highs since it 
was only a confirmation of a rumor, so no big surprise.  JPM 
hit the top at its 50-dma at $122.50 and is beginning to pull 
back.  If you waited until today to enter then you got a better 
price but still the profits will come.  If the reports are bad 
then JPM looks ready to test support at $115.  If the reports 
are not bad be ready to exit if JPM rallies above their 50-dma.



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

SYMC - Symantec Corp $44.00 +2.25 (+0.69)

Symantec is one of the two leading providers of utility software 
for the security market.  Its fierce competitor is Network 
Associates and the two companies are continually striving to 
be in the #1 position.  Symtanec's software is designed for 
business and personal computing with three distinct business 
segments: security and assistance, remote productivity 
solutions, and Internet tools.  The distributor company, Ingram 
Micro, accounts for 33% of its sales revenue.

Vying for the leading position in its industry has finally paid 
off.  Just recently their market cap surpassed that of rival 
Network Associates.  Symantec weighs in at 2.46B against 
Network's 2.40B.  This is the first time that SYMC has passed 
NETA and it is a direct result of the success the company has 
encountered.  With the Internet revolution in full swing, SYMC 
is reaping the benefits.  They unveiled their Q2 results of 
fiscal 2000 on October 20th.  They beat estimates of $0.42 cents 
by reporting a $0.45 per share profit, a $0.03 cent upside 
surprise!  This is significant for a company that typically only 
beats estimates by a penny.  The reason for the increasing 
earnings is demand for new products and strong international 
sales.  Some of their newly added customers during the quarter 
included Chevron, PeopleSoft, Siemens, and Dayton Hudson.  
International sales increased by 65% and accounted for 41% of 
total revenue.  Revenue grew the most in the Asia and Japan 
regions at 92% and 63% respectively.  The continuing recovery in 
these markets should bode well for SYMC in the near-term.  
SYMC's stock has been climbing steadily since the end of 
September despite the rocky October market.  SYMC began this 
most recent move at $33 and is now trading comfortably above 
$40.  That is a 25% return in a month that has been brutal to 
the broad markets.  We did see the effects of the market 
weakness in mid-October as SYMC was stuck at resistance at $40. 
But the volume lightened up during that period and the stock 
held its ground.  This is definitely a bullish sign.  Plus after 
the strong earnings' report on the 20th, SYMC broke out above 
resistance on stronger volume.  We haven't seen much of a post-
earnings meltdown due to the strength of the earnings numbers.  
We are cautious of the upcoming FOMC meeting where we may get an 
interest rate hike but it may provide the buying points we are 
looking for.  The $40 support level is our target entry point.   

The analysts were also impressed with Symantec.  On Thursday, 
Prudential Securities reiterated a Strong Buy and issued a 12 to 
18-month target price of $55.  AG Edwards upgraded SYMC to a Buy 
from an Accumulate and also set a target price at $55.  Then 
Volpe, Brown Whelan & Co reiterated a Strong Buy rating and 
raised their price target to $60 from $45.  On Monday, the 
company announced a consumer version of its Norton Speed Disk 
5.0 for Windows NT Workstations, a disk optimization tool.

BUY CALL NOV-40*SYQ-KH OI=465 at $5.25 SL=3.50
BUY CALL NOV-45 SYQ-KI OI=292 at $2.38 SL=1.25
BUY CALL DEC-40 SYQ-LH OI= 25 at $6.50 SL=4.75 low OI
BUY CALL DEC-45 SYQ-LI OI- 53 at $3.63 SL=2.00 low OI
BUY CALL JAN-45 SYQ-AI OI=225 at $4.88 SL=3.25

Picked on Oct 26th at   $44.00    P/E = 22
Change since picked      +0.00    52-week high=$44.44
Analyst Ratings      6-0-0-0-0    52-week low =$ 8.69
Last earnings 09/99  est= 0.42    actual= 0.45
Next earnings 01-14  est= 0.49    versus= 0.42
Average daily volume =   885 K 
Chart = http://quote.yahoo.com/q?s=SYMC&d=3m



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




The Option Investor Newsletter         Tuesday  10-26-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

GT - Goodyear Tire and Rubber Co. $41.25 -$3.94 (-2.44)

Goodyear has helped most of us keep our grip at one time or 
another.  After all, they are the world's largest tire maker.  
They also own the Dunlop and Kelly-Springfield brand.  
Headquartered in Akron, Ohio, the company manufacturers 
engineered rubber products and chemicals too in more than 90 
facilities in 30 countries.  It has marketing operations in 
almost every country around the world.  Goodyear, with the 
recent addition of its Dunlop tire joint ventures, employs 
more than 105,000 people worldwide.

OK, so earnings weren't so hot when announced last week.  Though 
they earned two pennies more than analysts expected, $0.51 per 
share fell far short of the $1.17 for the same period last year.  
Expectations were already low, as the technical chart had been 
in a nice descent since early October.  The issue continued down 
uninterrupted after the fact, until finding support and some 
stability yesterday at $44.  Technically, GT is really weak.  So 
what could go wrong?  How 'bout getting dropped from the Dow 
Jones Industrial Average calculation in favor of (gasp!) a NASDAQ 
stock?  That's how it went for GT today, as they dropped below 
support on huge volume.  You might be thinking that it looks like 
a blow-off on the chart and that now's the time to buy it cheap.  
Don't do it.  Every DJIA and "Dogs of the DOW" index fund must 
now begin the process of selling its GT holdings, then buying its 
replacements.  The point is that the selling has only just begun, 
and even favorable interest rate news can't help GT grip the ice 
on this hill.  Forget resistance; you have to go back to 1995 to 
find a lower price.  First support is around $35; next is $32.  
The more bloodthirsty types can try to buy a dead cat bounce at 
the $43 level, but you might not get filled.  We think it's 
buyable here and should continue heading south.  Despite our 
confidence in this play, Murphy still lives.  Be sure to protect 
yourself with trailing stops.

BUY PUT NOV-45*GT-WI OI=841 at $4.50 SL=2.75
BUY PUT NOV-40 GT-WH OI=436 at $1.25 SL=0.00 High Risk!
BUY PUT DEC-40 GT-XH OI=  3 at $2.00 SL=1.00

Average Daily Volume = 767 K
Chart = http://quote.yahoo.com/q?s=GT&d=3m

****

ALD - Allied Signal $52.38 -2.06 (-3.25)

AlliedSignal makes a wide variety of products for industries 
in aerospace, automotive, pharmaceutical, fibers, and plastics. 
Aerospace products by AlliedSignal include airborne weather-
radar systems, wind-shear detection systems, and radar systems 
for avoiding traffic collisions.  Through its performance 
polymers segment, the company produces specialty fibers and 
films such as Spectra, used in body armor. Other segments 
produce aircraft and marine engines, and consumer automotive 
products such as Fram filters, Autolite spark plugs, and 
Prestone antifreeze. 

It's been a down hill battle for our latest put play.  ALD had 
a short-lived run earlier in the month, but the tides have 
turned and it's been nothing but downhill since.  Even a 19% 
increase in earnings this last quarter wasn't enough to help 
this crippled stock.  ALD reported their good earnings back on 
October 14, and investors started to take profits immediately 
after.  Along with the profit-taking are problems associated 
with their upcoming purchase of Honeywell Inc.  Whenever there's 
an acquisition, usually it's the purchasers stock that suffers.   
ALD's purchase of Honeywell is just another case that fits the 
profile.  Within this pending deal, ALD will purchase the company 
for $13.7 billion, which should concern it's current shareholders. 
The transaction also calls for the assumption of $1.5 billion in 
Honeywell debt.  Originally, the purchase was scheduled to be 
completed sometime in October, however, both companies question 
whether it will take place that soon.  Despite when the 
acquisition will take place, we feel this downward momentum in 
the stock will continue in the near-term.  The nearest resistance 
point for the stock is it's 10-dma at $56.  This would be a good 
entry point if the stock spikes to this level.  If momentum 
continues south, go with the flow and buy your positions at the 
current trading price.  The closest support level is $45, which 
should allow us some easy profits.  

BUY PUT NOV-50 ALD-WJ OI=765 at $1.38 SL=0.00 High Risk!
BUY PUT NOV-55*ALD-WK OI=542 at $4.00 SL=2.50

Average Daily Volume =   1.80 mln
Chart = http://quote.yahoo.com/q?s=ALD&d=3m

****

LTD - The Limited $38.06 -1.69 (-2.13 this week)

The Limited is a distributor of men's, women's and children's 
clothing.  LTD owns and operates an approximate 3,700 stores 
across the U.S. under the names The Limited, Express, Lerner 
New York, Lane Bryant, Structure, and Gaylan's Trading Company.   
The Limited also owns 84% of Intimate Brands which operates 
Victoria's Secret and Bath and Body Works.  

LTD shares continued to decline steadily today, as LTD has lost 
over three dollars so far this week.  LTD's chart paints a 
picture perfect downward trend with nothing to show in the way 
of rallies other then a brief resistance rendezvous with its 
10-dma earlier this month.  LTD continues to forcefully break 
through any existing support levels.  The next support is right 
around $35 and with the selling pressure combined with sector 
weakness, LTD should have no problem making a move down to test 
that support in the near future.  The reason for this decline 
seems to be an erosion of consumer confidence and a lackluster 
October sales outlook as economic concerns continue to plague 
the market.  The retail sector in general has been struggling 
to gain a foothold and survive into the upcoming holiday season. 
We will be watching closely for a shift in momentum in case 
traders try to rally this stock ahead of their earnings report 
due out on Nov 19th. 
 
BUY PUT NOV-45*LTD-WI OI=160 at $7.25 SL=5.50
BUY PUT NOV-40 LTD-WH OI=609 at $2.94 SL=1.50

Average Daily Volume =  807 K
Chart = http://quote.yahoo.com/q?s=LTD&d=3m

****

BBY - Best Buy Company  $52.19 -5.50 (-7.13)

The US's #1 consumer electronics specialty retailer, Best Buy
sells home office products, consumer electronics, entertainment 
software and appliances.  Ahead of rivals Circuit City and 
Tandy in sales but not store count, Best Buy has more than 310
stores in about 40 states coast to coast, with heavy 
concentrations in the Midwest, Texas, California, and Florida.

Today it was reported that U.S. consumer confidence fell for
the fourth straight month in October, dragged down by the 
worries over volatile stock market and growing unease about 
America's economic outlook.  Most consumers look for business
conditions to worsen over the next six months and job 
availability to decline, and fewer expect incomes to rise.  
Best Buy, which has profited greatly from consumer's falling
in love with electronic gadgets and surround sound technology,
has trained investors to expect sales and earnings to exceed
analysts estimates.  And investors have rewarded the stock.  
But as electronic goods become commodities and competitors
rush in to offer the lowest possible prices, investors face
the possibility that Best Buy's amplified performance will
be unplugged by slowing sales growth and profit-margin growth.
A Salomon Smith Barney analyst has recently downgraded the 
stock to a Neutral from a Buy after second-quarter sales 
failed to live up to his estimates.  The concern is that the  
competitive environment this Christmas could impact the 
company's ability to achieve sales and earnings that justify
current valuations.  The stock today received a sell first
and ask questions later beating.  The economic data was
enough for the carnage.  The selling pressure looks to be 
far from over.  Today on heavy volume the stock lost $5.50, 
closing the day at the bottom of the trading range at $52.19.  
Wall Street is not waiting for Christmas.  Another indication
of continued momentum to the downside is that Option volume
picked up dramatically today with Implied Volatility sky 
rocketing.  Put contracts increased by 2,275 at the CBOE and
the AMEX combined.  Confirm continued selling pressure before
entering a new position.

BUY PUT NOV-55 BBY-WK OI=2462 at $4.88 SL=3.38
BUY PUT NOV-60 BBY-WL OI=2210 at $8.50 SL=6.50
BUY PUT DEC-50 BBY-XJ OI=2419 at $3.75 SL=2.38

Average Daily Volume = 2.03 mln
Chart= http://quote.yahoo.com/q?s=BBY&d=3m



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

CMGI - CMGI Inc $103.56 -3.69 (+0.44 for wk)

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.

Sunday's Write Up

The bell-weather Internet stocks like CMGI held up for most of
the trading day on Friday with it trading as high as $106.22,
but succumbed in the afternoon trading to selling pressure in 
the sector due the poor earnings report from INKT.  CMGI closed 
the trading day at $103.13, well off the intraday highs and 
also below a major support level of concern at the $104.25 level.  
CMGI was also flying high in early morning trading because of 
their 89% ownership in Navisite which went public on Friday.
Navisite is an Internet application service provider that 
ended the day positively.  The interest in the IPO was its 
connection to CMGI.  We cautiously remain in this play, but 
until strong momentum and strong volume converge to close the 
shares above current overhead resistance levels near $104.50, 
we will stick with it.  If you have not been stopped out, keep 
trailing stops tight.  Current support still sits at the $103 
level.  

Tuesday's Write Up

The shares of CMGI remain volatile.  Yesterday saw the shares 
trading up heavily on the back of the news that AltaVista
(company owned by CMGI)will spend $120 million in advertising 
through July.  Today with the overall stock market still 
worried about rising interest rates and other market issues 
that seem to have paralyzed stocks overthis current short term, 
CMGI remained under pressure.   After some early market 
momentum in the Bellweather Internet stocks, it gave back all 
of the gains from yesterday and today after profit takers 
stepped back into the market in a significant manner.  Although 
the volume in the shares were trading lower than average with 
the shares closing the day just above the lows at $103.56.  
Ahead of the Economic Data to be announced on Thursday, the 
shares of CMGI should remain volatile with a bias to the 
downside.  There still has not been enough volume to go along 
with the intra-day price increases to sustain an upward trend 
in the shares of CMGI thus far.  We remain bearish going 
forward, but cautious because positive news has been interrupting 
the downtrend almost daily.  If you enter into a new position 
at this point, keep this one on your radar screen, it should be 
watched closely for intraday swings in momentum.  Keep the stops 
tight.  Today's low $103.50 should be taken outto the downside 
as trading resumes tomorrow.

BUY PUT NOV-105*GCB-WA OI= 632 at $6.88 SL=4.75
BUY PUT NOV-100 GCB-WT OI=1498 at $4.50 SL=2.75 

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



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

A New Look For The Dow..

Monday, October 25

Blue-chip stocks consolidated Monday as investors took profits
from last week's rally and again focused on interest-rates. The
Dow fell 120 points to 10,349, dragged down by finance and oil
issues. The Nasdaq index managed to avoid the sell-off, closing
relatively unchanged. The S&P 500 index ended 8 points lower. In
the broader market, declining issues outnumbered advances 18 to
11 on moderate volume of 768 million shares on the NYSE. The 30
year U.S. Treasury bond was down 2/32, with its yield at 6.35%.

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

Electronic Data    EDS   NOV65C/NOV60C	 $1.00  debit  bear-call   
Global Telesystem  GTSG  DEC27C/NOV27C	 $0.62  debit  calendar
Aware Inc.         AWRE  JAN30C/NOV35C	 $4.25  debit  diagonal

EDS was the first candidate in Monday's new plays and the stock
price opened almost $3 higher on pre-earnings speculation. The
spread credit was significantly larger than our target and we
adjusted the initial price accordingly. The play was available
at $1.00 credit during the first hour of trading. AWRE was our
next position and the stock cooperated by falling $1.43 in the
first few minutes, allowing a brief period to open the spread
at the suggested entry of $4.25 debit. GTSG was also lower at
the open but the market-makers adjusted the premium disparity
in the options before trading began. The best price in the new
volatility spread was well above our recommended entry. We will
track the position with an initial debit of $0.62.

Portfolio plays:

The falling bond market continues to plague equities and new
concerns arose today after remarks from the European Central
Bank's chief economist. He commented that economic conditions
are improving in Europe and there is now an increased risk of
inflation there. An increase in foreign interest rates would
put additional pressure on the U.S. equity markets. In other
economic news, sales of existing homes fell 2.1% last month on
rising mortgage rates. Most analysts had expected September's
sales to be slightly higher.

There was favorable activity in the spreads portfolio today as
many of our new small-cap issues outperformed blue-chip stocks.
Talk.com (TALK) was the leader of that group after First Union 
reiterated their STRONG BUY rating (and the $51 target?). The
stock moved up quickly at the open and finished $1.50 higher.
Anesta (NSTA), Cabletron (CS), MessageMedia (MESG), and Zoltek
(ZOLT) also made favorable moves as investors departed big-cap
issues in anticipation of rising interest rates. There were a
few standouts in the technology sector. CMG Incorporated (CMGI),
Gemstar (GMST), JDS Uniphase (JDSU) and Sun Microsystems (SUNW)
all climbed higher and they were among the stocks that held up
the NASDAQ in the wake of a the market slump.

Tuesday, October 26

Blue-chip stocks closed lower Tuesday even as the most-watched
index was adjusted to better reflect technology in the economy.
The Dow was down 47 points at 10,302 after announcing its newest
members; Home Depot (HD), Microsoft (MSFT), SBC Communications
(SBC) and Intel (INTC). The Nasdaq composite ended down 4 points
at 2,811 while the S&P 500 index closed 11 points lower at 1,281.
In the broader market, declining issues outnumbered advances 18
to 11 on moderate volume of 873 million shares on the NYSE. The
30-year U.S. Treasury bond was down 11/32, with the yield up to
nearly 6.38%.

Portfolio plays:

Our spreads portfolio ended mixed today after Federal Reserve
officials again warned investors of the possibility of higher
inflation. Most analysts already believe that rates will soon
be adjusted higher and today's comments by Federal Bank of San
Francisco President Robert Parry may have sealed our destiny.
In his speech, he asserted that strong domestic spending along
with growing demand overseas posed a risk of accelerating U.S.
inflation. Investors are now awaiting the U.S. gross domestic
product figures due out Thursday, which should give more clues
as to what the Federal Reserve's policy setting group will do
when they meet on November 16.

One of the highlights of today's activity was a gap-up, at the
open, by Aware Incorporated (AWRE). The stock moved quickly to
$35, offering a $5.00 credit for early exit on our new bullish
diagonal spread. The spread was expected to be in place through
at least one expiration period but some of you may have chosen
to take the quick and easy profit. Another move that took us by
surprise was the fall of Visx Incorporated (VISX) to $68.50 in
mid-session. Our bearish credit spread was easily closed for a
debit of $0.25, a favorable short-term profit with three weeks
remaining in the position. Talk.com (TALK) continued to move up
as investors decide its real market value and future potential.
Both positions in our bullish calendar spread are ITM but the
play is still profitable. We plan to focus on the daily buying
pressure for signs of consolidation or further upside movement.
Be prepared to roll this position out-and-up to protect profits.

JDS Uniphase (JDSU) dominated the big-cap technology issues, up
$9 to close at $147 as new investors speculated the fiber-optic 
equipment maker will continue a history of beating expectations
when it reports first-quarter results. Our bullish debit spread
is now $30 ITM and you may consider an early exit to guarantee
profits and move capital to another play. The Limited (LTD) is
another debit spread that is now in profitable territory as the
stock price fell to recent lows near $38. The problem with this
issue is that we are still holding a bullish long-term position
in the LEAPS/CC's portfolio. We expect it to get back on track
as the Christmas season approaches. Another of our longer-term
stocks, Polaroid (PRD) rebounded $1.31 today as bottom-fishing
investors moved in on the recently battered company. The stock
appears to be oversold in the short-term and may provide a good
entry for a new LEAPS/CC's position.

Price Communications (PR) was one of today's more disappointing
issues, down over $2 after a Warburg Dillon Read analyst cut his
rating on the wireless phone company to HOLD from BUY. He said
the stock should have a reduced valuation based on an assumption
that AT&T Wireless is probably no longer a potential acquirer.
We hope the drop was due to short-term speculators exiting the
potential merger play. Another position that is under-performing
the portfolio is the Reader's Request play on Excite@home (ATHM).
The stock price has fallen back below a support level near $40
and now it doesn't appear to have the upside potential of a few
weeks ago. We will monitor the issue for any signs of a further
slide in value and exit the position if necessary.

As you know by now, the OptionInvestor.com is a major sponsor
and exhibitor at the San Francisco Money Show this coming week.
At the Money Show, we will be hosting a get acquainted session
for our readers (on Thursday October 28th at 5:30 PM) that will
consist of five breakout sessions on various types of option
strategies. I look forward to meeting those of you that attend
but unfortunately with this scheduled event, there will be no
Spreads/Combos on Thursday.

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


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

Today's new positions are low cost conservative plays based on
the current price of the underlying issue and recent technical
history or trend. The probability of profit from these positions
is higher than other plays, based on the small disparities in
option pricing. 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 issue.

TDFX - 3DFX Interactive  $8.50     *** Cheap Speculation ***

3Dfx Interactive develops high performance, cost-effective 3D
media processors, software and related technology that are
designed to enable highly interactive, realistic experiences
across electronic entertainment platforms, including personal
computers, coin-operated arcade systems and location-based
entertainment systems. 3Dfx Interactive products include the
Voodoo family of accelerator chipsets, Voodoo Graphics and
Voodoo Rush.

In 1997, 3Dfx was at the top of the video performance pile and
their Voodoo chips enjoyed a large following among PC gamers.
Then they made some costly errors in production and things went
downhill from there. Recently, the chief executive officer of
the company resigned amid mounting financial losses along and
failures to land TDFX a reasonable share of design contracts
with major PC manufacturers. The resignation appears to have
had a positive effect on investors and the company is working
hard to regain its previous status in the industry.

TDFX just announced an agreement with Cornerstone Peripherals
Technology to develop high performance display solutions for
business computer users. Cornerstone specializes in hi-tech
large screen computer displays and graphics cards along with 
productivity software. TDFX will supply the core graphics card
technology and Cornerstone will use its proprietary software to
drive display resolutions to new heights. The partnership will
enable business application users to benefit from cutting-edge
graphics technology used in the enhanced 3dfx Velocity product.

PLAY (conservative - bullish/calendar spread):

BUY  CALL MAR-10 FQ-CB OI=582 A=$1.38
SELL CALL DEC-10 FQ-LB OI=302 B=$0.56
INITIAL NET DEBIT TARGET=$0.75 TARGET ROI=50%

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

****

NTBK - Netbank  $21.75     *** E-Commerce ***

Netbank owns and operates an Internet bank through an FDIC
insured federal stock bank in Atlanta. NTBK provides many
convenient, cost effective and secure banking services to
consumers using the Internet. Customers can access the bank
on a seven-day-a-week, 24-hour-a-day basis from any personal
computer, wherever located, by means of a secure Web browser
or by ATM, telephone or U.S. mail.

Internet banking stocks are gaining renewed interest and the
business of electronic commerce will grow exponentially in
the years ahead. With that kind of future potential, it's no
wonder that NTBK traded as high as $250 (pre-split) earlier
in the year. NTBK was on the move today, showing signs of a
change in character after a three month long base near $20.
The stock climbed to a midday high near $25 on heavy volume
and now it appears that fund and institutional managers are
moving back into the issue. We favor a conservative approach
and the strong support near $20 should give this position a
very high probability of success.

PLAY (very conservative - bullish/diagonal spread):

BUY  CALL JAN-22.50 NAA-AX OI=331 A=$3.75
SELL CALL DEC-25.00 NQA-LE OI=753 B=$1.56
INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=25%

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

****

PIXR - Pixar Animation Studios  $40.50  *** A Big Move! ***

PIXAR is a digital animation studio with the technical, creative
and production capacities to create a new generation of animated
feature films, CD-ROM titles and other related products. Their
objective is to develop computer animated feature films with a
new three-dimensional appearance that will appeal to audiences
of all ages.

Pixar is the company behind movies such as Toy Story and A Bug's
Life. The company runs a computer animation studio and develops
proprietary software systems which enable their unique animation
to excel. Pixar believes that its proprietary technology, which
enables animators to precisely control the motion of characters
and sets in each frame, represents a breakthrough in the art of
animation and results in a new look and feel, with images of
quality, richness and vibrancy that are unique in the industry.

PIXR reported better than expected third quarter results after
the close of trading Monday and the stock gapped-up over $9 at
the open today. The positive earnings results came as a surprise
to investors after the company said last quarter that home-video
and merchandise sales from their previous productions were below
expectations. Now the company is back on track fundamentally and
with the recent change in technicals, it should have very little
difficulty holding above support at $36. The November 24 release
of Toy Story II should also have a positive effect as the film
is expected to generate millions of dollars in retail revenues
from the sales of soundtracks, CD-ROM's and other merchandise.

PLAY (conservative - covered-combo):

BUY STOCK - PIXR  A=$40.75
SELL CALL DEC-35 PQJ-LG OI=33 B=$8.00
SELL PUT  DEC-35 PQJ-XG OI=69 B=$2.00
INITIAL NET DEBIT TARGET=$32.75
COMBINED ROI (MARGIN)=12%

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


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

The earnings onslaught continued Monday and the Dow components
remained in the limelight as they reported quarterly results.
Most of the announcements were favorable but they still failed
to rally the blue-chip sector. Several major oil companies also
reported earnings, but even their solid results failed to spark
much enthusiasm from investors. One of our short-term straddles
was Exxon Corporation (XON), the #1 U.S. oil company. They beat
analysts' forecasts with strong earnings but the stock fell $3
to $74. Union Carbide (UK), another Dow component and short-term
straddle position saw its share value drop to $59.50 after the
chemicals giant said its earnings fell. Hartford Insurance (HIG)
was the star performer of the session, climbing to a midday high
near $48. Our straddle moved as high as $9.25 credit, a profit
of $1.93 for the one-week position.

Our new selection of Internet issues were fairly active Monday
and the opening prices on American Online and Ebay were subject
to extreme volatility. We recorded new positions in AOL but no
straddle trades were observed in the EBAY or GNET plays; those
prices are based on quotes at various times during the session.

Here are Sunday's new straddles (positions/opening prices):
 
American Online  AOL    DEC120C/D120P   $18.75   debit
Ebay             EBAY   JAN145C/J145P   $41.00   debit
Go2net           GNET   JAN55C/JAN55P   $17.88   debit

Note: After the close on Tuesday, EBay's third-quarter profits
beat Wall Street expectations by a penny while revenue jumped
169%. The stock price fell sharply in after-hours trading and
ended about $10 below its closing price during the day.



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

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