Option Investor
Newsletter

Daily Newsletter, Thursday, 10/28/1999

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter         Thursday  10-28-99  
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)
************************************************************
        10-28-99           High     Low    Volume Advances Decline
DOW    10622.50 + 227.60 10637.70 10397.70 1,135,150k 2,194    883
Nasdaq  2875.22 +  72.70  2875.48  2830.24 1,245,806k 2,363  1,644
S&P-100  704.21 +  20.40   704.26   684.29    Totals  4,557  2,527
S&P-500 1342.44 +  45.73  1342.47  1298.06            64.3%  35.7%
$RUT     422.81 +   6.31   422.81   416.76
$TRAN   3013.11 +  94.41  3013.81  2920.39
VIX       22.45 -   3.86    23.53    21.85
Put/Call Ratio       .58
*************************************************************

What Was Everyone So Worried About?

One look at the closing numbers for the stock market is all it 
takes to know how this morning's ECI and GDP numbers came in. 
Traders were waiting for those to reports before deciding what 
to do and judging by today's very strong upward push they liked 
what they saw.  The much-anticipated results say a lot about the 
strength of the economy, which is truly impressive.  The Gross 
Domestic Product report showed that for the third quarter the GDP 
grew at an astounding 4.8% annualized basis, which is much higher 
than the 3.7% and 1.9% reported in the first and second quarters 
and higher than the 4.4% expectation.  That kind of growth is 
almost unheard of, particularly when you combine it with the 
relatively low inflation and interest rate environment.  The ECI, 
or Employer cost index grew 0.8%, down from the 1.1% growth 
reported during the second quarter and lower than the 0.9% 
economists had expected.  That kind of economic growth combined 
with low inflation is a very good sign.  The weekly jobless 
claims report also came in today and the readings were the lowest 
they have been in over a month. 

While these types of data are just small snapshots of the 
economy, they basically tell us that productivity and earnings 
are growing while expenses are growing at a much slower pace.  It 
doesn't take a genius to figure out that is how wealth is built. 
Numbers, however, don't always tell the whole story and in many 
cases inflation often does not show up in reports until months 
after the fact. 

Those who were trying to make a short-term play on the economic 
data this morning by putting in buy orders might have been a 
little disappointed by what they paid. As the market opened it 
shot up 150 points before options even opened for trading.  Many 
stocks gapped open much higher than they closed so much of the 
opportunity for getting in the market was gone.  After the first 
hour or so the indexes traded pretty steady for the rest of the 
day.  It is notable that the higher prices did not attract any 
significant selling any time during the day.  The following 
hourly chart shows how far the Dow has come the last two weeks.


 

The Dow closed at 10,622.53, up a very strong 227.64, or 2.20% 
and the NASDAQ finished the day at 2875.22, up 72.70, or 2.59%.  
If you look at the "new" Dow which will begin trading on 
November 1, the Dow would have been up 273 points.  A couple of 
days like this and the NASDAQ will again be at record levels.  In 
a turnaround the formerly under performing S&P 500 put in the 
strongest performance of the day.  It jumped 45.73 points, which 
is 3.53%, to close at 1,342.44.  I did not want to even go back 
and find the last time the S&P had a one day move that big.  Just 
a couple of weeks ago the S&P had only risen about 3% on the year. 


 

Even more than the actual point changes in the indexes, internal 
market data tell the story of just how strong today's move was.  
Volume on the NYSE was the heaviest it's been since June at 1.13 
billion shares traded. The NASDAQ hit 1.2 billion and what makes 
the strong volume interesting is that about 83% of today's volume 
was focused in rising stocks.  Advancers beat decliners about 21 
to 9 on the NYSE and about 3:2 on the NASDAQ.  The new high/new 
low data has greatly improved from a couple of weeks ago.  New lows 
still lead on the NYSE, but their lead has narrowed significantly. 
The tally for today was 122 to 72.  A few weeks ago that new high 
figure was in the single digits and new lows topped 500.  It is 
apparent that most stocks are off of their lows.  On the NASDAQ 
the new highs lead 121 to 116.  
 
It would take too much space to list all of the sectors that 
performed well today, but the clear winners were the financial 
stocks.  The positive economic numbers and the drop in interest 
rates today put banking stocks in higher demand than Pokemon junk 
at an elementary school.  Big banks such as American Express, JP 
Morgan and Citigroup all made big moves and closed near 52-week 
highs.  The PHLX/KBW Banking index rose an eye-popping 6.3% and 
is up about 20% from its recent low 8 trading days ago.  Brokers 
fared even better with the AMEX Broker/Dealer index rising 8.3% 
in one day. 

Telecommunications and semiconductor stocks were not far behind, 
with the PHLX Telecom index rising 5.2% and the SOXX index up 
5.9%.  The CBOE Software rose 3.9% and retailing stocks bounced 
back from a rough Tuesday, finishing up 5.2%.  The Internet sector 
lagged a little, with TheStreet.Com Internet index ascending a 
mere 1.8% (a very good day most of the time). 

So did anybody (aside from those holding short positions) lose 
money today? Sort of.  The Oil Service index fell about 2.8% 
and the PHLX Forest and Paper Product index fell .3%.  The only 
sectors that suffered were in commodity arenas, which normally 
do better in more inflationary environments.  Other than that 
most every sector index is up for the day. 

Several more important earnings announcements came in today. 
Proctor and Gamble met estimates at 88 cents per share, meeting 
expectations.  The Street must have liked that, since the stock 
rose 5.4%.  MCIWorldcom announced results that tripled last year's 
figure, beating estimates by a penny, and CBS beat estimates by 
a cent, with income of 5 cents per share. As we have mentioned 
in earlier market comments, earnings this quarter have been 
spectacular, with only 11% of companies falling short of 
expectations and about 65% of companies exceeding estimates. 

Bond prices got a huge boost from the GDP and ECI numbers as well. 
The yield on the 30-year Treasury bond fell to 6.25%, after 
hitting 6.4% on Monday, and the price rose over a point to 
98 9/32.  That kind of action eases the minds of both stock and 
bond traders, causing some analysts see a possible light at the 
end of the tunnel.  Of course when it's been dark for a long time 
your eyes can play tricks on you.  Time will tell. 

Most analysts are now expecting the Fed to raise rates another 
quarter point when the FOMC meet again on November 16.  They 
have already raised rates twice this year and one more would 
neutralize the three rate cuts the Fed made last year.  The good 
thing about the current situation is that with most everyone 
expecting a rate hike, that is already priced in and if they 
surprise us it will only help.  It's hard to disappoint someone 
with low expectations.

Going forward the market outlook is much more positive than it 
was just a week ago.  From a technical point of view yesterday's 
late-day turnaround and today's big spike upward on huge volume 
makes a better bullish argument than bears would like.  It is 
definitely too early to sell all of your possession and load up 
on tech stocks, but after October ends the fourth quarter is 
typically a good one.  The S&P 500 broke out to the upside of a 
trading channel formed in July.  While you never know for sure 
a market bottom is in place until after the fact, support levels 
have held and today was one of the strongest days in recent 
memory.  At these times it is still good to keep stops tight 
because there is still downside risk, but the bulls seem to be 
taking control. 

Good luck and happy trading

Chad Poulson
Research Analyst
 

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

It's been a Bad Week for Mr. Softee

By S.P. Brown

The bluest of the blue-chips, Microsoft Corp. (MSFT), did it 
again last week.  The world's most highly valued company 
trounced quarterly earnings estimates.  

http://www.OptionInvestor.com/stocknews/102899_1.asp

****

To Be or Not to Be: Will Financials Remain the New Market Leader?

By Cindy Christ

Despite impressive two-day gains in financial stocks, torrid 
growth in the U.S. economy left some traders wondering whether the 
sector can sustain recent gains and put some muscle in the aging 
bull market.

On Thursday analysts were closely monitoring financial issues, 
which often act as a leading indicator during market turns and 
head major upward moves. Investors should watch out, they said, 
for any signs of profit taking, a shift that would undermine the 
sector's new leadership status.

http://www.OptionInvestor.com/stocknews/102899_2.asp


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

As of Market Close - Thursday, October 28, 1999 

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

DOW Industrials   10,750  11,320  10,623    BEARISH   9.23
SPX S&P 500        1,350   1,420   1,342    BEARISH   9.16
OEX S&P 100          690     725     704    Neutral  10.28  *
RUT Russell 2000     440     465     423    BEARISH   9.14
NDX NASD 100       2,320   2,500   2,540    BULLISH  10.28  *
MSH High Tech      1,120   1,250   1,253    BULLISH  10.28  *

XCI Hardware         950   1,050   1,015    Neutral  10.15
CWX Software         750     800     925    BULLISH   9.03
SOX Semiconductor    450     525     523    Neutral  10.19
NWX Networking       525     615     622    BULLISH  10.28  *
INX Internet         450     525     479    Neutral  10.15

BIX Banking          660     690     678    Neutral  10.28  *
XBD Brokerage        410     440     428    Neutral  10.28  *
IUX Insurance        645     660     600    BEARISH   7.23

RLX Retail           915     960     872    BEARISH   7.23
DRG Drug             365     390     388    Neutral  10.19
HCX Healthcare       720     785     764    Neutral  10.19
XAL Airline          180     190     150    BEARISH   5.21
OIX Oil & Gas        280     315     293    Neutral  10.21


 
Posture Alert    
Thursday's relief rally, sparked by this mornings economic 
indicators, were of substantial size, with the NYSE trading 1.13 
billion shares and the Nasdaq trading 1.25 billion. All sectors 
were up strong, with Brokerage (+8.31%), Insurance (+6.57%), and 
Banking (+6.41%) leading the way. With today's action, several 
sectors technical indicators have vastly improved.  As such, the 
Nasdaq 100, Morgan Stanley High Tech, and Networking sectors were 
all upped to BULLISH from Neutral, while Banking, Brokerage, and 
the OEX were upped to Neutral from Bearish.


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

/members/marketposture



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


Thursday, October 28, 1999

Hunting all Bears!

Interest rates were just breaking new highs! The Dow traded at the 
10,000 benchmark and even traded below for a brief stint! 
Inflation is creeping in, Y2K is around the corner, Greenspanisms, 
Ballmerspammed, and the world is ending! Just when the bears were 
finally getting comfortable (and confident), the bulls come 
stampeding in. October of 1999 is really looking (and feeling) 
like October of 1998. Hopefully, we'll get the same rally over the 
next two months like we ended '98!

On Tuesday, we had a cautious tone for the market, and deservedly 
so. Microsoft and Intel were just added to the Dow, yet neither 
could hold any gains. This did not sit well with many people, 
including us. We did mention, however, that the Trump Card was the 
Fed and that this Thursday's economic indicators could cause a 
change in perception. And boy did it ever! The volume on both 
exchanges surged to over one billion, with the NYSE trading 1.13 
billion, and the Nasdaq trading 1.25 billion. Can you smell the 
fear in the bears now? 

With sentiment still in bearish territory, and short interest 
still extremely high, we could see a powerful continuation to 
today's rally over the next several weeks. However, still be 
cautious. Several indexes (including the Dow) have yet broken the 
highs from several weeks ago, and thus, we could see resistance 
very shortly. However, the bad news bears are quick to run-and-
hide, so only time will tell if the hunters are now the hunted!

    
BULLISH Signs: 

Bears have quick triggers:
After being beaten up for the last several years, bears are quick 
to run & hide, and will cover short positions in a flash.

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. 

Russell 2000 & S&P 500:
The RUT and SPX are still weak, but are showing signs of 
improvement.

Interest Rates:
The yield on the 30-yr Treasury is now off the 52 week high, but 
is still in the danger territory.

BEARISH Signs:

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

 
OTM Call Analysis

As we move 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       Thurs
Benchmark                       (10/22)     (10/26)    (10/28)

Overhead Resistance (705-720)    N/A        N/A        16.80

OEX Close                       685.63     678.67     704.21

Underlying Support (685-700)     2.32       2.12        2.11

                     
Average ratings: 
Resistance levels 2.0 / Support Levels .5

What the Pinnacle Index is telling us:
Based on 10/28, overhead resistance is extremely heavy, yet 
underlying support is light.


Put/Call Ratio                  Friday     Tues       Thurs
Strike/Contracts                (10/22)    (10/26)    (10/28)

CBOE Total P/C Ratio             .69        .68       .67
CBOE Equity P/C Ratio            .46        .46       .45
OEX P/C Ratio                   1.67       1.18      1.52


Peak Open Interest (OEX) Friday           Tues            Thurs
Strike/Contracts         (10/22)          (10/26)         (10/28)

Puts                    640 / 11,789     670 / 11,184    670 / 11,525
Calls                   690 /  7,562     690 /  7,231    690 /  8,175
Put/Call Ratio             1.56             1.55           1.41




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 28, 1999                        22.63 


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    Wed    Thu   Week
Dow     10622.53 -120.32 -47.80  92.76 227.64 152.28
Nasdaq   2875.22   -0.57  -4.48  -8.95  72.67  58.67
$OEX      704.21   -3.25  -3.71   5.14  20.40  18.58
$SPX     1342.44   -8.02 -11.72  14.80  45.73  40.79
$RUT      422.81   -0.93  -1.97   0.98   6.31   4.39
$TRAN    3013.11    7.44 -41.39  89.50  94.41 149.96
$VIX       22.45    1.53   0.64   0.29  -3.86  -1.40

Calls               Mon    Tue    Wed    Thu   Week

KIDE       82.44    8.88  10.00   6.38  -2.81  22.44  Huge returns
VRTS      101.13   -0.25  -4.13   3.81   7.50   6.94  Liftoff!
LVLT       68.63    2.28  -3.09   1.50   5.56   6.25  New
EMLX      143.25    7.38  -4.63  -4.50   5.75   4.00  Charged up
SEBL      100.31   -2.50  -1.44   1.31   6.44   3.81  Snapped back
GMST       85.38    3.13   1.06  -2.31   1.63   3.50  A favorite
CMVT      108.25   -0.75   4.50  -1.75   1.44   3.44  Higher lows
PCS        81.56   -0.75   0.56   2.06   0.81   2.69  Breakout
QCOM      218.00   -4.63  -3.38   0.38   9.88   2.25  Back again!
SYMC       45.44   -1.56   2.25   0.56   0.88   2.13  52-week high
WMT        55.75   -1.13  -2.69  -0.25   2.75  -1.31  Comeback kid
DELL       38.50   -0.69   0.38  -1.19   0.13  -1.38  Stalling
VSTR       85.75    1.63  -5.25  -1.94   2.44  -3.13  New

Puts

INKT       96.63    3.94  -4.25  -7.13   1.00  -6.50  New
BBY        54.06   -1.63  -5.50  -1.44   3.31  -5.25  Lackluster
GT         40.13    1.50  -3.94  -0.94  -0.19  -3.56  Doomed
PBI        43.50    1.00  -1.50  -2.25  -0.25  -3.00  52-week low
LTD        38.75   -1.44  -1.69  -1.56   2.25  -2.44  Stays afloat
LTR        68.50    0.00  -1.69   0.81   0.50  -0.38  Carnage!
ALD        56.19   -1.19  -2.06   2.13   1.69   0.56  Hit the wall
CMGI      104.88    4.13  -3.69  -0.25   1.56   1.76  Dropped
BAC        64.00   -0.50   0.06   2.75   2.94   5.25  Dropped
JPM       132.06   -5.44   1.19   7.13   3.56   6.44  Dropped
CI         72.94   -0.50  -0.63   2.88   5.94   7.69  Dropped
EXDS       81.81    3.38   0.06   0.13   4.56   8.13  Dropped




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

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


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

To subscribe you may go to our website at 

www.OptionInvestor.com

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

 "subscribe@OptionInvestor.com" 

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

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


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


The Option Investor Newsletter         Thursday  10-28-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

Gone Fishing

"If you caught a fish every time you put your line in the water, 
they would call it catching, not fishing." I thought about this 
quote, from a Jimmy Buffet book titled, A Pirate Looks at 50, 
several times this week. Last week, I paper traded, with mixed 
results. This week, I planned to make 2 trades on a total of 3 
days. I stuck to the plan, entered a position on Monday, got out on
Wednesday. On Wednesday, near the close, I opened and closed my 
second trade. On the whole, I should have been more patient this 
week, waiting for the market to confirm good entry points. I was 
catchin' not fishin'.

   Contract   Symbol  Sold Price   Bought   Price  % Gain 
OEX Nov 680P  OEYWP   25-Oct 11.75 10/25/99 14.75  20% 
OEX Nov 680P  OEYWP   27-Oct 13.00 10/25/99 14.38  10% 
OEX Nov 680C  OEYKP   27-Oct 18.25 10/27/99 17.00  54% 

My first target was a Nov 680 Put which I thought I would enter on 
Monday, if I saw a failed rally formation. The market sold off at 
the open, and I entered the position, thinking that this was the 
start of a major move down, perhaps below DOW 10,000. I bought the 
first half of the position at the ask, 14.75, and target shot the 
second half of the position, at 14.375. I decided on a stop loss 
of -20%, and set it for half of the play at 11.75. I decided on a 
limit sell of +30% for the other half of the play, and set it 
accordingly at 18.875. By midafternoon, the market had bounced 
back, getting some hope from dovish comments by some Fed officials. 
My edge going into the week was the VIX, which had put in a low at 
22 last Friday. It was trading at 24 on Monday, and I thought 
things were on track for a continued move up. The Fed doves threw 
off the gameplan, and triggered my stop at the low of the day, 
which resulted in the sale of half of the position at 11.75. -20%. 
The lesson is to wait for confirmation, or for the formation that 
you are looking for. Fish, don't catch. Anyone can buy options. 
The key to making money is entry & exit. 

The second half of the play was doing better by the end of the 
day, Monday, so I elected to hold. On Tuesday, the markets were 
up on the DOW news. But all they could manage was +50 on this 
news? I elected to hold my position, even though it was trading as 
low as 10.5. By the end of the day, the reversal in the indexes 
made this look like a pretty good decision, as my contract closed
near 17, and the DOW was down 50. On Wednesday, the NASDAQ started 
off weak, but the DOW held support at 10300. After lunch, things 
started to weaken, and I thought all was well. I made the mistake 
of watching the market from 2:45 to 3:00 EDT and, seeing a 
downtrend, left my computer. I came back at 3:30 and the DOW had 
put on a 75 point move. The VIX had broken back down to 25 or 
below. The VIX and the advancing v. declining volume indicators 
which I use were telling me that the market had reversed 
direction. I fumbled around trying to find out why, but recognized 
that I had to make a decision. I changed my limit sell on the OEX 
Nov 680 Puts, and I was filled at 13, down from 16 - 17 just 30
minutes earlier. I also made the decision to enter the OEX Nov 
680 Call. I found a report saying that the financials were 
rallying, lead by AXP & JPM. I confirmed this on my qcharts 
screen by looking at the leaders in the S&P 100 list. I bought 
the calls at 17.5, and watched the averages for the last 20 
minutes. They continued up, but then stalled. Would the ECI be
non-inflationary, lessening interest rate fears, thus benefiting 
AXP & JPM? I didn't know, so I elected to close the position with 
a small profit with a limit sell of 18.25. 

Overall, I cannot be too critical of my performance this week. 
Though I could have waited for a real failed rally to make the 
OEX Put play (Tuesday would have been ideal), I saw a move on 
Monday morning which could have been the start of a large move 
down; lesson -- don't trade during amateur hour. The exit on the 
play was not great, and I learned (again) that stops don't really 
give you security. Good entry points are the only real security. 
I definitely blew it by not watching the last hour of trading 
BEFORE a key financial report, which I expected to provide a 
trading opportunity. Given that I had programmed 3 days of 
trading, I should have "saved" one day for Thursday, but now 
I will follow the plan, rest, and get ready for next week. My snap 
shooting the Call was OK, since my indicators all pointed towards 
at least a short term reversal.

My decision to exit the play ahead of the ECI uncertainty was also 
OK. 4% profits aren't anything to write home about, but they are 
better than a loss. Most importantly, I limited my capital in 
plays this week, so that the loss that I suffered is not very bad 
in the larger picture; maybe 1.5% of my trading capital. I did get 
back in the market, got a feel for the game, which no amount of 
paper trading will give you, and am ready to give it another shot 
next week.

Janar Wasito
janar@OptionInvestor.com


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:
*****

EXDS $81.81 +4.56 (+8.13) The markets were just too strong for 
this put play as investors reacted to the good GDP and ECI 
figures.  EXDS investors rallied behind the broader markets, 
lifting the stock to levels beyond our comfort.  We were hoping 
that last weeks spike would render rewards for put positions 
this week.  Unfortunately, the broader markets didn't help the 
situation by tacking gains with unquestionable strength.  This 
helped EXDS break through its resistance at $80 and finish the 
day on a strong note.  Because we didn't get the bounce at $80 
we have decided to drop this play and concentrate our efforts 
on those with more potential. 


PUTS:
*****

CI $72.94 +5.94 (+7.69) Ouch, a solid smack from a Goldman 
Sachs upgrade to CI has left our play with a lump on its head.  
Unfortunately, it is not the kind that leaves you slightly 
dazed.  It is the kind that had knocked us right out of a 
play.  Goldman raised their rating from a Market Perform to 
a Trading Buy (whatever that means).  If you throw in the 
market-friendly economic data that we saw on Thursday and it 
is no surprise that we are stopped out of the play.  The 
trend we had been playing was gone once CI broke out above 
the 10-dma at $66.50 and we are dropping it from the put list.  
It looks like the pessimism surrounding the HMO stocks has 
been somewhat lifted and CI is due to participate in the 
relief rally. 

JPM $132.13 +3.56 (+6.50) Who blew out the fuse?  With both 
the GDP and Durable Goods reports coming out benign, JPM got 
a huge boost with the rest of the financials.  Remember when 
we said that JPM is a big player and they will be out front on 
any news?  Well the last two days are a confirmation on that!  
From the open on Wednesday JPM was on the move to higher ground 
and you should of been stopped out in the morning trading 
session.  As the day continued, the stock put on steam and 
tacked on an impressive $7.13.  Today when the GDP report came 
out investors cheered and rallied the market back over 10600 
taking JPM with it for another $3.56.  For now it is time to 
say goodbye any puts on JPM.

BAC $64.00 +2.94 (+5.25) After the ECI and GDP data came as a 
relief to Wall Street, which had worried the Federal Reserve
would raise interest rates one or two more times.  The price
of BAC finally caught up with the Moneystream and Volume which
has been strong for the last week or so.  The question was, 
were the fears of rising interest rates, and the Y2K bug
going to keep the bond market and the U.S. Financials and 
Money Center banks under pressure?  Well, we got our answer
today, and the answer is "NO".  The fear, at least for today
is not there anymore and the momentum to the upside has now
resurfaced for stocks like BAC.  At the end of trading on 
Wednesday, when the rumor was out that the Economic data to be
reported would be below expectations, BAC closed the day at 
the high end of the trading range at $61.06, which completely 
demolished our resistance point at $59.50.  This was our stop, 
and after the rumor's were made a reality today, we want to 
cover any short positions.  Until current market conditions 
change.

CMGI $104.88 +1.56 (-1.75) On the back of more positive news 
for CMGI and an overall up day on Wall Street, the shares of 
CMGI closed the day above and through our resistance point of 
$104.50.  CMGI, with its investments in several advertising 
companies saw its shares rise up over a point after pulling back 
from an intraday high of $106.75.  It was reported today that 
Ancestry.com is among the leading subscription based Internet
Services.  Ancestry.com recently received a second round of 
Financing, featuring the support of such investors as AOL, 
Compaq Computer Corporation and CMGI just to name a few.  From
a technical standpoint the volume still remains weak, but the 
price increases at this point are more than we can live with.
The volatility and the non-stop good news has pushed the risk 
reward out of our favor and we will choose to close this one 
out for now.



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

PCS $81.56 +0.81 (+2.69) Yesterday we received the breakout 
we were waiting for.  Roaring forward, PCS broke above its 
resistance level at $79 and managed to establishing a new 
52-week high at $81.44.  Today, investors' sentiment was on 
the flat side, which left the stock fractionally higher for 
the day.  Considering the stock set a new high, some 
consolidation would be expected before moving to higher 
levels.  Since the stock broke $79, the question is how much 
higher investors are willing to carry the stock.  $79 was our 
previous resistance point but should now act as a new support.  
This would be a good price for entering new trades, but of 
course, confirm a bounce before doing so.  With the help of 
today's good economic numbers, lets see if we can maintain 
this rally in the broader markets and PCS.  There was no recent 
news on the stock that would alter our play at this time.  

KIDE $82.44 -2.81 (+22.44) After roughly a 33% gain in the 
first three days of this week, KIDE finally wore itself out 
and had to take a bit of a nap.  KIDE spiked up at the open, 
setting, you guessed it, another new 52-week high.  KIDE then 
made a downturn, heading as low as $78.  We were expecting to 
see some profit-taking and it looks as though that is just 
what has happened.  Not to worry!  The stock has nearly tripled 
since the beginning of October so KIDE giving back a mere $2.81  
is a very small drop in a very big bucket.  KIDE made a solid 
bounce at $78 with a lot of volume, a bullish indication of 
continuing investor interest.  Buyers won out and KIDE began 
trucking right back up to the close.  We do see some continuing 
resistance forming right around $86.  Many of the call option 
premiums continued to climb today and are inflated at this 
point, therefore, we re-iterate that a new entry is not in 
your best interest unless you have a HIGH-RISK profile.  

WMT $55.75 +2.75 (-1.31) A good GDP report, an upcoming 
earnings announcement, the biggest shopping day of the year 
just four weeks away and holidays drawing near... what more 
do you need?  With over 8 million shares traded, WMT has once 
again broken through $55 and spent the afternoon trading above 
that level.  WMT closed just below the high of the day, which 
combined with the volume level, is indicative of strong 
investor interest.  WMT has also broken through and is trading 
above its 10-dma of $54.03.  It looks as though support is 
holding right around $55, which should make a solid entry point 
for the earnings run.  WMT has been making numerous cameo 
appearances in various company press releases, usually following  
"will be sold at retail giant...".  WMT seems to be a topic of 
great interest in Britain as well, since their takeover of 
Britain's Asda in June.  A statement was issued by the 
British government on Wednesday, as many are concerned that 
WMT has been receiving special treatment as they make their 
way into the English market.  The government "emphatically 
denied" any relaxation of planning procedures in favor of WMT.  
And now, a challenge for your day: Say Wal-Mart with a British 
accent.  

GMST $85.38 +1.63 (+3.50) Gemstar made a good move in the 
right direction today and closed just a dollar short the 
high of the day.  This was good news as GMST struggled 
through trading yesterday, dipping as low as $82.50 (which 
would have made for an excellent entry) and held support at 
$83.50.  Support held a bit higher today in the neighborhood 
of $84.50.  GMST is trading nearly $6 over its 10-dma, a 
bullish indicator. We recommend waiting for a breakthrough of 
the resistance that has formed at $86 to confirm positive 
momentum before making a new entry.  Gemstar was given a nice 
bump up in intraday trading today, compliments of very kind 
words spoken by Mark Greenberg, the fund manager of the 
Invesco Leisure Fund.  In an interview on CNBC, Mr. Greenberg 
said that Gemstar was one of his favorite holdings because 
of the direct interaction capabilities it grants to customers.   

CMVT $108.25 +1.44 (+3.44) Wish we had more good news to report 
on Comverse with the great performance in the markets today 
but CMVT was rather range-bound all day.  We have had a good 
week on CMVT and, encouragingly, the intraday lows are getting 
higher as we go, but volume was light today.  The main catalysts 
are still in place for an earnings run, possible anticipation 
for a split announcement and the addition to the S&P 500.  The 
10-dma would be a good entry target if we sustain any kind 
of a pullback.  The 10-dma is currently at $102 but gaining 
rapidly.  Resistance is at the old high of $112.50.  We would 
expect a pullback after today's market gains so wait for a 
good entry.  We are likely to see volume pick up more as we 
approach the earnings date at the end of the month.

EMLX $143.25 (+4.00) Ok, the rest is over and its time to start 
the climb again.  EMLX took another breather on Wednesday and 
held the line of support closing at $137 down $4.50.  Today 
with the broad market rally, EMLX charged ahead and took back 
$5.75 of the last two days $10 dip.  This stock has been holding 
ground at $137 for the past four days building a nice base of 
support to launch from.  As the market continues to rally, EMLX 
will start to make its move for its high set last Friday of 
$161.75.  With October over and no major panic selling event, 
investors will now concentrate on the up coming FOMC meeting 
and the possible interest rate hike.  But it appears that the 
market may have digested another rate hike so if the Feds follow 
through it should not effect the markets or EMLX.  The move up 
today was on average volume indicating the sellers are pretty 
much out and buyers are stepping back in. If the market continues 
its rally tomorrow make sure EMLX holds $137 before you get on 
board for the next ride into the November 18th shareholder vote. 

VRTS $101.25 +7.50 (+6.94) Two leaps forward, now that's more 
like it!  Wednesday VRTS was pretty much flat on the day until 
the last hour when the market rallied into the close.  VRTS put 
on its hiking boots and started the climb to the top by adding 
$3.81.  Today was a steady pace up and again in the last hour 
of trading, VRTS really stepped up the pace and lunged to close  
at the day high.  With this strong advance we are only $6 away 
from a VRTS all-time high of $107.26.  Volume was well above 
average and really picked up into the close indicating investors 
are confident this stock will keep on going.  Watch for profit-
takers tomorrow if we get a market pullback.  Otherwise look for 
VRTS to continue it strides into their 3:2 split on Nov 22nd.  
In the news today, VRTS announced that British Telecom (BT) has 
selected them as their single strategic backup solution for their 
entire open systems environment.

QCOM $218.00 +9.88 (+2.25) QCOM perked back up today letting us 
know there's still life left in this momentum/earnings play.  
The $9.88 advance was impressive!  The Buy reiteration by analyst 
Pete Peterson at Volpe, Brown Whelan & Co was also a welcome 
gratuity.  The big bounce from the proximity of its 10-dma 
($207.04) is a promising sign that it will make a solid run into 
earnings.  But new readers beware - time is short!  OIN doesn't 
recommend holding over an earnings' announcement and QCOM is 
not an exception.  The odds are in favor of a stock's general 
decline and it's just not worth the risk.  So be forewarned - 
next Tuesday, November 2nd after the bell Qualcomm will report 
its earnings.  If they announce a stock split we will look 
at re-entry later for the split run.

SYMC $44.56 +0.88 (+2.13) The intensity of SYMC's momentum is 
not showing any signs of letting up.  Since it first broke out 
above resistance ($40) following a powerful earnings report on 
October 20th, SYMC has consecutively hit new 52-week highs!  
Today the stock shot up to $46 mid-day to set the newest record 
however, the weak volume was an unfavorable aspect when compared 
to recent trading activity which sometimes reached levels 2.5 
times its ADV of 885 K.  If we are afforded a pullback in this 
momentum play then the stock's firm support level at $40 is a 
solid entry, otherwise you may have to look for an intraday 
bottom on the rise.  Today Banc of America started coverage with 
a Buy rating and issued a target price of $60.  In the news, 
Symantec announced that their Mobile Essentials Personal Edition 
software, used to adjust laptop and notebook setting to 
different locations, is available free to the public - for a 
limited time only.  The software can be directly downloaded 
from their Website at www.symantec.com/me

DELL $38.50 +0.13 (-1.38) Bullish analysts were encouraged by 
today's market performance, while our light at the end of the 
tunnel dwindled regarding DELL.  The stock is apparently stuck 
at this firm support level of $38.  DELL has been trapped in a 
trading range between this mark and near-term resistance of $40 
since October 19th.  When it does break out the move will be 
sharp, but WHEN is the million-dollar question.  Today's lack of 
participation was a big disappointment.  We decided to give the 
stock one more chance in the event it's just a late bloomer this 
time around.  Perhaps the downgrade yesterday by Hambrecht & 
Quist to a Market Perform from a Buy was still fresh in buyers' 
mind during today's trading.  There was lots of news surrounding 
Dell yesterday.  The company announced the completion of its 
first ever acquisition of privately held ConvergeNet Tech.  
According to the terms, 6.9 mln shares of Dell common stock were 
exchanged for all outstanding shares and options of ConvergeNet - 
the deal is valued at approximately $340 mln.  Dell also 
announced it entered into a strategic alliance with the Edgix 
Corporation, a privately held Internet content delivery company 
to speed the delivery of Web content.  And according to Dataquest, 
Dell has taken the #1 position of PC sales in the US educational 
industry away from Apple computer, capturing 21% of the market 
share.

SEBL $100.31 +6.44 (+3.81) SEBL snapped back with a flair after 
offering entry points during its recent period of consolidation.  
The stock is once again sizzling hot!  In classic bull form, 
SEBL climbed straight up from the open setting a new 52-week 
high by 3pm when it peaked at $101.25.  Trading volume backed 
the strong breakout with over 2.73 mln shares exchanging hands 
compared to the stock's ADV of 1.66 mln.  SEBL has a couple 
weeks to run before it splits 2:1 on November 12th.  Firm 
support is established at $85, although it's evolving near-term 
around $93 and $95.  So assuming the uptrend stays intact, that 
near-term range is a good point of entry into the play.  In 
company news yesterday, Siebel Systems announced a Global 
Strategic Partnership with Unisys Corp (UIS) to provide 
comprehensive customer relationship management (CRM) and 
knowledge management solutions.  Additionally it hit the press 
that Siebel Systems is likely to expand its CRM partnership with 
IBM; strategically position itself against Oracle, an upcoming 
CRM rival.


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





The Option Investor Newsletter         Thursday  10-28-99  
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

ALD $56.19 +1.69 (+0.56) After closing on the lows of the day
Tuesday, it would appear as though the stock hit a brick wall.
On Wednesday shares of the conglomerate opened right where it 
closed Tuesday and began to reverse.  ALD added $2.13 yesterday 
on volume of 2.28 mln shares.  This morning with the broader 
markets getting new life on the strong economic data ALD jumped 
another $2.13 to $56.63 in the first 5 minutes of the session.  
ALD drifted sideways for most of the rest of the session closing 
at $56.19.  We are keeping ALD as a put play for at least one 
more day.  We mentioned Tuesday that we could see a bounce back 
to the resistance level of $56.00 which we have had.  Technically 
we have a couple of interesting points.  ALD did close solidly 
back over its 10-dma which is at $55.36.  On the other side of 
the coin, ALD came up and just penetrated its 200-dma which 
sits at $56.50.  In order to stay on our put list, ALD will need 
to rollover and turn south again.  At this point ALD has given 
us no opportunities to buy puts.  We are strongly suggesting not 
entering a new play on ALD until it resumes its downward trend
through the $54.50 area with some convincing momentum, as the 
volume in the move up the past two days has been extremely solid.

LTD $38.75 +2.25 (-2.44) With the GDP numbers doing their part 
to help relax the inflation fears, the market decided to rally 
today.  The Limited decided to participate in today's market 
rally following a day in which LTD took back another $1.56.  
In trading on Wednesday, LTD worked steadily downward to flirt 
with a rather weak support of $36.  LTD closed yesterday just 
pennies above the low of the day, indicating a continuing lack 
of investor interest.  LTD continues to trade nearly $2 below 
its 10-dma of $40.31.  Despite the positive day, there are 
enough bearish indications to believe that LTD will continue 
on with its downward trend where it left off yesterday.  Though 
the retail apparel sector in general had a very strong day, we 
still see continuing weakness and that the holidays are still 
far enough away that there are sure to be more short-term losses 
to come.  With earnings mid-November, it is a good idea to 
use stop loss orders. 

GT $10.13 -0.19 (-3.56) Just as we expected, good economic 
numbers sent most stocks soaring today, as investor took 
advantage of the situation.  Despite the euphoria, GT wasn't 
invited to the party.  As we mentioned earlier, now that GT 
has been dropped from the DJIA, fund managers are readjusting 
their positions by selling the stock.  We expect this selling 
to continue for the near-term, making our put positions even 
more attractive.  When placing new trades, wait for GT to break 
through $40.  Sometimes, even numbers will act as psychological 
supports.  If the stock breaks this level there's no telling 
how far the stock may fall.  The nearest resistance level for 
GT is $45, which previously acted as a support.  In the news, 
there is plenty of reading on GT concerning the recent shuffle 
in the DJIA.  For additional reading, refer to Yahoo news under 
the symbol GT.

PBI $43.50 -0.25 (-3.00) PBI continues to hit 52-week lows as
we suspected, and the downtrend remains in place.  Trading as
low yesterday as $42.50.  Today it bounced nicely off of the
lows with the overall market and the announcement that a 
division of the company would be launching a new internet 
based newsgroup service.  This information and the overall
market bouncing back was not enough to buck the downward trend, 
the shares fought their way back down to close off 1/4 for the 
day.  Looking at the charts we see a technical picture that has 
remained steady, with the volume strong, but the Moneystream is
still supressed.  Until this picture changes we are expecting
lower prices, but will choose to be cautious after nice gains
over the last week.  Keep stops tight if you are currently 
holding a position or if you choose to enter a new position at 
the current levels.  Resistance sits up at the $46.69 level, 
with support at $43.
   
LTR $68.50 +0.50 (-0.38) U.S. stocks soared today after the 
Labor Department reported that workers wages and benefits are
increasing at a slower than expected pace.  The report hopes
that inflation is not threatening the economy's health.  In
other news, the New York state's highest court upheld a lower
court's decision to dismiss five class action suits brought
against U.S. tobacco companies, in a ruling industry analysts
said highlights a trend in pending tobacco cases.  This was
positive news that had even the tobacco stocks soaring, at 
least in early trading.  Looking at today's chart, it looks
like traders bid the shares up for a one day trade, and
then at around noon it looks as though the carnage resumed.  
The stock plummeted in the afternoon from an intra-day high 
of $71.75, to close at $68.50.  We believe that traders took
a step back and remembered that there is a jury decision to 
be announced in Florida on Monday.  Going forward the 
downtrend is still in place below $71.  Be cautious ahead
of Monday's ruling. 

BBY $54.06 +3.31 (-5.25) It was announced today along with 
positive economic data that Best Buy is beginning to offer
local shoppers Digital Cable video services from AT&T Cable
services for customers seeking expanding TV-viewing options.
Best Buy is the first retailer to offer digital cable TV
service at its stores.  This gave the shares a boost, but
nothing that really has changed our bearish position going 
forward.  The shares still look depressed and technically 
the volume remains average, and the Moneystream at the bottom 
of the range.  The heavy volume and  momentum that the 
financial sector experienced today was enough to change the 
short-term sentiment.  There is a different sentiment for the 
shares of BBY, which still is under the cloud of doubt about 
the business conditions going forward.  Few analysts on Wall 
Street expect the income to rise, they believe that it will get 
worse as we approach the holiday season.  Look at this bounce 
from the recent lows as a possible trading opportunity.  The 
resistance level still remains at $58.13, at these levels we 
will question the current downtrend, but we expect the selling 
pressure to resume, going back towards the low of the trading 
range from Wednesday $52.19 over the short-term.  



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

VSTR - VoiceStream Wireless $85.75 +2.44 (-3.13)

VoiceStream Wireless is a provider of wireless communication 
services.  These services are available in the western United 
States.  VoiceStream has an aggressive marketing plan, boasting 
more minutes, more features and more service.  Jamie Lee Curtis 
is the always on-the-go spokeswoman for VSTR and her famous 
"hello" sign off is helping to make VoiceStream a household 
name.

VoiceStream Wireless is a hot stock in a hot sector.  VSTR has 
made some big gains in the last two weeks and continues to roll 
up.  We saw a brief period of consolidation and some profit 
taking on Tuesday and Wednesday in a week which offered a 
trading range of nearly $12.  On Thursday, VSTR made a bounce 
off of its 10-dma and looks to be continuing on with the upward 
portion of the channeling pattern that it has been trading in 
since roughly the first week of September.  The challenge has 
been finding a good entry point.  The recent profit-taking 
has thankfully provided us with just that.  VoiceStream looks 
to have established support at $84 and this should be an 
considered for a point of entry on a new play.   The next 
resistance should be at the all time high of $93.50 however, 
the channeling pattern has consistently yielded higher highs 
and therefore a breakthrough of this resistance is expected.  
We expect support from the 10-dma at $81.50 and again at the 
bottom of the current channel at $80.

VSTR has plans to sell $1 billion in senior notes and senior 
discount notes in a private placement debt offering.  The 
proceeds will most likely be used for possible acquisitions 
and debt repayment. On Tuesday, Paine Webber raised their price 
target for VSTR from $80 to $120.  VSTR released earnings $0.05 
below analysts expectations on Monday (another possible catalyst 
for Tuesday and Wednesdays sell off) but it included an extra 
$6.6 million charge.   

BUY CALL NOV-80 UVT-KP OI=260 at $9.00 SL=6.75
BUY CALL NOV-85*UVT-KQ OI=391 at $6.75 SL=4.75
BUY CALL NOV-90 UVT-KR OI=231 at $4.50 SL=2.75
BUY CALL NOV-95 UVT-KS OI=274 at $3.00 SL=1.50

Picked on Oct 28th at    $85.75      P/E = N/A                           
Change since picked       +0.00      52-week high=$93.50 
Analysts Ratings     13-4-1-0-0      52-week low =$16.38                  
Last earnings 10/99   est=-0.85      actual 0.90                             
Next earnings 01/00   est=-1.02      versus-1.03                            
Average Daily Volume = 1.63 mln
Chart = http://quote.yahoo.com/q?s=VSTR&d=3m

****

LVLT - Level 3 Communications $68.63 +5.56 (+6.25)

Level 3 Communications, Inc. is a communications and 
Information services company that is building the first 
upgradeable international network optimized for Internet
protocol technology.  The Level 3 network combines local, 
long distance, and undersea networks, connecting customers 
end-to-end across the U.S. and in Europe and Asia.  The 
company expects to complete its planned network construction 
in phases beginning in the first quarter of 2001.

Level 3 is one of many firms that is building long-haul fiber
optic networks nationwide.  There is exploding demand for 
data services and low-cost voice communications that has led
to the construction of dozens of new high-speed networks.
Level 3 is continuing to build smaller networks in cities
and business parks that link to their national networks.  The
new networks will represent the surface streets that will
complement the firms new network superhighway.  LVLT is 
selling there story, and Wall Street is buying.  They were
noted in a recent article as the "Toast of Wall Street".  
Since the earnings report the shares have traded up nicely
with the volume and moneystream just beginning to pick up.
The shares have shot up over ten points in less than a 
week, currently sitting at $68.63, the close for the day 
last Thursday was $57.31.  We believe we are at the 
beginning of the convergence between prices and volume, which
is bullish for the short-term.  The momentum should continue, 
but make sure you confirm the uptrend followed by strong volume 
before you take a new position, seeing that it has had a nice 
run, it might be due for a pullback.  A pullback to a major 
support level at $64.25 would be a good buying opportunity. 

After Wall Street received the third quarter earnings 
announcement in a favorable manner on Friday Oct. 22nd, 
Salomon Smith Barney was one of three firms that raised there 
near-term rating.  And also set a price target of $80 a share.  
The revision was on a price basis, noting that its share price 
has declined steadily since its record high of $100.25.

BUY CALL NOV-65*QHN-KM OI=1678 at $6.25 SL=4.50
BUY CALL NOV-70 QHN-KN OI=2332 at $3.13 SL=1.38
BUY CALL DEC-65 QHN-LM OI= 983 at $8.38 SL=6.38
BUY CALL DEC-70 QHN-LN OI= 964 at $6.00 SL=4.25

Picked on Oct 28th at    $68.63     P/E = N/A
Change since picked       +0.00     52-week high=$100.13
Analyst Ratings       5-3-1-0-0     52-week low =$ 29.88
Last earnings 10/22  est= -0.51     actual= -0.43
Next earnings 02/18  est= -0.65     versus= -0.11
Average daily volume = 1.78 mln 
Chart = http://quote.yahoo.com/q?s=LVLT&d=3m



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

INKT - Inktomi Corp. $96.56 +0.94 (-6.50 this week)

Inktomi Corp. provides fast Web search services, which can be
customized. One of the top sites on the Web, Yahoo uses the 
Inktomi search application.  Inktomi's Traffic server is a 
large scale network caching application licensed to Internet 
service providers.  INKT also makes online shopping software. 
They have operations in the UK as well as in the United States.
Inktomi competes in the market place with Compaq, Excite@Home,
and Infoseek.  San Mateo, CA is where Inktomi calls home.

Up until last Friday shares of INKT had been consolidating 
between the $112-$122 area.  Enter Henry Blodget, Merrill 
Lynch analyst.  Mr. Blodget cut his rating on INKT, and
projected wider losses at the company.  By the end of the day
INKT had lost $17.44 in the value of its stock on volume
of about 9.4 mln shares, almost six times its ADV.  For those
that don't want to do the math that's a loss of about $900
million off Inktomi's market value.  All this for a rating 
cut to Neutral from Accumulate.  Blodget who is one of the 
more noted Internet stock analysts, doubled his loss 
estimate for the current fiscal year to $24 million.  Blodget 
went on to say that "just meeting or reducing future estimates
will normally bring a company's valuation back into play".
The first two days of the week INKT bounced back up to the
$108 area only to be met by waves of selling, but managing
to stay above its 200-dma at $102.13.  Yesterday INKT fell out
of bed again, taking out its 200-dma loosing over $7 for the 
session.  Today Henry Blodget commented on AMZN writing that 
analysts and investors are tiring of the "endless postponement 
of gratification" or profits.  His comments made it tough going 
for many of the stocks in the Internet sector.  With strength
in the major indices today, INKT was able to pick up only 
$1 of yesterday's losses leading us to believe there is more 
room to the downside.  The support for INKT is in the $87-88 
area.  Look for further weakness as an opportunity to buy puts.  
As always, consider your risk profile prior to entering a new 
play.

BUY PUT NOV-95*QYK-WS OI=1029 at $5.00 SL=3.25 
BUY PUT NOV-90 QYK-WR OI= 920 at $3.00 SL=1.50

Average Daily Volume = 2.12 mln
Chart = http://quote.yahoo.com/q?s=INKT&d=3m


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

LTR - Loews Corporation $68.50 +0.50 (-0.38)

Diversified holding company Loews Corporation's main interest
is insurance, through publicly traded subsidiary CAN Financial.
other holdings include tobacco (the Kent, Newport, and True US
cigarette brands, through litigation-addled subsidiary Lorillard
Tobacco Company); 15 hotels in the US, Canada, and Monaco 
(through subsidiary Loews Hotels); watchmaker Bulova; and 
contract oil-drilling subsidiary Diamond Offshore Drilling, 
which operates 46 oil rigs.  The company also owns a minority 
stake in fiber optic company Global Crossing.

Sunday's Write Up

After the carnage of Tobacco stocks this week, they got a 
little bounce on Friday, along with the rest of the overall 
market.  Bargain and value players stepped in to the tobacco 
stocks after R.J. Reynolds Tobacco Holdings Co. reported 
there earnings which beat expectations.  We believe that this 
was a bounce that will not have very much follow through for 
the stocks like LTR in the tobacco group.  It was reported 
last week that on Nov 1st a jury will decide on the class 
action suit against the industry that could lead to an 
estimate $300 billion in punitive damages.  Gone are the 
days when the tobacco companies will be protected from 
punitive damages in lawsuits.  That is negative news and 
ahead of the ruling we believe the stocks will continue to 
suffer.  From a technical standpoint the shares of LTR did
not break any major overhead support levels, which 
currently sits at the 71 level.  If the turnaround is for 
real these levels will be violated.  Going forward we expect 
the pressure to the downside to resurface, confirm the
strong momentum and volume pressure to the downside before 
entering a new position.  The downtrend clearly is still in 
place.  $70.50 is our current resistance point. 

Tuesday's Write Up

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.

Thursday's Write Up

U.S. stocks soared today after the Labor Department reported 
that workers wages and benefits are increasing at a slower 
than expected pace.  The report hopes that inflation is not 
threatening the economy's health.  In other news, the New York 
state's highest court upheld a lower court's decision to 
dismiss five class action suits brought against U.S. tobacco 
companies, in a ruling industry analysts said highlights a 
trend in pending tobacco cases.  This was positive news that 
had even the tobacco stocks soaring, at least in early trading.  
Looking at today's chart, it looks like traders bidded the 
shares up for a one day trade, and then at around noon it 
looks as though the carnage resumed.  The stock plummeted in 
the afternoon from an intra-day high of $71.75, to close at 
$68.50.  We believe that traders took a step back and 
remembered that there is a jury decision to be announced in 
Florida on Monday.  Going forward the downtrend is still in 
place below $71.  Be cautious ahead of Monday's ruling. 


BUY PUT NOV-70*LTR-WN OI=165 at $3.38 SL=1.50
BUY PUT NOV-65 LTR-WM OI=208 at $1.19 SL=0.00 High Risk!

Average Daily Volume = 241 K 
Chart = http://quote.yahoo.com/q?s=LTR&d=3m 



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

Markets Rally On Favorable CPI/GDP Data..

Wednesday, October 27

Equity markets were mixed on Wednesday as financial issues moved
higher and technology stocks slumped on profit-taking. The Dow
climbed 92 points to close at 10,394, while the Nasdaq finished
8 points lower at 2,802. The broad market was slightly upbeat as
the S&P 500 index closed 14 points higher at 1,296. Advancing
issues outpaced decliners 1,741 to 1,302 on active volume of 899
million shares. The 30-year U.S. Treasury bond rose 24/32, moving
its yield down to 6.32%.

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

3Dfx      TDFX   MAR10C/DEC10C   $0.75   debit  calendar
NetBank   NTBK   JAN22C/DEC25C   $2.00   debit  diagonal 
Pixar     PIXR   DEC35CC/35NP    $32.50  debit  covered-combo

All of our new positions were available at or near their target
prices on Wednesday. PIXR moved lower early in the session and
the target was adjusted slightly lower. A cost basis of $32.50
should have been available. We will record the play at the best
observed price of $32.50. TDFX was basically unchanged for the
first hour of trading and the net-debit target was within $0.06
of the quoted price. NTBK was the most difficult position with
no volume on the short side of the spread. The suggested entry
should have been available, as the offered price was just $0.12
above our suggested entry.

Portfolio plays:

The market closed on a positive note as rumors spread that the
upcoming labor costs report; due out on Thursday, was expected
to relieve analyst concerns about inflation. The Labor Bureau
denied the data had been released prematurely but speculators
moved into bullish positions ahead of the scheduled report. The
positive comments from a Federal Reserve president and a lower
bond market also soothed worries about higher interest rates.
Analysts say there is a ton of money waiting on the sidelines
if Thursday's release of the ECI and GDP data is favorable and
investors should have a better indication on what the Federal
Reserve plans to do with interest rates at the policy-setting
meeting on November 16.

Internet stocks were subdued today after eBay Inc (EBAY), the
online auctioneer posted a modest profit along with a big jump
in expenses. EBay closed $13 lower at $138 and our new straddle
will benefit if the stock falls further in the short-term. Most
of the performers in our spreads portfolio were smaller stocks
as investors moved back into growth and speculative positions.
Communication stocks appear to be one of the few groups moving
higher on a regular basis and today 3Com Corporation (COMS) was
in the news again as one of the world's largest advertising and
marketing communications agencies announced it is standardizing
a next generation Gigabit Ethernet on 3Com's CoreBuilderŪ 9000
system. The 3Com network will deliver 100 Mbps connections to
users in the new state-of-the-art facility.

Global Crossing (GBLX) was another positive issue today after
posting a smaller-than-expected third quarter loss as revenues
increased 7.5%. After they beat the Street estimates the stock
price climbed $1.06 to $35. Global Crossing recently acquired
Frontier and Global Marine Systems, becoming the fifth largest
long-distance company in the United States.

Price Communications (PR) was again the loser of the group as
the effects of a recent downgrade continued to haunt the issue.
In the interest of capital preservation, an exit debit of $0.75
was available during the morning session. Those of you in the
February calendar spread have ample time to recover losses but
the funds could also be used to earn profits in other positions.
Wells Fargo (WFC) continued higher today with the (bullish) bank
and financial issues. The technicals of the stock are changing
character rapidly with the rallying sector and today's opening
gap was a good indication of its short-term strength. The early
exit for the January ($42.50 call) position provided a closing
credit of $1.68 and there may be another entry opportunity after
the FOMC meeting in November.

Thursday, October 28

Blue-chips extended their recent gains Thursday after a benign
report on labor costs improved the inflation outlook. The Dow
Jones Industrial Average jumped up 218 points to 10,613 while
the Nasdaq composite index climbed 59 points to 2,861. The S&P
500 stock index was up 40 points at 1,337. Equity trading was
heavy with more than 889 million shares exchanged on the NYSE.
Advancing issues led declines 2,082 to 945 but there were only
72 stocks at new highs while 121 issues reached new lows. The
30-year U.S. Treasury bond was up 28/32 with the yield falling
to 6.26%.

Portfolio plays:

Today's leaders in the big-cap technology issues were Qualcomm
(QCOM) and Broadcom (BRCM), both up $10 on new buying pressure
from public and institutional investors. Our recent star JDS
Uniphase (JDSU) was also in the hunt with a $7 rally to a new
high at $152.50. JDSU exceeded Wall Street's quarterly earnings
expectations by $0.04 a share as the fiber-optics maker reaped
the benefits of a 104% increase in sales, reflecting growth in
the company's component and module businesses. Telecom stocks
were also on the move with Global Crossing (GBLX) climbing to
recent resistance near $37 and Bell Atlantic's (BEL) $2 rally.
The issue is once again at our sold position and this neutral
calendar spread has been one of the most profitable plays in
the combo's portfolio over the past two months. We expect to
double our initial investment in the position by the end of the
year.

In the long-term portfolio, Sun Microsystems (SUNW) rocketed $6
higher after Deutsche Banc Alex Brown raised its target on the
stock to $100 from $93. Our bullish diagonal spread is now $13
ITM and we will have to consider another roll-up to keep the
sold option near the stock price. Other issues in that section 
participated in the rally. Computer Associates (CA) moved up
$2.81 to $55 after a recent slump and the technical outlook is
improving with new support in the low $50 range. Motorola (MOT)
recovered $2.31 to finish at $93, just short of our sold option
for November. If the stock price can remain near this range for
the next few weeks, the LEAPS/CC"s position will move back into 
profitable territory. Our Medtronic (MDT) spread is now in the
black after the stock made a big $2.31 move to $35. The company
announced today that they have signed three agreements in which
they will supply spinal and cardiac care products to more than
2,000 health care organizations that purchase supplies through
Novation, one of the leading distributors in the industry. Our
old favorite Polaroid (PRD) continues to rebound from oversold
conditions and it is now trading near the bottom of the recent
range near $22. It remains to be seen whether or not the issue
will attract any new long-term investors after the devastating
profit warning.


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

Today's rally brought the Dow back to where it was earlier in the
month but despite the positive move, investors are still worried
about the possibility of a sell-off after Fed Chairman Greenspan
speaks to a Business Council in Florida this evening. The master
of the market is expected to talk about rising inflation and the
two-year high in the bond market, which has been a recent source
of concern for stock investors. The potential for higher interest
rates didn't stop the financial stocks today and insurance issues
also continued to rally. There were two straddle positions which
benefited from the move. Hartford Insurance Group (HIG) managed a
mid-day high near $51 and the credit for the March position moved
to $11.50, a suitable price to exit the play. Allstate (ALL) also
enjoyed a nice rally, up $2.12 after an upgrade by Keefe Bruyette
this morning. The April straddle is now profitable with a $6.00
credit available for the position.

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



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

DISCLAIMER

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

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

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

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives