Option Investor
Newsletter

Daily Newsletter, Tuesday, 11/30/1999

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The Option Investor Newsletter         Tuesday  11-30-99
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)
************************************************************
        11-30-99           High     Low    Volume Advances Decline
DOW    10877.80 -  70.10 11045.50 10873.60   966,560k 1,590  1,516
Nasdaq  3336.16 -  85.21  3424.61  3326.53 1,544,763k 1,823  2,339
S&P-100  738.74 -  10.55   751.51   737.71    Totals  3,413  3,855
S&P-500 1389.07 -  18.76  1410.59  1386.95            46.9%  53.1%
$RUT     454.08 -   2.87   456.95   452.39
$TRAN   2909.72 +   9.53  2933.99  2899.91
VIX       24.95 +   1.26    25.29    23.36
Put/Call Ratio       .53
*************************************************************

Entry Point?

Now don't start whining about the drop in the markets today.
We have been warning for some time that the Nasdaq will eventually
pull back on profit taking. I have mentioned several times that
the week after Thanksgiving would be stressful. Historically
this week is a pause to refresh from a fourth quarter rally.

On Sunday I suggested that a Nasdaq dip this week should be a 
buying opportunity. If you bought the dip yesterday then you
are not a happy camper today. The -40 Nasdaq drop yesterday
was only a teaser for what was to come. The -50 point drop
this morning was the second act. The Dow was in rally mode
and prepared to run into December and at +80 most of the morning
it held the Nasdaq to a minimum loss. Unfortunately the top
heavy Nasdaq was just too much for the Dow to support and the
bleeding began in earnest around noon. The Nasdaq closed -85
at 3336 just +16 points from the next support level.

The Dow fought valiantly to stay above 11,000 but it was not 
going to happen. After the profit taking on the Dow yesterday
it was ready to roll today even after negative inflation reports
this morning. This was a good sign and should help us going 
forward.


 


 

The Nasdaq was up over +500 points in November and we have
now given back -133 points in just two days. It is amazing
how quickly traders can go from feast to famine. The Nasdaq
was setting records every day and many traders were buying
at any cost to prevent the tech rally from leaving them behind.
Suddenly traders are fleeing in disgust and frustration. 
Hopefully OIN readers were ready to exit when the selling
started and also are ready to re-enter when the rebound starts.

The NASDAQ's next level of support at 3320 could be just the
next stop in a larger drop. In my worst case scenario I have
3200 as the bottom but I do not see this happening. With the
-133 point we have already dropped -3.8%. Analysts only
expect a -5% (3295) to -7% (3225)drop in total. I think the
bullish sentiment of the Nasdaq has not stopped. This is just
the profit taking we have been expecting. The money is still
coming off the sidelines and the smart money is just waiting
for a sign that the bottom has been reached. 

The talking heads on CNBC never cease to amaze me. For the
last two weeks they have been citing worries from traders
that the Nasdaq had gone too far too fast and was due for
a pull back anytime soon. Today they are uncovering rocks
everywhere they go to "find out what is driving this market
down." Every reason under the sun was used as the selling
excuse today. 

1. Year end portfolio adjustments.
2. Tax loss selling.
3. End of November portfolio adjustments.
4. Hedge fund selling/shorting.
5. Y2K concerns.
6. Fund managers locking in their yearly bonuses.
7. Traders off for Y2K (see below)
8. Profit taking? 

There are many traders and fund staff off this week. Their
employers refused to let everyone off the normal week between 
Christmas and New Years and gave them this week instead. From
the volume in the markets it does not appear they were missed!
 
Fortunately those of us who study the market, instead of just
report it, know that December is historically the third best 
month for gains. There is actually an old saying about the
late November. "Bears have Thanksgiving, Bulls have December." 
So let the profit taking continue because the selling builds 
a better base for the December rally.

The economic reports for the day consisted of the Chicago
Purchasing Manager Report which came in at 56.8. The highlight
of course was the prices paid component which zoomed from 65.4
in Oct to 70.9 today. Inflation anyone? Secondly the consumer
confidence index soared as well for the first time in five 
months. Consumers are less afraid of Y2K, fully employed, and 
with the Fed is on hold until next year their retirement 
accounts are safe. Tomorrow will bring the NAPM report which 
should reflect the Chicago numbers today. A higher prices 
paid component will impact bonds and indirectly the market. 
Should the component be magically the same or lower then we 
could see a firming in the market. I do not however see any 
major rebound until after the Non-Farm Payrolls on Friday. 
With rumors that unemployment could possibly have fallen to 
something under 4%, traders will not want to make any big 
bets until the smoke clears. As a side note, did you notice
that the advances beat the decliners on the NYSE today by
a margin of 1597 to 1513? It was not a big win but with 
strong volume of 953 million shares it shows that the 
internals may be improving. This could be the first sign 
of any December strength.

The silver lining to this cloud came after the market close
today. Yahoo! was selected to be added to the S&P-500. YHOO
had closed down -13.38 at $212.75 in regular trading but
quickly jumped +$22 in after hours. The final trade in after 
hours was $234.81. The announcement powered the Nasdaq
futures from a -5.00 to a +9.50 and brought the S&P futures
back from a -4.90 to only -1.70 at press time. Will this be
enough to stop the Nasdaq in mid drop? Who knows, but it can't
hurt. Short sellers will be scrambling at the open to cover
before all the buying by index funds drives up the prices
even more. In after hours trading prices were up across the 
board with AMZN +2 to 87, BRCM +10 to 185, QCOM +3 to 365, 
etc. Keep your fingers crossed! 

If you have been moaning about high flying stocks and how
you missed the boat last month then pack your luggage. Your
new ship just came in. For the last 25 years the Nov/Dec/Jan
period has had the strongest gains. Investors that took 
positions for this three month period had gains equaling 
the other nine months of the year. While the Y2K event 
could be an unknown for this December the fact remains that
after today we have some really good entry points in many
of the Nasdaq stocks. QCOM is resting right on strong support
at $360. Look at a one minute chart of QCOM. It stopped dead
at $360 an hour and a half before the close and failed to
drop any farther. JDSU bounced strongly off support at $221
just before the close and went back to almost $229. YHOO
bounced strongly off support at $210 but you will not catch 
this one at the open. YHOO is a split candidate for sure now.
CMGI failed to touch support again at $145 at the close after 
spiking down to that point at the open. After the huge gains 
of the last week you could have gotten it today on sale for 
-$25 off it's high. BRCM bounced off support at $175 and 
closed at $180 almost -$35 off last weeks high. These prices 
may not hold depending on how strong the YHOO effect is 
tomorrow but I would venture to say they were very close 
to the bottom. WAIT for confirmation of a rebound but be 
prepared. With the YHOO announcement we could get a false 
bounce but maybe it will keep us afloat until after the 
Jobs report on Friday. That should be the green light for 
the December rally if it is going to happen. With Y2K fears
easing we should have a good chance.

Days like yesterday and today test the education and trading
skills of even experienced traders. Everybody is looking for
that next killer trade and caution is ignored. The first drop
with a rebound behind it is bought with a vengeance and the
problem begins. Be honest now. Did you buy the first dip on
Monday? Did you buy the morning dip today? A "yes" answer to
either of these questions is not bad. The million dollar
question is "did you sell when the market started falling
again?" A "no" answer here is a sign of an inexperienced 
trader and could be a costly mistake. If you held did you 
sit and watch the market/stock bleed dollars while you kept
convincing yourself the next level, only $x from where you
were, would be the bottom? If it broke that level, you would 
sell, right? Did you sell or did you pick another level a
dollar or two lower and draw your line in the sand there?
Did you then erase that line and the next and the next? Do
you wish you had sold at that first number now? Of course
you do and that is the lesson. You never know how far that
next drop will go. Is this when Y2K rears it's head? Will
the NAPM numbers tomorrow morning be bearish? Will the worry
about the Non-Farm Payrolls on Friday knock us down a couple
notches? The point - you never know and until you learn to 
play the cards the market deals you, you will be doomed to 
frustration, lack of success and loss of capital. Remember,
"the mistakes you make are not as important as the lessons 
you learn from them." If you don't learn from these mistakes,
you are doomed to repeat them. 

Good Luck, Sell Too Soon.

Jim Brown
Editor



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

A Primer on Taxes and Options
By  S.P. Brown

Everyone knows that there are two certainties in life:  death 
and taxes.  And when it comes to calculating and paying taxes, 
death often seems preferable, especially when calculating 
taxes due from investment transactions.  

/members/stocknews/113099_1.asp



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

As of Market Close - Tuesday, November 30, 1999 

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

DOW Industrials   10,750  11,320  10,878    Neutral  11.12
SPX S&P 500        1,340   1,425   1,389    Neutral  11.30  *
OEX S&P 100          700     755     739    Neutral  11.30  *
RUT Russell 2000     430     450     454    BULLISH  11.12
NDX NASD 100       2,650   3,150   2,967    Neutral  11.30  *
MSH High Tech      1,340   1,630   1,535    Neutral  11.30  *

XCI Hardware       1,075   1,160   1,161    BULLISH  11.11
CWX Software       1,000   1,160   1,165    BULLISH   9.03
SOX Semiconductor    560     660     609    Neutral  11.30  *
NWX Networking       650     800     752    Neutral  11.30  *
INX Internet         525     675     609    Neutral  11.30  *

BIX Banking          645     690     624    BEARISH  11.30  *
XBD Brokerage        395     450     429    Neutral  11.30  *
IUX Insurance        625     650     600    BEARISH  11.30  *

RLX Retail           875     920     922    BULLISH  11.23
DRG Drug             375     395     387    Neutral  11.30  *
HCX Healthcare       750     790     769    Neutral  11.09
XAL Airline          180     190     146    BEARISH   5.21
OIX Oil & Gas        285     315     300    Neutral  11.23

 
Posture Alert    
POSTURE ALERT! Technology stocks ended November in poor fashion, 
however, they did top off a solid month of gains. Losers for 
Tuesday were led by Internet (-5.98%), Morgan Stanley High Tech 
(-4.24%), Networking (-3.56%), and the NDX (-3.15%). Winners today 
were limited to Brokerage (+1.59%), Banking (+1.53%), and Airlines 
(+1.08%). With this week's action, there have been numerous 
changes to the posture board. Sectors that were lowered from 
Bullish to Neutral are Drug, Brokerage, Internet, Networking, 
Semiconductor, MSH, NDX, S&P 100 and S&P 500. Sectors lowered to 
Bearish from Neutral include Insurance and Banking.



****************
OEX FLASH UPDATE 
****************

The Skybox Delivers for Index Option Traders 
Tuesday, November 30, 1999

While the S&P 100 sold off more than 2.5 percent since 
Thanksgiving, the OEX Skybox posted its third consecutive 
winning position for profits totaling $19,500 while posting 
one of its biggest trading period since its inception.

/members/marketsentiment/113099_2.asp



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

Tuesday, November 30, 1999

The Internet Bubble is Bursting!

The Nasdaq finally took one on the chin, closing down -85 on strong 
volume, and dragged the rest of the market with it. Some say it 
was a bout of profit taking, which was definitely due, however, 
some indicators may be indicating the end of the current bull run.

Sentiment in the marketplace can change very quickly, and we are 
always quick to react. We've highlighted in the past that overall 
sentiment is key, and noted recently that we were discouraged with 
the fact that the Investors Intelligence Survey say a bullish jump 
from 39% to 52% in a matter of weeks. This was a cause for 
concern, but before we can continue on the uptrend in the market, 
we need more bears to join the ranks.

Another issue that we were concerned about, but was swept under the 
rug by the major media outlets these last several weeks, was the 
current bump up in the yield on the 30-yr Treasury. This week, the 
major news sources started to highlight this issue, which has not 
helped this market. Based upon technical analysis, we view 30-yr 
Treasury as breaking support, and as such, it may soon be at new 
highs. If this scenario occurs, look for more damage in the equity 
markets. 

To add to the negative issues, is the volatility index (VIX, 
24.95). With today's action, the VIX broke through the 50-day 
moving average. This has been a very accurate indicator in the 
past, and the violation of this moving average would suggest an 
end to the current bullish run.
 
Finally, the Internet bubble must be bursting! The reason for this 
has nothing to do with technical analysis, fundamental analysis, 
insider information, research, demographics, or any other kinds of 
witchcraft. The reason for this title is that we noticed a dozen 
publications this weekend highlighting the fact that President 
Clinton will be shopping on the Internet this Christmas season. If 
these rumors of the President are true, then the Internet sector 
MUST BE 100% saturated, and everybody in the world must already 
be on it. However, we are sure that while the President is surfing 
the 'net, he may come across some good Monica jokes, or least find 
some "tasty cigars"! Sorry folks couldn't resist that barb (no 
hate emails please).

Now to end on a positive note for the bulls, the selling today 
was very orderly again, and very similar to last week's selloff. 
If you recall from last week, we made up the losses very quickly. 
To be sure that the end of this current run is not over, we will 
need to see several things happen very shortly. We need to see the 
VIX break below 24.50, we need the 30-yr Treasury to get below 
6.2%, and we need technology stocks to rally. If any of these 
scenarios occur soon, then let the party continue; if not, expect 
more downside pressure followed by a consolidation period.


BULLISH Signs: 

Cash Flow:
The amount of money being poured into this market continues to be 
staggering. 

Short Interest:
Short interest for the Nasdaq is at an all-time high, and increased 
another 1.4% from October. Short interest on the New York Stock 
Exchange rose 72,007,030 shares in the month ending Nov. 15 to a 
total of 4,061,057,060 shares.

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


Mixed Signs:

Volume:
Tuesday's (11/30) volume was a top 5 record breaker, and is also 
the first down day to crack the top 5.


BEARISH Signs:

Moving Averages:
All of the major indexes have broken their 10-day moving averages, 
suggesting more short-term selling pressure.

Volatility Index (24.95):
The VIX broke through the 50-day moving average, indicating that 
the current bullish run is over.
 
Interest Rates:
The yield on the 30-yr Treasury broke support, and may soon hit 
52-week highs.

Advance/Decline Line:
The A/D line's continual break does not serve the best interests 
of the overall market.

Investor Intelligence:  
The rapid change from bearish to bullish sentiment has been too 
great, and may indicate a near term top in the market.

Energy Prices:
With the rapid rise in crude oil, everything from manufacturing to 
transportation will be affected by higher costs. These higher cost 
will be felt more 1-2 quarters out, and could put pressure on 
profit margins.


OTM Call Analysis

As we move closer to the December expiration cycle, Pinnacle is 
tracking the level of call buying (OTM) between 720-810 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%
Friday, October 29        75,022       +92.0%
Friday, November 05       89,143      +128.1%
Friday, November 12       94,610      +142.1%

December Expiration Cycle
OEX OTM Call Analysis (Open Interest December 720-810)
Date                 Open Interest     Change %    Alert

Friday, November 19       36,165          -
Friday, November 26       55,598       +53.7%

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                       (11/26)    (11/30)

Overhead Resistance (750-760)    1.50        1.15

OEX Close                       753.57     738.74

Underlying Support (730-745)     1.82        1.98


What the Pinnacle Index is telling us:
Based on 11/28, overhead resistance continues to decrease. 
Underlying support is also increasing, which should give the 
market more strength.


Put/Call Ratio                  Friday     Tues
Strike/Contracts                (11/26)   (11/30)

CBOE Total P/C Ratio             .42        .53
CBOE Equity P/C Ratio            .32        .46
OEX P/C Ratio                   1.29       1.83


Peak Open Interest (OEX)
                     Friday           Tues
Strike/Contracts     (11/26)          (11/30)


Puts                 750 / 6,887      750 / 9,394
Calls                750 / 6,533      750 / 7,185 
Put/Call Ratio         1.05             1.31


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
November 19, 1999   Top?                19.63
 
November 30, 1999                       24.95


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. 13, 1999       Bottom?           39.2        37.5

November 18, 1999                     52.1        29.9



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

Daily Results

Index      Last    Mon    Tue    Week
Dow     10877.81 -40.99 -70.11 -111.10
Nasdaq   3336.16 -26.44 -85.21 -111.65
$OEX      738.74  -4.28 -10.55  -14.83
$SPX     1389.07  -8.79 -18.76  -27.55
$RUT      454.08  -1.99  -2.87   -4.86
$TRAN    2909.72  -8.97   9.53    0.56
$VIX       24.95   0.74   1.26    2.00

Calls              Mon    Tue    Week

STM       125.06   2.31   2.69    5.00  New, too many buyers!
IBI        42.88   2.25   2.69    4.94  New, tis the season.
CMGI      147.31   8.88  -8.19    0.69  More fantastic profits
MSFT       91.03  -0.94   0.84   -0.09  MSFT maintains position
SNE       184.19   5.81  -7.56   -1.75  Sony is always the giver
VRTY      103.47  13.63 -15.66   -2.03  Dropped, the market taketh
GTW        76.38   0.06  -2.75   -2.69  Drop hurts, but still ok
VVTV       45.00   1.19  -4.00   -2.81  Right at the 10-dma
HGSI      112.00  10.69 -14.19   -3.50  Quickens the pulse!
MACR       65.75   0.13  -3.63   -3.50  Bullish on the shares
SUNW      132.25   0.75  -4.56   -3.81  Dropped, profits locked in
IMCL       36.38  -3.19  -1.63   -4.81  Looking for sector recovery
GMST      112.75  -0.69  -5.06   -5.75  A second opportunity?
EMC        84.00  -1.81  -4.81   -6.63  No longer at a crossroads
NT         73.88  -1.69  -6.13   -7.81  Offers buying opportunity
NOK       140.00   3.75 -12.50   -8.75  Sure enough, the gap fills
QLGC      113.13  -4.63  -6.38  -11.00  We like nice and orderly
VRSN      185.81  -1.38 -10.81  -12.19  Big gains = profit taking
YHOO      212.75  -0.75 -13.38  -14.13  The future looks bright!
BVSN       93.06  -4.63 -13.31  -17.94  Dropped, downgraded
QCOM      362.31 -13.50  -8.94  -22.44  QCOM has strong support
SDLI      162.75 -22.31  -1.69  -24.00  Good relative strength
BRCM      179.06  -4.19 -23.88  -28.06  Did we say ugly at $180?
JDSU      228.75 -13.88 -23.38  -37.25  Entry point, entry point!

Puts

CPTH       55.69  -1.38  -4.94   -6.31  New, system outage again
RMBS       70.56  -5.56  -0.75   -6.31  A great day for entry!
EK         61.88  -1.69  -0.94   -2.63  New, problems ahead??
WLP        57.56  -1.00  -0.50   -1.50  WLP tries to find support
HWP        94.88   0.63  -1.13   -0.50  Dropped, too much good news
GT         33.75  -0.88   0.50   -0.38  GT ventures to new depths
BOW        49.00   0.09   2.03    2.13  Lives up to reputation
CI         82.25   0.69   2.13    2.81  Dropped, bounces back



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



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


The Option Investor Newsletter         Tuesday  11-30-99
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


************
WOMANS WORLD
************

Lessons My Daddy Taught Me - By Accident

"Thank you, Daddy". That's one thing I wish I could say to him 
now. As a child, probably around 6, I would lay in bed next to 
him and look up at the financial times he was reading. I could 
barely read myself. I have no idea why I did that, except to be 
close to him. At this young age, I clearly remember him explaining 
to me, what the "bid" and "ask" was. He was a child of the 
depression, an orphan, very bright and an industrious man. I don't 
think he really understood what gifts he gave me, for the pain of 
his youth followed him through out his life. He was a hard worker, 
staying with the same company for >20+ years. 

My Dad was a numismatician and eventually opened a coin shop as 
a side business, which had started as a hobby. He had national 
coin shows, wrote newspaper articles and followed the gold & 
silver markets, which was used as a hedge against inflation then. 
"The Shop" became an after school job for me, mostly in lieu of a 
babysitter. I was just cheap labor doing nonsense things. But by 
high school, through osmosis, I had accidentally learned the 
economic relationships of gold, inflation, and the dollar. 

In high school, I pretended to buy Braniff stock, because I had 
fun on a trip I had taken. I followed  that stock for years, as 
if I owned it. It's what we call paper trading today. It didn't 
do well. I remember how hard it was to find out information on 
it. Today, with the internet, research information is available 
to all. 

Later a mentor led me to the book "The Only Investment Guide You 
Will Ever Need" by Andrew Tobias. A Best Seller in 1979. As I 
look through this book now, I still feel it is an excellent basic 
financial book, to learn market lessons useful in playing options. 
His humor held my interest and helped my young mind learn. During 
a professional break, I sidetracked to get a securities license 
(series 7), dabbling in financial planning, before the days of 
certification. The Oct. '87 crash occurred during this time, 
which scared me half to death. I no longer trade for others

I was young and I had followed the herd over the cliff. I did 
not know how to do my own research well.  Nauseated, I left the 
markets completely for 8 years. I missed a good part of the early 
bull recovery, dismissing the rebound, waiting for it to crash 
again. Eventually, I decided to start studying, in order to 
revive my account. 

I started reading about options. I read the financial news and 
sold off the dead weight in my account. I still had no money, 
but I convinced myself that the little I had, was enough to play 
options. (In retrospect, I was nuts!) I read a very basic options 
book, then went to a seminar in order to "Double My Money...".(joke!) 

It was so exciting. On the last day of the seminar, I placed my 
first trades while in class. I was so proud of myself, bravely 
following the teachers (herd). I remember it VERY clearly about 
11:00 a.m. on Dec 6, 1996.  Only a couple of hours later, my 
options began moving quickly, just as they said they would. It 
was the day I learned who Alan Greenspan was, for he then gave 
a speech using the words "irrational exuberance". It was my first 
lesson in volatility, inflated premiums, the Fed and how fast you 
can loose money. If I was to stay in, I had to learn how to play. 
Obviously, this was lesson ONE.

By March 31, 1997, I had continued to place losing trades and 
dropped my account -42%. Looking back, it was a time of interest 
rate uncertainty, similar to this year and the only other bad 
losing period I have had. I had not yet learned how to "play 
the Fed". I knew nothing about the stocks I was picking. Then 
one day, I heard about Pfizer's experimental drug Viagra. Being 
in medicine, I could suddenly relate to how valuable this product 
would be on the market and to the company. A similar thing 
happened with IBM. which I also related to. By June I had regained
my losses and the rest of the year was a winner. My PFE bought @ 5 
were sold for 28 1/5. This was lesson TWO.

What I had learned was to play things I understood, play companies 
I knew something about and only things I could relate to. Play 
where I had an edge on the next guy. We all have an edge, that 
gives us a second sense about the right play. Start with your own 
knowledge base & interests and become a sponge to news about those 
companies. Play this inherent strength, until you can learn to 
understand basic technical analysis. Never buy an option on a 
company you know nothing about. This one change put me in winning 
positions for years to come. I have continued to add to my 
knowledge base. Lesson THREE.
 
My question to you is, just when did I start learning how to play
options and the financial markets? Did I begin learning in 1996, 
with this first trade? Or did I begin learning while in bed with 
my Daddy, at age 6? My point of course, is never think your 
children are too young (or you are too old) to learn. Everything 
you do, read or hear, that is even remotely associated with 
finance, will add to their knowledge. Can anyone say Pokemon? 

My Dad had NO IDEA what foundation he was laying for me. Imagine 
if we all spent just a little bit of time, explaining simple 
concepts of wins and losses with kids. Imagine if they dissected 
our mistakes, or went to a basic seminar. It may well resurface 
years later. It may be the best gift you could possibly give them. 
For me, the early lessons from Dad, beginning at age 6, certainly 
was a life long gift. 

Thank you Daddy, for giving me a head start. I love you, miss 
you and wish you were still here, to see me now. You were the 
smart one!!!

Renee
renee@OptionInvestor.com


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

Down at the Pool Hall

Down at the local Irish Bar, over a pint of Guinness, 
I am formulating my plan for December...

Situation. It looks good, but we are skating on thin ice. To 
borrow a militaristic metaphors, this month's bestrewn with 
landmines. The first is end of November window dressing, which 
may result in some December 1st reshuffling and volatility as 
fund managers rebuy losers and sell off the winners which they 
bought at the last minute so that they could put them in their 
top ten holdings statistics. Next, comes end of the year tax
selling for institutions. I need further details on the dynamics 
of this. Of course, the overall trend should remain bullish, 
with Holiday ecommerce buzz in everyone's cyber stocking. But 
a close look at last year's December should provide a cautionary 
tale. I remember it as my first month of dabbling in option 
trading, and the saws of the intraday teeth were sharp in the 
charts. 

Mission. The goal is to make money. I plan to skin the beast 
in two ways -- short term (1-3 day) trades; and January 1, 2000 
trades. 

Execution. My plan is to take positions in 3-5 options at a 
time. My competitive advantages are the newsletter picks, 
execution by my broker, patience & discipline. I am going to 
be very disciplined about target shooting both December and 
January Calls at support levels with Preferred Trade's "buy to 
open," market order, stop on stock, at the suggested support 
level in the newsletter write ups. For instance, I would have 
loved to use this method to get a fill on NOK Calls when it 
dipped to support at 130 before shooting up to 139 last week.
In November, I simply bought baskets of 5 to 10 newsletter call 
plays and held them for extended periods of 3 to 7 days. That 
worked in a steadily ramping market, yielding several 100+% 
plays. I exited those plays with limit sell orders, but had no 
downside protection. December won't be so easy. This month, I 
expect to be in plays for 1 - 3 days and to take whatever profit 
I can get. I plan to exit my plays with a combination of trailing 
stops, which I move up behind the plays, and limit sells which I
monitor closely. As well, I have a list of stocks (SUNW, YHOO, 
SNE, NOK, GTW, AOL, MSFT) that I want to have open call positions 
on when Y2K rolls around. So, for those stocks, I am trading 
January options, and I will try to "pay for" a few open contracts 
with a successful trade that leaves me with both a profit and the 
remaining contracts which I hold until the new year. Here's how 
that might work: 

1. Buy 5 YHOO Calls on a dip at a support level 
2. YHOO advances 15 points, then drops 5 
3. Exit 3 of the YHOO Calls for a 66% profit with a trailing stop, 
holding 2 for a more prolonged Jan 1st play 

I have my principal back, as well as a position that I can let 
run into the new year and YHOO earnings (note also MSFT, AOL, 
and other earnings in January). Finally, I plan to avoid OEX 
plays. Looking back at October and November, I have lost money 
on OEX plays. I am just not good enough to play a specific stock 
and time the overall market too. So, I am going to avoid losing 
money in those plays. 

Did you ever notice what makes a good pool player? Restraint 
and tact. Good players don't hit the ball as hard as they can or 
show off. They hit the ball only as hard as they need to, often 
just barely dropping the ball in the hole with a well placed 
shot. Their shots often leave the cue ball well positioned for  
the next shot. That's what a good option trader will do with his 
capital. Take the 15% on an AOL trade, put it back in the portfolio,
and take another 25% profit on NOK. Christine, one of our local 
club members, has been shaving 30% gains off of each end of DELL's 
oscillation with puts and calls -- one profitable trade after 
another. Good pool players also respect their opponents, always 
shake hands, make friendly conversation, and keep their cool. In 
our game, our opponent is Mr. Market, the collective will of all 
of the players out there, from the new online broker customer 
with $1000 to Mary Meeker. Winning and losing is very emotional, 
but you can't afford to let any single day or week take you out
of the game, or you should invest in mutual funds. Along with 
tact, humility makes a good pool player -- if you ever think you 
are unstoppable (and we all feel that way after a 150% trade), 
then watch out. Your next trade will probably be a disaster. So 
too, good pool players appoach every shot with a humble attitude. 
All the past great shots don't mean a thing. This shot is the 
only one that counts. Good Lord, give me the humility to hit the 
ball just hard enough and at the right angle to barely sink it.
That's how every trade should feel. That's why I've started to 
follow the advice of one of the most successful traders in our 
local club -- when you have a great streak, take a week off. 
Don't give it right back to the market. When you do get back in, 
approach it with humility.

Famed investor Peter Lynch wrote in One Up On Wall Street that 
his classical education was one of the most important tools in 
his investing kit. So too, one of the best descriptions of the 
trader mentality comes from a poem by Rudyard Kipling which was 
a favorite of one of my battalion commanders. The title of the 
poem is "If," but it may as well be an "Ode to Volatilty" --

If you can dream--and not make dreams your master, 
If you can think--and not make thoughts your aim; 
If you can meet with Triumph and Disaster 
And treat those two impostors just the same; 
If you can bear to hear the truth you've spoken 
Twisted by knaves to make a trap for fools, 
Or watch the things you gave your life to, broken, 
And stoop and build 'em up with worn-out tools:

If you can make one heap of all your winnings 
And risk it all on one turn of pitch-and-toss, 
And lose, and start again at your beginnings 
And never breathe a word about your loss...

Anyway, these are many of the qualities which I think are 
required to be successful in this dangerous game of option trading. 

Good Luck.

Janar Joseph Wasito
jwasito@stanford.edu



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

Earlier this year, I sent you an note of thanks as a new 
subscriber who quickly made a killing ($24k turned into $58k) 
with your recommendations and my research. I told you I would 
be with you forever and that I was able to give more to my church 
than I ever have.

I can't tell you how much I appreciate your expanded educational 
format. I am learning so much more from you and your staff....and 
I am becoming profitable again.

My real purpose for this letter is to encourage all of your 
subscribers (especially those who have recently hit the tech 
motherlode) to share some of their profits with their church, 
school, or charity.

With all the rush of Christmas buying, we need to reach out to 
those who have so much less than we do. For those who need more 
of a reason, most donations are deductible.

Again thanks for what you are doing for me, my family, and my Church.

Mike

****

Did 2 trades on aol for November.

1. On october 29,bought 5 contracts of AOL Dec $130 calls,
paid $10 1/4. Sold the 5 contracts of AOL Dec $130 calls on 
Nov.9 for $20 7/8,

2. On Nov 12,bought 5 contracts of AOL Jan $145 calls, paid 
$16 7/8. Held over the split,sold the 10 contracts of AOL Jan 
$72 1/2 calls on Nov 26 for $14 1/4.

Net profit for the month $10,862.65

I have been a subscriber to your newsletter for 16 months now 
Jim, and it is still the best by far for information and play 
picks for trading. Keep up the great work.

Rob

****

Dear Jim:

Do you have access to my options account ? Are you looking at 
my trades? How do you know I made all those mistakes ?!

Thanks for your great articles. You have a way of getting your 
message across like no one I have seen.

Thanks,

SK

****

jim, 
just wanted to thank you for the article in options 101. i have 
only been trading for six months so i have a lot to learn. what 
i like is the fact that although i understand many of these 
strategies, i havent had much of a chance to put them to use. 
exiting a losing play for me is much easier than exiting a winning 
play - probably because i have had more experience with the former. 
your article hit home with me in a BIG way. (especially the part 
about irrational judgment and emotion while in the play). On 
Friday I actually was able to use good judgment in a play in 
GMST after riding it up from 110 to 119. I saw the top and got 
out. the point is - even if it wasn't the top it was MY top, and 
that's what it's all about. I can't begin to tell you how much I 
value this newsletter - you have an awesome staff. Hope you had 
a good Thankgiving and here's wishing you and yours the best. 
LIZA (a VERY satisfied subscriber)



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:
*****

BVSN $93.06 -13.31 (-17.94) Those downgrades can kill you.  
Thanks to a downgrade from Prudential Securities from Accumulate 
to Hold, investors turned their backs on BVSN, sending it 
tumbling into the basement and taking out every previous level of 
support - a week and a half worth of gains wiped out on volume 
almost twice the ADV.  While there is some longer-term support at 
this level, there are also plenty of broken bones from the fall 
down the stairs.  Healing will take some time.  Thus we too no 
longer share the vision and are turning out the lights on this 
play tonight.

SUNW $132.25 -4.56 (-3.81) The good news continued to flow in 
the shares of SUNW.  Before the market opened this morning 
the shares were upgraded by Merrill Lynch.  Merrill raised the 
price target from $155 to $165, this had the shares immediately 
soaring to a new 52-week high of $140.19 before falling back on 
heavy profit-taking to close the day at $132.25.  As the Nasdaq 
goes, so goes SUNW.  The tech sector has been so strong that 
the weakness in the Nasdaq going down over 85 points is not a 
big surprise.  At this point we will choose to close out our 
positions due to the major sell-off, and the stock split right 
around the corner.  After the spike up this morning, those 
traders who have been riding the split run had seen enough, 
and locked in profits.  Looking at the Nasdaq technicals, it 
looks as though more profit-taking could take place in the next 
few days and that would possibly take the shares of SUNW with it. 

VRTY $103.47 -15.66 (-2.03) The Market Giveth and the Market 
Taketh Away - quickly and without reverence to any open 
positions.  Yesterday momentum and split traders were cheering 
loudly.  VRTY spiked to a new 52-week high at $123 and closed 
up $13.63 ahead of its 2:1 split this Friday, after the bell.  
But today we got a severe reality check of what HIGH-RISK AND 
VOLATILITY can really mean when an Internet heads south.  At 
first it seemed like a typical back-fill to potential new 
support around $111-$112, but then the bottom fell out.  Surely 
stop losses came in handy this afternoon.  With the stock split 
so close and the wild intraday activity this week, we're exiting 
the play this evening.  On Monday, the company announced Timex 
Corporation chose the award-winning software, Verity's 
Information Server, to connect its online customers with 
information retrieval on the Timex Website. 


PUTS:
*****

HWP $94.88 -1.13 (-0.50) HWP has had plenty of positive news 
the past two days.  HWP has entered into agreements with two 
of the Web's powerhouses.  Monday, HWP struck up a marketing 
deal with AOL that will boost AOL's printing capabilities and 
gives HWP products greater visibility on AOL's shopping pages.  
The goal is to make it easier for AOL subscribers to print 
pages off of their website while improving output and providing 
more options.  The deal includes joint marketing efforts.  HWP 
will install a feature on AOL that reminds users to purchase 
an ink cartridge online when the supplies get low.  HWP's other 
announced deal is with Amazon.com.  It is a broad agreement 
in which Amazon will use HWP systems in its Web infrastructure 
as well as offer HWP products to its customers by featuring HWP 
products in its electronics store.  Despite the good news, HWP's 
stock price has fallen.  The drop off in price is due mainly to 
the selling pressure placed on the tech stocks overall, with 
most of the drop in HWP happening in the last hour of trading 
on Tuesday.  But the stock sold off grudgingly and was actually 
one of the stronger tech stocks on a relative strength basis.  
We do not want to fight all of that good news and our removing 
it from the put list.

CI $82.25 +2.13 (+2.81) As you know, put plays can be tricky.  
They can be extremely profitable as well.  CI gave us a chance 
to make a small profit depending on your entry point.  The sector 
has seen a 8% correction in the last 2 weeks and had a bit of a 
bounce today.  CI headed lower Monday only to bounce off its 
50-dma at $78, and bouncing back to close near its high of the
day at $80.13.  Today the bounce continued as CI climbed to its
10-dma near $83.  We are dropping CI for now, because of the
strength of its recovery.  The fundamentals really haven't 
changed for the Insurance company or the industry.  We wouldn't 
be surprised to see the recent downdraft continue in CI but 
for now, there are better opportunities elsewhere.



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

NT $73.88 -6.13 (-7.81) One of the more stable properties in the 
optical networking business gets whacked 10% in two days, and 
we're keeping it?  Yes.  This is still the same company that 
expects 20% revenue growth next year with increasing margins to 
boot; the same company in which ABN AMRO reiterated their Buy 
rating yesterday and raised their price target from $80 to $100; 
and the same company that traded at $68 on November 7th when we 
picked it.  The fundamentals grew stronger and funds were buying.  
We consider the current level a buying opportunity.  The sell-off 
in the latter half of the day was way overdone as volume 
increased substantially.  The highest volume however occurred 
into the close where the price reversed and moved back up again 
off the low of $73.50.  Support is really strong at $70.50.  
Target shoot to your risk tolerance, or you can wait for a move 
back over $75 (with volume and after amateur hour) to take a 
position.  Oh yes, they also announced the purchase of a 5% stake 
in Spain-based Radiotronica S.A., a networking company with whom 
they have already have a relationship in Spain, Morocco and Latin 
America.  Remember too, you can leverage your returns by an 
additional 30% if you play the CLFY options.  (NT is buying CLFY)

NOK $138 -12.50 (-8.75) Sure enough, that gap open from Friday 
filled in, taking NOK into the $136 range before it bounced back 
$3 into the close.  Support is now really strong at $135.  You 
can cross your fingers and hope to target shoot it, but we think 
it's priced well here since buying volume really cranked in 
a half-hour before the close.  If you want to be a bit safer, 
confirm the move back over $140 before taking a position.  That's 
where it appears some panic selling set in that started the 
tumble to $135.  NOK is still the leading handset manufacturer 
in the world, and personal electronics are making popular gifts 
this holiday season.  In short, the fundamentals remain the same, 
but the bloated feel is gone.  Feel free to participate in this 
post-Thanksgiving sale.  

QCOM $362.31 -8.94 (-22.44) Even into the close, $360 held strong 
as support.  Also, no matter how you slice it, the lows are 
getting higher with resistance at $390.  In short, the two-week 
chart is forming a nice pennant or ascending triangle on lower 
volume, which usually signals a coming breakout.  We can't 
guarantee it of course, but a 4:1 split shortly following the 
December 20 shareholders meeting, plus a possible announcement on 
the disposal of their handset business will make a great catalyst 
for the breakout run to begin prior to that date.  Heck, even as 
just a pure momentum play, QCOM is now at the bottom of the 
historic channel.  We are not suggesting you back up the truck, 
but there appears to be a good entry at this level.  Keep in mind 
that when China opens its markets, within one year of completion 
of the wireless infrastructure, there will be 30 mln CDMA 
customers planting a small fee in Qualcomm's pocket for the use 
of the technology.  An added note for the gutsy, you may want to 
consider selling ITM puts too.  Just don't do it without knowing 
the risks of selling puts.

JDSU $228.75 -23.38 (-37.25) With a loss like this, why keep it?  
Simple.  Entry point, entry point, entry point.  We've been 
waiting for one of these; now we've got it.  Today's loss takes 
us all the way back to the bottom of the long-term channel, where 
we find support at $220.  Thank goodness, finally, some sellers 
emerged, and on huge volume too (2.3 times the ADV).  There may 
be a bit more to be shaken out of the price, but support is 
really good at $220.  Particularly impressive was the reversal 
off $221 following the downdraft, with increased volume into the 
close.  While not a recommendation to back up the truck, if 
you've been looking to get into this trade in anticipation of 
their 2:1 split on December 30, it's time to get active about it.  
You can target shoot in the $215 to $225 range.  If nothing else, 
this might earn you a quick profit on a small bounce, but $215 
may be tough to hit.  From the news, take note that Phillips 
Electronics filed to sell 150K shares of JDSU.  In the grand 
scheme of things, it's nothing, especially since they were free 
to do so since November 19 - nobody noticed then, and it's a non-
event now.  If you hear or see it in the headlines, you'll know 
not to panic.

SDLI $162.75 -1.69 (-24.00) From Sunday: "We should expect a 
pullback after 8 straight days of new record highs.  Nothing 
goes up forever in a straight line.  This play should only be 
attempted by extremely risk tolerant types - it's about as far 
a way from a bond payment as you can get."  No kidding!!  SDLI 
suffered a large majority of its loss yesterday.  Today's -$1.69 
seems like an afterthought.  Frankly, given the profit-taking 
in the technology sector today (especially with its optical 
brethren, NT and JDSU), we could have seen the selling continue.  
In a show of good relative strength, that didn't happen, and 
volume remained strong, with near term historical support in the 
$160 range.  Here's another one where we think we've hit a good 
entry point.  If you want to target shoot the channel, you'll 
have to set your sites at $155, but it's possible SDLI will never 
get there.  This is still only for the itchy-trigger-fingered.  
Otherwise, you'll need to wait until SDLI gets back over $172 to 
confirm the breakout of the trading range (in which case, we 
suggest you may want to try a more conservative play instead).

HGSI $112.00 -14.19 (-3.50) Volatility continues to quicken 
the pulse of traders of this biotech.  The stock had rallied 
yesterday and made a nice follow through once it took out 
Friday's high of $125.75.  After reaching a new high of $132.50 
the stock pulled back a little to $126.19 on the close.  With 
a close in new high territory, some follow through to the upside 
was expected.  We got that follow through right at the open 
but then the selling began in earnest.  This was due to some 
unfriendly comments towards Amgen which put a damper on the 
sector.  Profit-taking ruled the afternoon and HGSI managed to 
close just above its $110 support.  Watch your stops if HGSI
continues down.  The $110 level should provide solid support 
for HGSI.  If it does not, we will likely be done with HGSI.  
We are looking for a market and sector rebound to lead HGSI 
back up.  Resistance will be at $120 and again at the old 
closing high of $126.19.

MACR $65.75 -3.63 (-3.50) Today the Internet stocks took a 
beating across the board, with Web developers like MACR that 
have established a nice uptrend for the last few months seeing 
the hardest hits today as traders decided to lock in profits.  
We had warned to be on the look out for an inevitable Nasdaq 
sell-off, and that is exactly what we got.  MACR finished the 
session off of the lows of the day at $65.75.  The stock traded 
as low as $63.50, we had recommended in Sunday's write-up to 
look for a target entry around the $64 level.  If you jumped 
in here, you are in good shape and we expect the overall market 
to bounce back.  But start looking to get your stops in to avoid 
the downside risk.  We continue to remain bullish on the shares, 
just cautious in current market conditions due to today's 
sell-off.  MACR should continue to benefit from the build out 
of broadband capability by the likes of Worldcom and AT&T, this 
will allow them to provided a broader array of Internet-based 
services.  Aggressive traders who are not currently in a position 
should continue to target shoot going forward, look for another 
trading bounce near $64 level if the selling continues.

VVTV $45.00 -4.00 (-2.81) We saw the shares of VVTV sky rocket 
once again today to hit another 52-week high at $50.50 due to 
the positive news in the sector and the Nasdaq powering forward 
in early morning trading.  The Media sector had investors 
attention this morning as the newest of Web portals formally 
launched its business.  Unfortunately, the shares of NBC Internet 
fell in the afternoon, as the profit-takers stepped up to the 
plate in a big way across the board.  The leading Internet 
stocks in there respective space like America Online, Double 
Click, and VVTV have seen astronomical gains this last few 
months and traders decided to lock in some profits today.  VVTV 
managed to hold up at mild support levels at $45, but going 
forward we are being very cautious, seeing that the Nasdaq 
chart and VVTV's chart is very similar.  If the profit-taking 
has not ceased, then we could see more downside over the short- 
term.  Aggressive traders could possibly look for a bounce near 
the $44.50 (10-dma) level for a trade, but make sure it bounces 
first.  Enter with caution.  

IMCL $36.34 -1.63 (-4.81) On Monday, Merrill Lynch started 
coverage of IMCL with an Accumulate rating.  There were two 
major positive comments to be found in the research report.  
The company's main product looks promising.  C225, a monoclonal
antibody now in Phase II and Phase III trials.  Although its
efficacy has not yet been proven, it is intended for use in
the treatment of head, neck and colon cancers.  Also, Merrill 
said that ImClone has a strong balance sheet with over $120 
million in cash and marketable securities.  Currently the company 
is cashflow negative and is unlikely to make money until 2002.  
As far as the trading goes, IMCL had an ugly opening by dropping 
all the way to $33.63.  That turned out to be a great entry 
point though.  It recovered to trend up from that point.  The 
nice feature is that it held up well while the Nasdaq was 
falling and managed to close above the 10-dma (if even by only 
nine cents).  If the sector can recover tomorrow, this will 
look like a great entry point. 

MSFT $91.03 +0.84 (-0.09) Despite the strong downdraft in the 
tech stocks MSFT managed to maintain its current position 
above the 10-dma ($88.67).  This is a bullish sign especially 
considering the Nasdaq tanked 85 points today.  So far this 
week support is still firmly established at $90, a level that 
represents an entry to this play.  But remember this momentum 
play is purely driven by positive news events surrounding the 
anti-trust case.  A strong bounce on volume would give better 
evidence of a run towards $95 or $96.  Talking of news, today 
marked the first day MSFT met with mediator, Judge Posner, to 
discuss negotiations regarding the anti-trust issues.  The 
talks are private so "mums the word" and no comments were 
released.

GTW $76.38 -2.75 (-2.69) There was no doubt where GTW was 
headed today.  Down, down, and down.  Share price dropped 3.5% 
by the end of the trading session placing GTW dangerously below 
its 10-dma ($78.78).  Now granted the Nasdaq was negative +80 
points and from a bull's point of view, GTW still held firm at 
its $76 support level.  Although recall from Sunday's write-up 
that if the market continues to pullback we could see GTW tumble 
to the proximity of $70.  Yes this may sound drastic, but 
be prepared with stop losses.  And again if you're a more 
conservative player, wait for a close over $80 for confirmation.  
There were rumors today that Chairman and CEO, Ted Waitt, may 
step down from his reign as CEO before the end of the year.  
Jeff Weitzen, the current president and COO, would be the likely 
successor.  Gateway had no comment or announcement according 
to Fortune Magazine.

VRSN $185.81 -10.81 (-12.19) VRSN traded narrowly yesterday in 
a tight range between $194.31 and $201 bucking the Internet 
downslide.  It's likely the news of a joint effort with Trintech 
Group, a leading provider of electronic payment infrastructure, 
to provide financial institutions an integrated solution for the 
issuance of secure virtual credit cards helped keep VRSN propped 
up.  Today however, VRSN was a prime target for profit-taking 
bearing in mind the $27.94 (16.4%) in gains last week.  But on 
the bright side, this pullback places VRSN just above near-term 
support at $180, an optimum entry point if you're risk tolerance 
allows for it.  Beware of post-split depression!  VRSN splits 
2:1 after the bell on Monday so the play would be a quick in and 
out.  Look at a chart and you'll see that after last summer's 
2:1 split VRSN declined for a few weeks.  

YHOO $212.75 -13.38 (-14.13) First stop...10-dma!  Well almost. 
Today YHOO plunged.  It slipped through the 5-dma - an indicator 
it's been bouncing off on its recent ascent - and drove right on 
past mild support at $220 and the 10-dma ($219.61).  
Nevertheless, we have confidence YHOO will recover when the 
markets return to "raging bull" mode.  This call play is based 
on holiday momentum and 'tis the season to buy online sentiment.  
On Monday, Yahoo! reported a five-fold increase and record sales 
on the day after Thanksgiving.  This data is a comparison to 
last year's numbers indicating more people are shopping online.  
Couple this great news with recent information that Yahoo! does 
have plenty of shares for another stock split (900 mln shares 
authorized and only 263 mln issued) and it's likely the 
anticipation and excitement surrounding YHOO should grow in the 
near-term.  NEWS ALERT:  YHOO is up "big time" in after-hours 
trading after being added to the S&P 500 Index replacing Laidlaw 
Inc (LDW)!! 

BRCM $179.06 -23.88 (-28.06) Did we say entry points at $180 
if things get ugly?  Well, welcome to ugly and then some.   
Though the past two days have been a little rocky, (okay, so 
that is a bit of an understatement) the profit-taking we have 
seen is a healthy and unfortunately, necessary part of playing 
any big mover.  Keep in mind, BRCM was at just $138 at the 
beginning of this month, so some rampant profit-taking is not 
at all out of line.  There may be quite a few investors out 
there who were looking for a split announcement with the 
shareholders meeting last week.  As we mentioned on Sunday, 
BRCM is known for lagging announcements, which is why we aren't 
giving up just yet.  Apparently, some investors aren't as 
patient and have decided to jump ship.  The beautiful thing 
about all of this is ENTRY POINTS!!!  Going forward, BRCM has 
some solid support right around $176.  Broadcom did manage a 
small bounce at the end of today's session, a good indication 
heading into tomorrow.  A breakthrough $180 will be another 
indication of returning positive momentum.  BRCM has further 
resistance at its 10-dma of $191.50.  In the news today, BRCM 
was named as one of the 34 stocks in the new Lehman Brothers 
"Virtual Economy Portfolio", which is aimed at providing 
exposure to the success of the Internet while protecting its 
investors from the volatility.  BRCM, provides protection 
from volatility?  Hmmm...

SNE $184.19 -7.56 (-1.75) Being the gift giver that Sony is, 
SNE decided it was time to give us some points of entry.  Sony 
made a big move up on Monday, offering a gain of $5.81 and 
tagging a new 52-week high of $192.  The profit-takers ruled 
Tuesday's market and moved in on Sony at the open.  SNE spent 
the majority of the day in a battle of buyers versus sellers, 
right around $187.50, before finally succumbing at the end of 
the session and dipping to close just pennies shy of the low 
of the day.  Of course, we will want to see a bounce and a 
reclamation of positive momentum before entering a new play, 
but this dip has truly provided a wonderful opportunity for 
possible entry.  A breakthrough and some consistent trading 
above $187.50 will serve as a good indication of a return to 
SNE's positive momentum run.  Sony has support at its 10-dma 
of $181.50 and further support at $180 if needed.  

EMC $83.69 -4.81 (-6.63) Well we are no longer at a crossroads,
with EMC.  EMC finally broke out of its narrow range that we
mentioned Sunday.  EMC finally fell under its own weight today.
This morning Barnesandnoble.com announced it had selected EMC
Enterprise Storage Network to manage its e-commerce growth.
Apparently the news did little to support the price of the 
company's stock.  EMC ended the day with a poor showing Monday
after making a new high at $90.75 only to fall back into its 
recent trading range by day's end, closing down $1.19 for the 
session on light volume of 3.4 mln. shares.  This morning 
investors were clicking on the sell button right from the start.
On the bright side, EMC was able to find support late in the 
day at a previous support level near $83.  The selling may not 
be over as right now the chart looks weak, but it could provide
us with a great re-entry point for the hardware company.  the 
next level were EMC could find support is near $80.  Volume on 
the decline was basically orderly and quite frankly overdue.
EMC has been good to us so far and given us several good 
profitable opportunities.  Wait for a bounce off support and 
a rebound in the major indices before considering a new play. 

QLGC $113.13 -6.38 (-11.00) Nice and orderly that's the way we 
like to see a pullback.  Granted in the first two days of the 
week we have seen QLGC give back $11 of its recent gains.  The
decline has come on lighter than average volume which, once
complete, should clear the way for buyers to step in and bid
the price back up.  If you entered a play in QLGC you should
have been stopped out with either a small profit or a small 
loss depending on your entry point.  As we mentioned Sunday 
QLGC should find support near $110.  The 30-dma tonight sits 
at $109.17 as well.  The Semiconductor sector broke an intraday 
level of support near $615 and has a bit to go before finding 
its next level where buyers step in.  With the Technology stocks 
leading the way in today's decline we will watch the $110 area 
for QLGC, and see if the semiconductor company can consolidate 
or recover from the weeks declines.  If so, it could provide us
with a new entry point for our play.  We are still anticipating
a split announcement to come out QLGC headquarters, which was
the other reason for adding QLGC to our play list.  For now we
will remind you patience is a virtue, and it will be extremely 
important to wait for a good entry point.

GMST $112.75 -5.06 (-5.75) A second opportunity is what we are 
now looking for in our split run play in GMST.  As we suggested 
Sunday shares of GMST were getting a little over-extended and 
were due for a bit of profit taking.  After making a high at $122 
in the first hour of trading Monday, GMST began to run out of gas.  
GMST lost $0.69 Monday, but closed near the low of the day.  This 
morning traders decided to take some money off the table from the 
opening bell.  GMST closed just off the lows of the day which 
indicates there may be more of a move to the down side.  The $112
area is a minor support level.  Stronger daily support lies near 
$110, could provide us with a second opportunity to join in on a 
split run for GMST.  The volume the past two days has been below
normal indicating this is profit-taking and not a change of trend,
yet.  The 10-dma for GMST is at $110.75.  We are expecting further 
declines tomorrow followed buy a bounce.  Watch the $108 to $110
area for a possible entry point.  Prior to entering a new play
wait for a confirmation of a bounce.  Yesterday analysts at SG 
Cowen initiated coverage of GMST with a Strong Buy rating.  The 
12-month target price was listed as $160.   

CMGI $147.31 -8.19 (+0.69) CMGI gapped up at the open Monday 
morning offering us fantastic profits since being added to our 
play list.  If you hadn't taken some money off the table late 
last week, we would hope you used yesterday's surge to do so.  
CMGI hit $170.75 late yesterday morning on the news that its 
Internet venture, Alta Vista Web network would acquire the 
remaining shares in an online investor site Raging Bull.  Alta 
Vista, which is majority-owned by CMGI said it agreed to acquire 
Raging Bull in a stock-for-stock exchange.  You should remember 
the on Nov 16th CMGI closed at $103.75.  We can't blame investors 
that bought shares of CMGI, less than two weeks ago for taking 
some of their money off the table.  The selling may not be over 
yet, although it did close near the $144 level of support.  With 
the NAPM report coming out tomorrow and the employment report 
coming out Friday, CMGI could still be vulnerable to selling 
pressures.  The question is where will the buyers step in and 
begin to drive the price back up?  If you took your profits, and 
we hope you did, we will watch for a new entry point in CMGI, 
but we may need to have patience.  Before entering any new play 
confirm the direction of the major indices and the stock itself 
prior to placing an order.

********************************
Plays continued in section three
********************************

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



The Option Investor Newsletter         Tuesday  11-30-99
Copyright 1999, All rights reserved. 
Redistribution in any form strictly prohibited.


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

BOW $49.00 +2.03 (+2.13) Bowater is living up to its reputation 
of being a defensive stock.  We were concerned about this 
possibility in the initial report on Sunday.  The story has 
not changed and the stock still looks weak technically.  It 
is likely just making a technical rebound that should end with 
resistance at $50.  That said, be very careful.  Even though 
the stock is in a downtrend, volume has been very good the past 
two days.  If the overall market continues down more, money may 
go into the shares of perceived safety stocks, which BOW is.
When the selloff in the more popular stocks ends, look for BOW
to resume its downward course.  As always, be mindful of your 
stops.  A close above $50 could indicate more gains in this 
stock and send us packing on any new plays. 

WLP $57.56 -0.50 (-1.50) It was a rough day for the Healthcare 
sector with the HCX index losing over 17 points.  WLP did 
participate in the decline, though not as enthusiastically as 
we would have liked.  We mentioned in Sunday's write up that 
WLP was approaching some support at the 30 and 50-dma levels, 
right around $59.  WLP broke through both of these levels with 
little effort, giving us the go ahead for new entries.  WLP 
continues to maintain its picture perfect downward trend and 
because WLP has exhausted the moving average supports, is now 
seeking support at the psychological levels, the next one being 
$50.  This level has provided strong support in the past so it 
will be imperative to exercise caution and tighten stops as we 
approach this level.  $57 managed to hold WLP up throughout the 
majority of today's session and provided the spring for WLP's 
mid-day bounce.  We need to see a reversal and some trading 
below this level heading into tomorrow to confirm continuing 
negative momentum.  

GT $33.75 +0.50 (-0.38) Goodyear managed to find some positive 
momentum and tried to make a run up at the open this morning.  
One thing to note is the huge volume posted by GT today.  Over 
2.1 million shares were traded versus the 900K norm.  We believe 
this was merely a case of nervous investors looking to GT for 
a defensive play in a down market.  When the market takes off 
again, GT will most likely find itself left on the side of the 
road once again.  GT has plenty of resistance up ahead, the 
closest being it's 10-dma of $36.  GT has yet to establish any 
kind of solid support and is still poised for a continuation of 
its downward trend.  GT set a new 52-week low today at $32.19 
and we will want to see some trading below this level to confirm 
direction.  Use caution as we venture to new depths.

RMBS $70.56 -0.75 (-6.31) It continues to be rough waters for 
the Semiconductor sector with the SOX down over 17.  Rambus 
continues a struggle all its own dropping yet another $6 so 
far this week.  What a great day for entry points!  RMBS offered 
a trading range of over $6, at one point spiking all the way up 
to just over $76.  RMBS spent the afternoon flirting with $71 
before finally dropping to close near the low of the day.  
Timing a new entry could be tricky as we approach $70.  RMBS 
has sought and found support at this level before, as it did 
today, and though RMBS seems to have little problem breaking 
through support levels as of late, it will be important to 
exercise caution and tighten your stops.  RMBS has resistance 
at it's 50-dma which is currently at $75. 



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

STM - STMicroelectronics $125.06 +2.69 (+5.00 this week)

STMicroelectronics is a global independent semiconductor
company, that designs, develops, manufactures and markets
a broad range of semiconductor integrated circuits and 
discrete devices used in a wide variety of microelectronics
applications, including telecommunications systems, computer
systems, consumer products, automotive products and industrial
automation and control systems.

The shares of STM were halted during today's trading session
due to an order imbalance.  There were just too many buyers
stepping up to the plate around 11 am.  The stock was halted
at $122.88, but when trading resumed the shares had traded 
as high as $132.00.  This buying interest was sparked by three
leading analysts and six Semiconductor CEOs examined the Semi-
conductor sector in the latest issue of "The Wall Street 
Transcript".  It was noted going forward that Texas Instruments,
LSI Logic, and STM to name a few would benefit in the future, 
because they provide "SOC" or System on a Chip.  This technology
will continue to capture more of the value, and inevitably 
better profits.  Looking at the technical picture we see that 
the stock has been on a strong uptrend for well over a month, 
and we would look to enter the stock at current levels $125.06, 
and on any pullbacks.  Aggressive traders could look for a bounce 
near $120-$121 for a entry point if the profit taking continues.  
A major breakout would be prices confirmed above the 52-week 
high of $132.  

Examining the overall Semiconductor sector at this point we 
would be cautious, the $SOX index closed the day near the low 
at $609.39 down over 18 points.  Be careful over the near-term
and watch the index for trading direction.  Although, there 
maybe a follow through of selling over the next few days, we 
are expecting a turnaround, due to the positive outlook going
forward in the sector.  There is still a healthy appetite for 
the high tech stocks and good prospects for the sector 
world-wide.  If the sector can turn around, then STM should 
really be ready to rock.  

BUY CALL DEC-115 STM-LC OI= 35 at $12.50 SL=10.00 low OI
BUY CALL DEC-120*STM-LD OI=560 at $ 9.00 SL= 6.75
BUY CALL DEC-125 STM-LE OI=  1 at $ 6.25 SL= 4.50 just opened
BUY CALL JAN-125 STM-AE OI= 11 at $11.50 SL= 9.25 low OI

Picked on Nov 30th   at $125.06     P/E = 74
Change since picked       +0.00     52-week high=$129.00
Analyst Ratings      12-2-2-0-0     52-week low =$ 31.88
Last earnings 11/13   est= 0.43     actual= 0.46
Next earnings 01-25   est= 0.56     versus= 0.42
Average daily volume = 1.00 mln 
Chart = http://quote.yahoo.com/q?s=STM&d=3m

****

IBI - Intimate Brands Inc, $42.88 +0.25 (+2.50 this week)

They operate over 1,850 specialty names under the name of
Victoria's Secret and Bath & body Works brand name.  Intimate
Brands is a leading retailer of intimate apparel and personal 
care products.  IBI distributes intimate and fashion apparel
internationally through the Victoria Secret Catalogue.  IBI
was formed in 1995 and was owned by The Limited, which currently
holds an 84% state in the company.  They operate over 825 
Victoria Secret Stores and over 1000 Bath & Body Works store 
across the United States.  The company's catalogue circulation
is over 406 million and accounted for 20% of Intimate Brands 
sales in fiscal 1999.

'Tis the season to be jolly, and shareholders of IBI are hoping
for jolly good holiday shopping season.  Since reporting earnings
in early November IBI has began to climb the ladder to higher 
prices.  The earnings picture was solid with IBI meeting the 
street estimates at $0.15 per share.  The company has taken an
aggressive stance in closing unprofitable stores to improve the 
bottom line.  Lower inventory costs and less clearance merchandise
help raise profits from the previous year.  Another feature aiding
IBI is the Victoria's Secret web sight which has been enhanced
to push sales to an estimated all time high.  Investors seem 
to approve bidding the price of IBI stock about 10% higher in 
the last week.  Monday IBI gapped through a resistance level at
$42 and seems to be gaining momentum.  Retailers nation wide 
reported increases in sales for the 1st shopping weekend of the
holiday season, and are expecting 1999 to be a banner year.  
Analysts approve of the company's outlook too.  Today Hambrecht &
Quist reiterated their buy rating for IBI.  Recently IBI has 
received several reiterations and upgrades with the 12-month
price target ranging from $45 to $53 per share.  In considering 
a new play in IBI look for continued momentum to the upside.
Less aggressive traders may want to consider waiting after
Friday's employment report to enter a new play.

No other news at this time.

BUY CALL DEC-35 IBI-LG OI= 75 at $8.25 SL=6.25
BUY CALL DEC-40*IBI-LH OI=440 at $3.63 SL=1.75
BUY CALL DEC-45 IBI-LI OI=519 at $1.00 SL=0.00 High Risk!

Picked on Nov 30th at   $42.88     P/E = 27
Change since picked      +0.00     52-week high=$52.38
Analysts Ratings   10-13-6-0-0     52-week low =$23.81
Last earnings 10/99  est= 0.15     actual= 0.15 surprise +0.0%
Next earnings 02-09  est= 1.14     versus= 0.93
Average Daily Volume =   464 K
Chart = http://quote.yahoo.com/q?s=IBI&d=3m


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

CPTH - Critical Path Inc $55.69 -4.94 (-6.31 for the week)

Critical Path Inc provides e-mail hosting services to ISPs, Web 
hosting companies, Web portals, and corporations.  They maintain 
about 5 mln e-mailboxes for about 180 clients.  Their customers 
include E*Trade, Network Solutions, Surfree, @Work, and TABNet.   
CPTH is currently expanding overseas in Europe, Africa, and 
Asia.

The mail must get through...e-mail that is!  But that hasn't 
been the case at Critical Path, who is ultimately responsible 
for e-mail delivery to over 6.7 mln mailboxes within firms such 
as  USWest, Spring, and E*Trade.  All month the company has been 
plagued with "slow downs" and "sporadic service" according to 
sources close to company operations, but the outage to 1.2 mln 
mailboxes on Monday, November 22nd at around 10:45am was the 
clincher.  Share prices went on the decline.  In total CPTH has 
lost $21.69, or 28% since that event despite positive comments 
by senior e-commerce analyst, Rick Juarez, from BBRS.  On 
November 24th he stated "we believe that the news about Critical 
Path's unfortunate service interruption earlier this week, was 
minor in that only one of nine clusters was affected" and "we 
view the recent pullback in shares of Critical Path as a good 
buying opportunity for savvy investors".  With all that said, 
investors continued to cut the stock down.  Today CPTH dropped 
another 8% and slipped under the 50-dma ($58.36) prompting us 
to add CPTH to our put list.  But this will be a quick play.  
Support is at $51 and then again at $45.  Go with the momentum 
but look to have your stops pull you out of the way on any 
bounce.

BUY PUT DEC-60*UPA-XL OI=529 at $8.63 SL=6.50
BUY PUT DEC-55 UPA-XK OI=135 at $5.63 SL=3.75
BUY PUT DEC-50 UPA-XJ OI= 62 at $3.38 SL=1.75

Average Daily Volume = 923 K
Chart = http://quote.yahoo.com/q?s=CPTH&d=3m

****

EK - Eastman Kodak Company $61.88 -0.94 (-2.63 this week)

Eastman Kodak Company is engaged in developing, manufacturing,
and marketing consumer, professional, health and other imaging
products around the world.  The company has four operating 
segments: Consumer Imaging, Kodak Professional, Health Imaging,
and Other Imaging.  Primarily all of these divisions are in 
the business of selling photographic supplies and equipment.  
Their main competitor is Fuji.

Is Kodak a pioneering technology company on the cutting edge of
new product development?  Or is it the proverbial "buggy whip"
company, doomed to be left behind?  Kodak is probably neither.
However, there are serious concerns among institutional investors
about Kodak weaning itself off of a primarily commodity business.
As the price of film goes down so go the profits.  On November 
18th, Paine Webber cut its target price to $78 from $85, stating
"We believe that Kodak needs to convince investors that it can 
win in a digital world."  The share price of Kodak peaked in 
September at just over $80.  It has been in decline ever since.
Kodak's shares are likely to be on the sell candidate list of 
money managers during any sell programs.  If Kodak can trade 
below $60.75, it could trigger even more selling.  Resistance 
is sitting at $65 and that would make a nice entry point.  This 
is a company that has been known to warn of profits too.  We 
are now entering the warning month for Q4 and EK is always a 
stock to watch for a possible disappointment.

BUY PUT DEC-70 EK-XN OI=818 at $8.38 SL=6.25
BUY PUT DEC-65*EK-XM OI=849 at $3.63 SL=1.75

Average Daily Volume = 1.01 mln
Chart = http://quote.yahoo.com/q?s=EK&d=3m



**********************
PLAY OF THE DAY - CALL
**********************

QCOM - Qualcomm Inc. $362.31 -8.94 (-22.44 this week)

QUALCOMM Incorporated is a leader in developing and delivering 
innovative digital wireless communications products and services 
based on the Company's CDMA digital technology.  The Company's 
major business areas include CDMA phones; integrated CDMA 
chipsets and system software; technology licensing; and 
satellite-based systems including OmniTRACS® and a 6.4% interest 
in Globalstar(TM). Headquartered in San Diego, Calif., QUALCOMM 
is included in the S&P 500 Index and is a 1999 FORTUNE 500® 
company. 

Sunday's Write Up

With CDMA as the new standard for wireless protocol transmission, 
QCOM will earn a fortune from licensing the technology over the 
next few years.  While they sell the equipment needed to run the 
systems, they also get paid by selling the code with every new 
CDMA phone, much the same way that MSFT gets paid for almost 
every new PC.  Even when they sell the handset division, the 
announcement of which is expected by year-end (perhaps at the 
December 20 shareholder meeting), they will still collect the fee 
for every handset sold with CDMA capability.  Technically, QCOM 
has been consolidating nicely on low volume.  It indicates that 
nobody is particularly interested in dumping the shares at these 
lofty heights.  Who'd want to with a 4:1 split expected to be 
approved by shareholders on December 20 (while not guaranteed, 
the split would likely be immediate)?  Support is hard to peg, 
but is moving up.  Just in the last week, it came as low as $345 
on Tuesday and $380 on Friday (short day).  We would expect 
Friday's gap to be back-filled down to $375 in a re-test of old 
resistance becoming new support.  Only a suggestion, but $375 
might make a good target.  Of course, if the market decides to 
retrace some of the November gains, all bets are off.  For the 
unexpected surprises (and they will occur), keep a trailing stop 
in place to protect your profits

The news is a bit old, however, China will adopt CDMA as the new 
standard for wireless transmission under the new trade agreement.  
When that happens, there are estimated to be 30 mln new 
subscribers within the first year.  That's bigger than AT&T's 
wireless division and fractionally less than Vodaphone and 
Airtouch combined.  With the announcement of the sale of the 
handset division (December 20?), there's added horsepower for a 
price move over and above the split news.

HIGH PREMIUM ALERT !!

Another good strategy for this play would be to go long the 
stock and write covered calls at or out of the money.  The 
premiums are so inflated that even an at the money 
contract can yield roughly a 7% return until December 17. 

TRADING CAUTION

If QCOM takes a sudden unexpected turn for the worst,
all OTM strikes will likely vanish into thin air.  Obviously,
it has shown amazing strength so far and investors continue
to throw money at it with wild abandon... this will not last
forever.  This play is not for everyone.  Higher strikes are
only listed for those willing to take the risk.

Tuesday's Write Up

Even into the close, $360 held strong as support.  Also, no 
matter how you slice it, the lows are getting higher with 
resistance at $390.  In short, the two-week chart is forming 
a nice pennant or ascending triangle on lower volume, which 
usually signals a coming breakout.  We can't guarantee it 
of course, but a 4:1 split shortly following the December 20
shareholders meeting, plus a possible announcement on the 
disposal of their handset business will make a great catalyst 
for the breakout run to begin prior to that date.  Heck, even 
as just a pure momentum play, QCOM is now at the bottom of the
historic channel.  We are not suggesting you back up the truck, 
but there appears to be a good entry at this level.  Keep in mind 
that when China opens its markets, within one year of completion 
of the wireless infrastructure, there will be 30 mln CDMA 
customers planting a small fee in Qualcomm's pocket for the use 
of the technology.  An added note for the gutsy, you may want to 
consider selling ITM puts too.  Just don't do it without knowing 
the risks of selling puts.

BUY CALL DEC-370*AAF-LN OI=2176 at $21.38 SL=16.50
BUY CALL DEC-380 AAF-LP OI=2042 at $17.63 SL=13.75
BUY CALL DEC-390 AAF-LX OI=2135 at $14.00 SL=11.25
BUY CALL DEC-400*AAF-LY OI=3162 at $10.75 SL= 7.75 
BUY CALL DEC-420 AAF-LV OI= 697 at $ 6.63 SL= 4.75
BUY CALL JAN-370 AAF-AN OI= 650 at $43.00 SL=33.50
BUY CALL JAN-380 AAF-AP OI=1185 at $38.25 SL=30.00

Picked on Nov 16th at   $330.00    P/E = 303
Change since picked      +32.94    52-week high=$406.13
Analysts Ratings      6-8-4-0-0    52-week low =$ 24.50
Last earnings 11/99   est= 0.88    actual= 0.91
Next earnings 01-19   est= 0.95    versus= 0.33
Average Daily Volume =  6.4 mln
Chart = http://quote.yahoo.com/q?s=qcom&d=3m



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

The Law Of Gravity Prevails..

Monday, November 29

Equity markets faltered Monday as treasury yields climbed to new
highs, making bonds more attractive as investments. The Dow lost
40 points to close at 10,947, recovering from a 100 drop earlier
in the session. The Nasdaq composite slid 26 points to finish at
3,421 on extreme volume of 1.5 billion shares. The S&P 500 index
drifted down 8 points to 1,407. In the broader market, declining
issues trounced advancers by a margin of 5 to 2 on active trading
of 870 million shares on the New York Stock Exchange. The 30-year
U.S. Treasury bond was down 31/32, raising the yield to 6.31%.

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

CHB   Champion    APR10C/DEC10C   $1.06   debit   calendar
DLP   Delta P&L   FEB30P/DEC25P   $3.50   debit   diagonal
DLP   Delta P&L   FEB30P/DEC30P   $1.25   debit   calendar 
LCOS  Lycos       JAN47C/JAN55C   $5.75   debit   bull-call
TVGLA TV Guide    DEC45C/DEC60C   $13.25  debit   bull-call
VRTY  Verity      DEC80P/DEC85P   $0.68   credit  bull-put

The markets fell quickly in the first few minutes of trading and
by 9:40 AM, the DOW was down 90 points. LCOS and VRTY were both
moving lower with the early bearish trend and we made adjustments
to the spread targets in the these bullish plays. Near 10 AM, the
LCOS position traded at our new price but unfortunately, it eased
down another $2 before the day's end and a much better entry was
available to those with patience beyond the market consolidation.
The VRTY credit spread was active with an opening trade of thirty
contracts at $0.68. Our revised target was slightly higher but we
were unable to achieve a better price. Later in the session, VRTY
gapped-up over $13 as pre-split momentum investors moved into new
bullish positions. The split is expected on 12/3 and earnings are
due 12/15. VRTY was recently forecast to have multiple increases
in future earnings and analysts are now anticipating a meaningful
and sustainable price appreciation over the next year.

Delta And Pine Land was our volatility candidate but the spread
prices were inflated for most of the morning session. Eventually,
the premiums moved back into line and both targets were available.
Champion traded in a small range, up only $0.06 during the day and
the suggested debit of $1.06 was easily achieved. One of the OIN
readers participated with a four contract position. The TV Guide
spread traded well above our suggested entry price and there were
no favorable opportunities to open the play.

Portfolio plays:

Today the market showed the first signs of consolidation as Bond
yields moved up along with speculation of new inflation on strong
consumer spending. Fears that a prosperous shopping season could
give the Fed a reason to raise interest rates weighed heavily on
investors. The dollar's weakness against the Japanese yen also
continued to drive down bond prices amid worries of money flowing
to Japanese investments. Analysts are awaiting economic data that
may offer an indication of future inflation and Friday's report
on non-farm jobs will have a significant effect on their outlook.

Among the best performers in our Combos portfolio, AT&T (T) moved
up $2.43 (and was the NYSE's volume leader) after an upgrade from
Salomon Smith Barney. The brokerage raised its rating and price
target on the phone giant's shares and called the stock cheap at
current levels. The rest of the telecom group didn't fare as well
with recent favorites Talk.com (TALK) and 3Com (COMS) both moving
lower on profit-taking. Other sectors in the Spreads Section that
suffered included Banks, Brokerages, Computer Hardware/Software
and Internet Service Providers. Lower-priced stocks were included
in the sell-off but there was one standout among the small-cap
positions. Internet retailer Shop-At-Home (SATH) moved up to a
mid-day high of $14.25, boosted by strong sales at the start of
the holiday buying season. Our calendar spread traded at a credit
of $1.50, a favorable early-exit opportunity. 
 
In the long-term portfolio, Oil major Exxon (XON) rose $1.38 to
$79.38 after news that the Federal Trade Commission is expected
to approve the company's $82 billion merger Tuesday. Our current
LEAPS/CC's position is short at $80 and we expect the stock price
to remain in that range for the next few weeks. Two of the market
bellwethers moved higher during the session. General Motors (GM)
and Johnson & Johnson (JNJ) rallied against the trend as traders
rolled short-term capital into safety issues. As you may remember
from last week, GM has been on our watch list for a break-out and
the opportunity to roll to a higher strike may occur at any time.
A bullish outlook will require a move to January options to avoid
an increase in the current debit, but it will also place us in a
neutral position. Sun Micro (SUNW) continues to amaze and astound
as the pre-split rally continues. Traders now expect the issue to 
eclipse the $140 barrier before the 2-for-1 split on 12/8 and it
appears that SUNW will be the leading performer in the LEAPS/CC's
portfolio for the second consecutive year.

Tuesday, November 30

Markets tumbled as inflation-fearing investors sold for profits
ahead of Wednesday's key economic report on manufacturing activity.
The Dow Jones Industrials fell 70 points to 10,877 and the Nasdaq
composite dropped 85 points to 3,336. The S&P 500 index slid 18
points to 1,388. 40 stocks finished at new highs with 296 at new
lows as advancing issues outpaced declines on heavy volume of 953
million shares on the NYSE. The benchmark 30-year Treasury bond
rose 8/32, pushing the yield down to 6.29%.

Portfolio plays:

There were some amazing moves in the portfolio today, both good
and bad depending on your position. The bad news is not exactly
terrible so we will review it first. Verity (VRTY) was pummeled
by profit-taking, falling $15 to $103 after Monday's huge rally.
E-Tek Dynamics (ETEK) lost $7.50 to close at $75 with no public
news or announcements. AT&T (T) fell $4.12 as investors sold-off
the stock after the recent climb, disregarding the news they had
won a major contract to provide telecommunications services to a
large corporation. The nation's #1 long-distance company landed
$510 million in contracts from car-maker General Motors and GM's
spin-off Delphi Automotive Systems to build and manage networks
that will enhance their electronic commerce capabilities. Lycos
(LCOS) endured a second day of selling, down $3.75 to $55 even as
analysts reiterated "buy" ratings for the stock. Excite@home (ATM) 
fell another $2.75 to break the $50 mark, a recent support range
for the previously bullish issue. The last of the big losers were
Nvidia (NVDA) and Pixar Animation (PIXR), both down over $2 after
technology issues finally succumbed to the market-wide correction.

On the bright side, InterVu (ITVU) moved up almost $4 after some
positive comments on the tremendous long-term growth potential of
Webcasting. ITVU is a technology provider for on-demand video and
audio content over the web and interest in the company's services
is increasing. Well-known companies are adopting their technology
to deliver content over the Internet and as the pipeline expands,
so will demand, and ITVU is positioned to exploit this growth. A
few of the small-cap issues afforded traders with low risk havens
in today's sell-off. The leaders in that group were: Able Telecom
(ABTE), up $0.50 to $10.12 and perfectly positioned in our March
(neutral) calendar spread; Proxymed (Pill), up $0.38 and starting
to recover from the recent drubbing; Youth Networks (NETS), with
a nice bounce to $24 from recent technical support at the 40 dma;
and Td Waterhouse (TWE) with a small rally after falling to recent
lows near $16.75. Today TWE announced a plan to allow customers to
apply online for mortgages, loans and other services under an
agreement with Mortgage.com (MDCM).

In the long-term portfolio, Computer Associates (CA) was the only
positive issue, finishing up slightly after a session of trading
near a new all-time-high. Other stocks in this section fell with
the broad market sell-off but very few of them are in danger of a
technical failure. Adobe Systems (ADBE) is one of the exceptions
and as we said last week, it will be interesting to see where the
first support level begins to have an effect on the stock price.
In our case, we decided not to test fate, rolling out and down to
a neutral position; LJAN80C/JAN80C. The credit for the move was
$7 and our new cost basis is $7.50. General Motors (GM) is the
other issue that requires daily monitoring as it has been testing
resistance near $75 during the last week. The past history of the
stock reflects a solid comfort level at the current price and we
expect it to remain in small trading range if the rally fails in
the area below $75.

Straddles:

The straddles section has been of little interest lately as most
of the market movement continues to be in the technology sector,
and not in the majority of our positions. The Nasdaq composite
index has moved to record highs as investors consumed by revenue
growth continue to overcrowd the computer, telecom and Internet
sectors. The Dow's recent rally has been plagued with faltering
transport issues and that's where many of the favorable straddle
candidates existed in past months. Oil prices have dominated the 
group for weeks but the pricing pressures may be subsiding in the
short-term. Straddle issues showing signs of volatility include
Federal Express (FDX) and Continental Airlines (CAL). Brokerage
issues have also been active and Donaldson, Lufkin and Jenrette
(DLJ) recently concluded a $15 move at technical resistance near
$55. One of the lower-priced issues that continues to outperform
is Mylan Laboratories (MYL). The stock is trading at recent highs
and the straddle credit is now at $6.75, a $2.00 profit with five
months remaining until expiration of the position.

Many of the issues in the portfolio have provided favorable exit
opportunities in the past few months but for now, the excitement
appears to have moved to the high profile technology stocks. The
difficulty in playing new positions in this group is the recent
volatility, which raises option premiums and reduces the number
of favorable straddle candidates. As the high-flying issues begin
to consolidate, option premiums will contract and straddle plays
in the technology sector will emerge. This week's Nasdaq sell-off
has provided the necessary correction and we expect to offer some
new candidates in the Sunday edition.

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


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

With the high flying Nasdaq now experiencing a major sell-off and
the current uncertainty in the broad market, we decided to search
for some well-known issues that have suffered recent large losses
in share value. These companies have been to the bottom (or they
are close to it now) and the current market conditions will have
less effect on their movement. The plays are based on the current
price or trading range of the underlying issue and the technical
history or trend. The probability of profit from these positions
is higher than other plays in the same strategy based on the small
disparity in option premiums. Current news and investor sentiment
will have an effect on these issues so review each play and make
your own decision about the future outcome of the stock price.

****

SGI - Silicon Graphics  $9.38     *** On The Rebound? ***

Silicon Graphics provides computing solutions that range from
cost-effective high performance desktop workstations to database
and compute servers to Cray Research supercomputers. SGI systems
enhance the productivity of organizations engaged in technical,
scientific, corporate and entertainment applications across a
wide range of industries.

Originally founded in 1982 by Jim Clark (whose other companies
include Netscape and Healtheon/WebMD), SGI has been through the
ringer in the past few months. The initial fall from grace came
with the loss of their chairman and chief executive to Microsoft.
In September, Richard Belluzzo was named the new chief of MSFT's
Internet division and SGI's ship started to sink quickly. Since
then, the company has been pummeled as new graphics advances by 
personal-computer makers have dissuaded would-be purchasers of
high-performance SGI workstations. Another of their oldest and
most well-known problems was the purchase of technology pioneer
Cray Research. SGI paid $767 million for the leading provider of
multimillion-dollar computers used in big government and other
high-level sciences, in 1996. SGI is now on the verge of selling
the company for under $100 million to a high-tech group called
Gores Technology, a privately held entity based in Los Angeles.

Despite all the bad news, SGI has recently announced a portfolio
of new products and services including a Linux Version of IRIS
Performer, their flagship high-performance graphics software
toolkit on IRIX and the industry's First 2GB Memory Modules for
Unix-Based Desktop Workstations. They have also introduced some
much-anticipated software upgrades for their high performance
Onyx2 workstations and the technology is expected to compete
with the leading products in the market.

All of the excitement has led to increased interest in the SGI
options (one buyer purchased 4,000 DEC-$10 calls on Monday) and
the option premiums are well above historical levels. We will
participate in the recent bullish volatility with an aggressive
horizontal position.


PLAY (aggressive - bullish/calendar spread):

BUY  CALL FEB-10 SGI-BB OI=5649 A=$1.56
SELL CALL DEC-10 SGI-LB OI=4830 B=$0.50
INITIAL NET DEBIT TARGET=$0.93 TARGET ROI=25%

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

****

REV - Revlon  $10.25     *** Is There A Future For Revlon? ***

Revlon together with its subsidiaries, operates in a single
business segment with many different products, which include an
extensive array of glamorous, exciting and innovative cosmetics,
skin care, fragrance, personal care and professional products.
Revlon is one of the world's best known names in cosmetics and
is a leading mass market cosmetics brand. The Company's vision
is to provide glamour, excitement and innovation through quality
products at affordable prices.

The list of law firms is long and distinguished and the claims
against Revlon are numerous. Most of the filings allege that
certain officers and directors of the company misrepresented or
omitted material information concerning revenues and results of 
operations. Of course these actions supposedly caused Revlon's
debt securities prices to be artificially inflated along with
the stock price. With the claims of foul play, most of the major
officers have stepped down honorably and a house-cleaning is now
in progress.

Whether or not the company can rebound from such severe financial 
problems remains to be seen but a base appears to be forming in
the $10 range. With the worst of the news in the past, Revlon may
be able to sustain a small rally through the holidays as retail
sales experience a seasonal surge. Their financial future is less
than favorable but most traders believe the company will dispatch
some of its key holdings before attempting the road to recovery.
A small disparity in the January option premiums will allow us to
speculate on the short-term movement of the issue.

PLAY (speculative - bullish/debit spread):

BUY  CALL JAN-7.50  REV-AU OI=110 A=$3.12
SELL CALL JAN-10.00 REV-AB OI=861 B=$1.43
INITIAL NET DEBIT TARGET=$1.50 ROI(max)=66% B/E=$9.00

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


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

DISCLAIMER

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