Option Investor

Daily Newsletter, Sunday, 12/27/1998

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The Option Investor Newsletter
Copyright 1998, All rights reserved. 
Redistribution in any form strictly prohibited.

Sunday  12-27-98  1 of 6

Posted online for subscribers at http://www.OptionInvestor.com

Published three times weekly, Sunday, Tuesday, Thursday evenings.
New plays and market wrap updated daily on the website. 
Entire newsletter best viewed in COURIER 10 font for alignment
       WE 12-25          WE 12-18         WE 12-11        WE 12-04
DOW     9217.99 +342.17  8875.82 + 85.22  8821.76 -194.38  -318.94
Nasdaq  2163.03 +119.15  2043.88 + 34.52  2029.31 - 26.15  - 13.29
S&P-100  608.91 + 25.30   583.61 +  8.49   574.68 -  5.47  - 10.97
S&P-500 1226.27 + 46.31  1179.96 + 18.02  1166.46 - 10.28  - 15.87
RUT      405.56 + 11.78   393.78 +  3.93   395.37 -  3.96  -  3.72
TRAN    3044.08 + 73.44  2970.64 +100.82  2929.51 -119.89  - 25.56
VIX       22.04            28.07            28.46            24.95
Put/Call    .52              .47              .66              .65

It is put up or shut up time for the Santa Claus rally.

Much has been said about the yearly post Christmas rally and now
we get to see if it is real or just the ghost of Christmas past.

Last year we were coming off the October/November drop and the
Nasdaq jumped +5% and the Dow, S&P and Russell gained +4% in the 
next five trading days. This would equate to about +370 points for
the Dow and +108 for the Nasdaq. The S&P would post about +50 and 
the Russell about +16. I know, past performance is no guarantee
of future results but the market is definitely in rally mode and
the stage appears set. All that remains is for the curtain to
go up Monday morning. The Dow is only -157 points away from its
recent all time high and the Nasdaq and S&P are there already.

The traders like to see markets setting new highs across the board.
The volume has been good but the advance/decline line has been weak
on year end selling and portfolio restructuring. Funds took in two
billion in new cash last week but that is only a trickle compared
to the expected flood of year end and first quarter contributions.
401k and IRA deposits normally balloon with year end bonuses and 
matching contributions. The next 90 days is the heaviest influx of
cash for the year and managers have to put that money to work.

As I stated in the market wrap on Thursday the shortened session was
a yawner but several things bear another mention. The Internet stocks
mostly held their ground with the exception of UBID and MZON which are
not front line companies anyway. AOL traded down as low as -2.50 but
was recovering at the close and is expected to trade up strongly next
week. Current estimates for index fund purchases of AOL this week 
exceed 50 million shares. AOL will account for approximately .7% of 
the S&P-500 starting Jan-4th. With an average daily volume of 10 
million shares the addition of another 50 million in the next four 
days could have a substantial impact. AOL held on to the +$21 gain 
from Tuesday and shows no signs of giving it back.
Americans' personal income registered the largest increase in 
none months and unemployment applications hit a 17-month low. This
suggests the U.S. economy will enter 1999 with enough power to 
resist the drag from economic slumps abroad. Income increased by 
a seasonsally adjusted +.5% in November. This was the most since
February. This follows respectable gains in Sept/Oct as well. Wages
and salaries rose by +.6% in November. Unemployment claims fell
by -13,000 to 287,000 last week.

The Russian parliament voted initial approval Thursday for the
austerity budget intended to pull the nation out of its grim
economic crisis. Lawmakers said the situation was too dire to 
delay approval. This should help free the IMF funding and help
boost confidence that Russia will make the reforms necessary to
rebuild the lagging economy. Not that Russia will have any impact
on our market now but the strong steps help boost the global view
and is beneficial in an overall context.
Just because analysts expect our market to go up next week does not
mean that every stock will go up. There will still be some false
starts and some drops due to news or portfolio restructuring. We
have many new readers this weekend and I thought it would be helpful
to reprint (below) the "trading bus" article from a previous 
newsletter. If you have read it you should still read it again.
We tend to get focused on the current plays in out portfolio and
want to hold them until they "recover." The key here is - some
never recover! Reread the article!

I also included the Top-10 rules again. We have had several requests
for them since the website changed. 

We have a lot of great new features starting after the first of the
year and we know you will "profit from it." (Sorry CNBC - I could 
not resist!) The OEX Trading Pit should kick off on the 4th. The
Options 101 education section will begin on the 3rd. The details on
the managed account program will be out the week of the 10th and we
are very excited about this program. 

The "Hedge Section" is changing names and content starting next week.
It will be called "Market Sentiment" and will focus on changing trends
in the market to enable you to capitalize on them before the herd
can react. The "Failed Rally" section will be moving into the enhanced
"PUT Section." (boy did we need that!) 
Use the rest of the weekend to plan your trades for next week. Pick
entry points AND exit points. Murphy's law is alive and well so expect
some not to turn out the way you expected. On Monday morning, sit
down in front of your PC and fasten your seatbelt. This could be a
very exciting week! A word to the cautious, with the Dow up +437
in the last six trading sessions there is always the possibility of
profit taking. Also seven positive sessions in a row has been the
longest run in quite a while. Technicians will be pointing this out
on CNBC Monday for sure. While this has no technical impact the 
psychological impact will be a cloud starting Tuesday. Wed/Thr are
the most likely "PT" days.

Good Luck

Jim Brown

For those new readers this week I will go over the ground rules
for this section. Many readers have requested a summary of my 
personal trades to see what and how I trade. They want to see if
I put my money where my advice is. Because of the thinly traded
options market, relative to stock volume, I can't post my open
trades without impacting the open interest on those options. I
list these trades on a post trade basis only.

Last week I reported an open position in AOL because we were
going to issue an aggressive buy in the Tuesday newsletter after
the announcement of the addition to the S&P-500. I closed that 
trade on the opening bump Wednesday morning. This was one of the
trades I would classify as "lucky rather than good." Although
we were recommending AOL as a current split candidate the S&P-500
news was just a gift to anyone holding the options. Sometimes
you get a homerun like this just like the gap down plays that
we are more accustomed to when somebody downgrades a stock before
the market opens. It goes both ways.

I also closed an open position in NEON on Wednesday when the market
dipped after the open. After the -$4 drop on Monday I was gun shy
and misread the signals. It promptly went back up immediately after
I sold the position. We all have seen this syndrome before. I think
Murphy has a law for that as well.

Qty Stock Option      Symbol Cost    Sold    Profit/loss

30 AOL  JAN-115 CALLS AOE-AC $13.66  $26.50  $38,520
40 NEON JAN-35  CALLS QNO-AQ $ 7.13  $ 7.88  $ 3,000
                              Total Profit   $41,520

Current open positions:

I opened several new positions on the market pullback just before
the close on 12/24. Three that I don't think would have any impact
from reporting here are AOL, IBM and the OEX. When AOL did not
pullback any further than it did on a perfect profit taking 
opportunity I felt the strength showed promise of a strong week 
ahead. IBM is just a momentum play on a stock that has been a 
great performer and is a stock split waiting to happen. If the Dow
is going up as we expect then IBM will be a favorite. You get the 
best of both worlds, Dow strength and tech hype. I bought calls on 
the OEX to play the expected rally. The rest of my current 
positions are more thinly traded techs and Internets so I won't 
disclose them until they are closed.

LETS PLAY BALL  (reprint)

I get a surprising number of emails from subscribers who want to 
know how to play our picks. First let me say we do not suggest that
everyone play everything. (I get that a lot)

We suggest that you play no more than 2 or 3 at one time. You cannot
watch them close enough to avoid corrections if your attention is

We also suggest that you never buy on faith. We always try to pick
the very best from the thousands we watch, BUT.. we do not control
the market. The market controls us. NEVER BET AGAINST THE MARKET.

We always strongly suggest you wait until the market, sector and
stock are moving up at the same time before you buy the option. You
may pay a little more by waiting until the conditions are right, but
paying more for a stock moving up is cheaper than selling for less
on a stock going down.

Picture this: Your playing softball, slowpitch. In this game there
are no strikes and no balls. You can watch as many pitches as you
want until you get that perfect pitch. The one that is right for
you. Not to high, not to low, not outside, not inside, just right.
You may not hit a home run but you do get a hit every time.

That is what we as investors can do to narrow the odds in our favor.
We are in no hurry, it does not cost anything to watch. There is
no time limit to buy. We can wait until the odds are in our favor
100% then strike.

Ok, now we got a hit, we own the option. We got on the bus..

What bus ? The Option Express! You and many others have now placed
bets on this stock. Your hit (executed buy order) opened the door 
and now you settle in for the ride. 

Now that you own the option you only have two choices sell or 
not. If you were going someplace on a bus you would not take the
first bus that came along. You would only take the bus going in 
the direction your going. Ok, we bought the option, we are on 
the bus. If the bus broke down would you continue to sit on it
for days waiting for it to be fixed? Not hardly, you would get off
and catch the next bus. If the bus you were on suddenly turned
around and headed the opposite direction would you keep riding ?
Maybe even past the stop where you started. Not hardly !

Options are like a bus. You get on expecting a calm ride and 
sometimes you get a roller coaster, sometimes you have a wreck,
and sometimes you actually get where you wanted to go. 

The point to all this of course is:

1) Choose carefully, the bus you want may not be the bus for 
somebody else. You may want a quiet ride when they are looking
for the chills and thrills of a roller coaster.

2) If the trade goes against you, and it will when you least 
can afford it, get off the bus ! Don't watch your capital 
drain away on the hopes it will turn around as if by magic. 
Sell it, then watch for it to turn around, or pick another bus.

As promised here is my top ten rules for surviving and 
prospering in the options market. 

1. Never put all your money into one play. As soon as you do
Murphy's Law will take control and you will be broke.
With a $2000 account put $1000 into two plays. $5000 should
divide into 3 plays, $10,000 = 3 to 5 plays maximum. I 
strongly recommend NEVER playing more than 3 to 5 positions 
at one time. You cannot watch more than three and act 
decisively when the situation demands action. 

2. Never hold a position over an earnings report. Historically
the number of stocks that rise substantially after an earnings
report is less than one in ten. Sure there are a rare few 
that gap open on great earnings but far more gap down. To gap
open they must beat the whisper number by a LARGE margin AND 
have a good conference call. To go down they only need to 
meet the whisper, meet the estimates, miss the estimates, 
prewarn any problems or just plain not be positive enough 
in the conference call. Traders leaving after playing the 
earnings exert enough pressure on the price as it is without 
bad news.

3. Never play deep OUT OF THE MONEY call options. Sure they
are cheap but they are cheap for a reason. They are like
playing roulette and betting on any one number. If you 
hit the payoff is 35 to 1 but the odds of being hit are
38 to 1. 

4. Never put in a MARKET BUY before the open. You will more
than likely get filled at the high of the day. Enthusiasm
is rampant at the open and everything costs more (as a rule)
than it will an hour later.

5. Never place a market order for a thinly traded option. You
may take out the current ask and be very shocked at how high
the next ask was. Several times I have seen fills more than 
$2 over the current ask quote.

6. Always pick a sell price you would be happy to get BEFORE
you buy an option. Immediately after purchase place a limit
sell for that price. You will be surprised how many times
you will sell on an intraday spike that you did not expect.
See #5 for why. Decide how much you are willing to risk on
the trade BEFORE you make it. Sell when that limit is reached.
Ask anybody who ever had an option expire worthless. They
will all tell you now "they wish they had sold". At the time
emotion will always convince you tomorrow is turnaround day.
Hundreds of thousands of contracts expire worthless EVERY
month. Turnaround never came for them.  

7. Never bet against the market/sector. The trend is your friend.
It does not matter why the market/sector is going down you
will still lose your money. 85% of stock movement is due to
market/sector movement not stock fundamentals.

8. Always sell when you pass 100% profit. If you still like the
play take half the money and buy back in at a higher strike.
Once you sell they can't take the profit away from you. Don't
play 100% of the money again. Double or nothing will eventually
get you nothing.

9. Emotion is your enemy, logic is your friend. Never trade 
on emotion. There is no such thing as "it has to go up", "it
can't go down". The market does not care what you think or 
hope. It is ruthless and makes its own rules. You should say
this 50 times a day, "past performance is not a guarantee of
future results".

10. Never buy on impulse. If you just heard the news, it is 
already to late. Plan your buys during non market hours. Once 
the bell rings your mind is clouded, emotion takes over. 
Plan your strategy, execute your plan. When in doubt, stay out.

PS: Cash flow is king. It is very easy to make 25% every two weeks
but very hard to make 100% routinely. 25% on $1000 every two
weeks for a year is $6500. (without benefit of compounding)
Take a profit over and over and over. 


Yes, it is true. Our first ever rate increase will be January 1st.
Please read the details in the special email alert or the notice
on the website. We feel very strongly that we resisted as long as
we did even as our costs continued to climb. This time last year
we only had seven people producing the newsletter. Now 30 people
contribute to each finished product. A year ago there were no
covered calls, combos, naked puts, hedge section, market posture,
chat room, message boards, S&P futures, live charts, etc, etc...

We came a long way but the changes we have scheduled for January
will easily double our current services.

We value our current subscribers and to show our appreciation
we will allow current subscribers to renew for any term they want,
up to one year, at the current price. To take advantage of this 
money saving opportunity you must renew before December 31st.

We hope it has been a profitable year for you and our 
recommendations have more than covered your subscription price.

It still only takes one successful trade to pay for a years

 Old Rates   New rates

Mo   $24.95  $39.95
Qtr   64.95  $99.00
Annl 249.00  349.00

Click here to renew at the old rates before Dec-31st:

Market Posture
As of Market Close ­ Friday, December 25, 1998 

              Major Support
Broad Market      /Resistance Last Posture/Since Alert

DOW Industrials  8,600 9,400 9,218 Neutral 11.24 
SPX S&P 500      1,140 1,190 1,226 BULLISH 12.21 
OEX S&P 100        560   590   609 BULLISH 12.21 
RUT Russell 2000   385   405   406 BULLISH 12.24 *

NDX NASD 100     1,640 1,740 1,806 BULLISH 12.18 
MSH High Tech      770   790   861 BULLISH 12.18 

              Major Support
Technology        /Resistance Last Posture/Since Alert
XCI Hardware       740   750   809 Bullish 12.18 
CWX Software       560   615   611 Neutral 11.24 
SOX Semiconductor  325   360   349 Neutral 11.24 
NWX Networking     360   400   399 Neutral 11.24 
INX Internet       300   340   387 BULLISH 12.18 

              Major Support
Financial         /Resistance Last Posture/Since Alert
BIX Banking        610   680   669 Neutral 12.17 
XBD Brokerage      415   550   560 BULLISH 12.24 * 
IUX Insurance      555   620   598 Neutral 12.17 

              Major Support
Other             /Resistance Last Posture/Since Alert
RLX Retail         770   780   836 BULLISH 12.18 
DRG Drug           730   765   757 Neutral 11.24 
HCX Healthcare     730   760   748 Neutral 11.24 
XAL Airline        270   300   292 Neutral 12.17 
OIX Oil & Gas      250   260   248 BEARISH 12.3 

Posture Alert

Following the S&P rally Christmas week, we remain
Bullish across broad market indices including the S&P 100
(OEX) and S&P 500 (SPX). Each of these sectors is setting new

We have also turned Bullish on the mid-cap, Russell 2000 (RUT)
after taking out its previous near-term high this past week.

We remain Neutral across selected industry sectors until the
current rally can take out its previous high set a couple of
weeks ago. We remain bearish on the Oil & Gas sector.

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


Coming Events

Nothing scheduled


LJR Redbook      12/19     Forecast: 0.00    Previous:  0.2%
BTM/Schroeders   12/26     Forecast: 0.00    Previous: -1.2%
API Oil Stocks   12/19     Forecast: 0.00    Previous: 377M
Consumer Confidence Dec    Forecast: 122     Previous: 126
Existing Home Sales Nov    Forecast: 4.80M   Previous: 4.79M


Leading Indicators Nov     Forecast: 0.3%    Previous: 0.1%


Jobless Claims   12/26     Forecast:         Previous: 287K
Chicago NAPM     Dec       Forecast:         Previous: 48.5
New York NAPM    Dec       Forecast:         Previous: 56.4


365 more days to Y2K

Last weeks change for this weeks picks:
Index	Last	  Week	
Dow	9218    +342.17
Nasdaq	2163    +119.15
$OEX	609     + 25.30
$SPX	1226    + 46.31
$RUT	406     + 11.88
$TRAN	3044    + 73.44

Stock	Price	Week	Comment	
AMZN	324.81	38.13	Splits 3:1 on the 4th of Jan.	
YHOO	247.13	34.81	Earnings on the 7th of Jan.	
AOL	136.63	32.28	Added to the S&P 500 on the 1st.	
CMGI	121.88	23.18	Splits 2:1 on the 11th of Jan.	
IBM	187.94	16.38	New BREAKOUT, new target=$215	
SLR	84.50	8.63	Added to the S&P 500 on the 1st.	
BRCM	120.50	8.50	Internet/semiconductor dual play	
LGTO	62.25	7.19	Earnings run & split candidate	
NOK/A	123.63	6.76	Split candidate	
TWX	62.38	6.75	Price target=$115	
INTC	125.00	5.40	Kurlak Upgrade!!	
ATI	67.88	5.19	New 52 week highs	
LOW	50.25	4.25	Seven days of gains in a row	
SPLS	45.19	4.05	Splitting in January	
CSCO	94.19	3.76	Split candidate	
KSS	58.69	3.68	After Christmas sale winner	
WMT	81.13	3.25	New toy shoppers & split candidate	
JBL	71.56	3.06	New highs	
HD	60.00	2.75	Strong sales for quarter	
MSFT	141.75	2.69	Split candidate	
MYG	61.75	1.81	Strong and steady	
EGGS	23.75	1.69	Ready to take off	
SCI	57.75	1.51	High short interest	
T	74.56	1.43	No competition from the Bells	
WCOM	70.13	0.81	No sellers in sight	
SUNW	83.31	0.63	Consolidating for next run	
NEON	43.63	0.50	Also ready to breakout	
EMC	81.63	0.13	On vacation, be back soon	
AIG	98.94	-0.50	Waiting for que from the Dow	
TXN	85.88	-0.94	Profit-taking	
LXK	93.25	-3.07	Profit-taking	
INKT	136.00	-3.75	Closed at high for day on Thursday	
HBCCA	42.38	-1.19	 - dropped -	
AZA 	49.00	3.37	New FDA approval - dropped -	
AA 	72.31	2.93	Selling aluminum plant - dropped-	
PIXR 	39.50	2.87	Winning the toy competition - dropped -	

SPECIAL SHORT TERM SPLIT PLAYS (in order by split date)

We always recommend selling the day of the actual 
split. Profit taking will drive down the price on an
average of 7 of 10 splitters immediately after the split.
They may come back in a week or two but why risk it ! 
AMZN - Amazon.com $324.81 (+38.12)(+63.69)(+34.50)

See Call Section for Play Description.

Chart = http://quote.yahoo.com/q?s=amzn&d=3m
CMGI - CMGI Inc. $121.88 (+21.18)(+26.25)(-20.25)

See Call Section for Play Description.

Chart = http://quote.yahoo.com/q?s=cmgi&d=3m
With all the great plays each week we can never decide
on just one so take your pick. 

The ones marked * are our choice for risk/reward. 
They may not be your choice.

MSFT - Microsoft $141.75 (+3.95)(+3.81)(+6.62)(P2W +13.75) 

See Call Section for Play Description.

Chart = http://quote.yahoo.com/q?s=msft&d=3m
CSCO - Cisco Systems $94.19 (+3.75)(+6.94)(+5.25)

See Call Section for Play Description.

Chart = http://quote.yahoo.com/q?s=NEON&d=3m
JBL - Jabil Circuit, Inc. $71.56 (+3.06)(+5.31)

See Call Section for Play Description.

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

No put plays today due to expected rally

REAL-TIME Stock an Option Quotes
We are constantly asked for our recommendations for a 
real time quote service for stocks/options/futures/indexes etc. 

We have reviewed many and give our strongest recommendation
to Interquote. 

Their quotes are delivered in a fully customizable spreadsheet
format with over 20 different data fields available.

They offer tick by tick realtime, CONTINUOUSLY UPDATING, 
or delayed quotes for all exchanges.

If you are considering the volatile world of option trading 
you will find realtime option quotes from Interquote a 
valuable resource.

You can get a free trial from Interquote at this address.



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

The monthly subscription price is $39.95
The quarterly price is $99 which is $21 off the monthly rate.


To subscribe you may go to our website at 


and click on "subscribe" to use our secure credit 
card server or you may simply send an email to 
"subscribe@OptionInvestor.com" with your
credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the 
information over the phone.

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

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              12-27-98
Sunday                   2  of  6

© 1998 The Option Investor Newsletter. - All Rights Reserved
SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
MTD = Move to double - amount stock must move to double option price
                       in one week. ONE WEEK MOVE ONLY !

Numbers within ( ) are the amount of change for the week.
Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks

The options with a "*" by the strike price are our choices from the 
group. If the stock moves as expected we feel they have the best 
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5 
Analysts who follow each stock rate it and these rating are 
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell" 

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.



SPLS - Staples
BRCM - Broadcom
LGTO - Legato
ATI  - Airtouch



Remember that historically, when we drop a pick it will go up 
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CMVT $68.73 (-1.43) We are dropping CMVT after a week with no 
strength to speak of. We are not dropping CMVT because we feel it 
will go down, we just feel there are other picks with a greater 
upside. CMVT has given us a decent run up over the last 2-3 weeks 
and has fallen into a consolidation phase. 

VTSS $45.06 (-3.25) VTSS has had a terrible week. Not only did
the semiconductor index struggle this last week, but VTSS under-
performed its index. VTSS proceeded to go down the last three days,
and showed no signs of improving. We'll watch the semis and look
for the right time to re-enter this or other semiconductor stocks
(try looking at SLR, JBL, TXN, and INTC for semi plays).


HBCCA $42.38 -1.19  Heftel rallied late in the week and took back
half of it's losses. The option open interest evaporated and the
recommended strike was left with only 5 open contracts. Too thin
for us on an expected rally week.

AZA $49.00 (+3.37)  Alza sharply rebounded Wednesday after word of
an FDA approval reached investors ears.  AZA won approval for their
Ditropan XL, a once a day therapy for an overactive bladder.  Needless
to say, FDA approvals tend to have a positive affect on drug stocks.
Not the right direction for a put play.

AA $72.31 (+2.93)  Also rebounding sharply on Wednesday, the goodwill
Christmas fairy touched traders hearts and news of Century Aluminum 
Company buying Alcoa's California Aluminum plate business sent them
into a buying mode.  Now that AA is safely above their 10 dma for 2
days in a row, we have to take them off our put list until we see
how investors truly digest the news without the holiday spirit.

PIXR $39.50 (+2.87) Spiking up over $3.00 on Thursday, PIXR vaults
out of our put category on positive comments about movie merchandising
toy sales for the Christmas shopping season.  While competition in
the theatres is getting tougher, "Mighty Joe Young" really didn't hit
the screens soon enough to be a threat in the toy store and "Prince
of Eygpt" is not participating in the toy merchandising market.


YHOO - Yahoo
EMC  - EMC Corp	    
IBM  - Intl Business Machines.
WMT  - Wal-Mart
SUNW - SunMicro Systems
CSCO - Cisco Systems
MYG  - Maytag
NOKA - Nokia
SLR  - Solectron Corp
MSFT - Microsoft
LXK  - Lexmark Intl Group Inc

We don't list all splits available, only those we feel may have
play possibilities. 

LMT  - Lockheed Martin 2:1 12-31-98 ex-date 01-04 
AMZN - Amazon.com      3:1 01-04-99 ex-date 01-05 
CMGI - CMGI Services   2:1 01-11-99 ex date 01-12

For a complete list of all the coming splits check out the
"split calendar" on the side of the online edition newsletter

CSCO - Cisco Systems $94.19 (+3.75)(+6.94)(+5.25)(-1.75)(+5.38)(+9.92) 

Cisco is the leading networker and is expected to help build the 
next generation Internet. Their goal is to allow people to access 
or transfer information without regard to differences in time, place 
or type of computer systems, voice or data.   

All quiet on the CSCO front.  Or at least that's how it seemed last
week.  No major product release or enhancement, no major contracts
signed, no major event; but CSCO continued its run into last week
with a $4.25 Monday.  The rest of the week was given to market swings
considering the light volume due to the holidays.  Since we are 
expecting the market to rally this coming week, CSCO should continue
its winning ways and may do so into next year.  However, play with
those stop losses.  There is a lot of profit built into this stock
already and while it has resisted any major pullbacks thus far, nothing
says it won't slip with any major pullback now.  Thursday's -2.31 
may provide a great chance to buy in at a dip.  Look for market 
direction and make your move.

It is too early to call CSCO a split candidate just yet (but we are) 
since it last split 3:2 on September 16th, but the share price is 
within its usual split range of $78-$100.  As we've stated earlier, 
we don't expect another split so soon.  Zack's currently has the 
next earnings announcement scheduled for February 3rd, perhaps then.
At the moment, CSCO has enough shares authorized for another 3:2
split, but that's it.  Anything more would need another shareholder
vote to approve.  We'll keep an eye on them.

BUY CALL JAN- 90 CYQ-AR OI=10977 at $7.63 SL=5.75, ITM $4.19
BUY CALL JAN- 95*CYQ-AS OI= 9031 at $5.00 SL=3.25 
BUY CALL JAN-100 CYQ-AT OI=11197 at $2.88 SL=1.50
BUY CALL FEB-100 CYQ-BT OI= 2841 at $5.63 SL=3.50
BUY CALL APR-105 CYQ-DA OI=  188 at $6.75 SL=5.00


BUY LEAP JAN-2000-100 LCY-AT at $17.38 SL=14.00 
BUY LEAP JAN-2001-100 ZCY-AT at $27.00 SL=22.00

SELL PUT JAN-90 CYQ-MR OI=4038 B=2.75 A=3.00 ROI=12.8%
SELL PUT JAN-85 CYQ-MQ OI=4828 B=1.38 A=1.56 ROI= 6.8% (safer)
 ** review the substantial risks with selling puts **
** put plays are 3 weeks long **

Picked on Oct   8th   $46.69            PE= 96
Change since picked  +$47.50            52 week low =$34.18 
Analysts Ratings 16-14-0-0-0            52 week high=$97.75
Last earnings on 11-04 est=.33  actual=.34  
Next earnings on 02-03 est=.36  versus=.29  
Chart = http://quote.yahoo.com/q?s=csco&d=3m
Internet - Sector
AOL - America Online $136.63 (+32.37)(+12.62)(+3.56)(-6.49)(+10.02)

America Online is the largest online Internet access service in the 
world. With estimates of 16 million users by the year 2000 and 
growing advertising revenues AOL has been called the blue chip of 
the Internets. (If only they could get their mail problem resolved!)

As if Internets needed any more rocket fuel, Standard & Poor's 
have decided to add AOL to their S&P 500 index.  Lending a 
controversial industry group some much needed respect and prestige.
Well, maybe not the whole industry, but AOL will indeed reap the
rewards of being added to the S&P 500.  The rumor surfaced late
in the day on Tuesday and was quickly confirmed after the closing
bell.  Shares of AOL promptly soared over 15 points to $138 in 
afterhours trading.  The following day, C.S. First Boston issued
a downgrade from "strong buy" to a "buy" after the sudden increase
in share price.  However, the analyst covering the stock had 
nothing but good things to say.  She sited the companies good
fundamentals, strong position in the market, and sure to come
incremental subscriber growth due to the new movie with Meg Ryan
and Tom Hanks.  Deutsche Bank was a little more optimistic and 
raised their price target from $121 to $165 and reiterated their
"buy" on the stock.

For those of you who don't know, when a stock is added to the
S&P 500, all of the index funds that track it have to buy 
shares of the new company.  They don't think about buying them,
they have to buy them.  AOL only has 458 mln shares outstanding
and 77% are already owned by funds and institutions.  That only
leaves about 106 mln shares for the rest of these big guys to 
snatch up.  The addition is going to take place after the close
of trading 12/31.  We expect a lot of buying to take place 
when these fund managers get back from vacation.  AOL's lack of
a substantial loss since its' huge jump Monday through Wednesday 
points to a strong lack of sellers.  In addition to being 
added to the S&P 500, AOL is a strong split candidate 
despite the fact that they just split in November.  Currently
they have 1.8 bln shares authorized.  That's enough for a 3:1 
split.  Earnings are due in March and management may not be 
able to wait that long.

Still an Internet stock.  

BUY CALL JAN-130 AOE-AF OI=4552 at $14.63 SL=11.00, ITM 
BUY CALL JAN-135 AOE-AG OI=3485 at $12.00 SL= 9.00, Near-the-Money
BUY CALL JAN-140*AOE-AH OI=7344 at $ 9.50 SL= 7.00, OTM
BUY CALL JAN-145 AOE-AI OI= 828 at $ 7.75 SL= 6.00
BUY CALL FEB-140 AOE-BH OI= 977 at $16.88 SL=13.00
BUY CALL FEB-150 AOE-BJ OI= 258 at $13.00 SL=10.00, very aggressive!

SELL PUT JAN-125 AOE-ME OI=2265 B=$5.13 A=$5.50 ROI=15.8%
SELL PUT JAN-130 AOE-MF OI=2134 B=$7.00 A=$7.38 ROI=20.4%
SELL PUT JAN-135 AOE-MG OI= 720 B=$9.38 A=$9.88 ROI=25.5%
 ** review the substantial risks in selling puts **
**puts...are 3 week plays **

 - Momentum play.

 Chart = http://quote.yahoo.com/q?s=aol&d=3m
EGGS - Egghead.com Inc. $23.75 (+1.69)(P3W +6.51)

In the early days of the PC, Egghead was another retail purveyor of
computer software and games for the home and business user.  Bricks 
and mortar overhead inherent in retail distribution drove their 
competitors out of business.  Egghead almost suffered the same fate.  
When the chips (no pun intended) were down, Egghead saw the future of 
the Internet and transformed itself into an Internet based seller of 
software, much the same that Amazon.com sells books, CD's, video, etc.  
All of their former retail locations are now closed.

Finally starting to perform for us this week, Egghead.com closed the
week moving up almost 5% on Thursday.  What prompted the move?  EGGS'
CEO send out an announcement detailing plans for 1999.  In his 
apologetic message, George Orban, apologizes for the service 
difficulties they encountered in transforming their 200 store retail
chain into a complete online retailer.  EGGS has a lot planned for
1999 with enhanced order acknowledgements, online order tracking, 
category searches, and a deeper level of personalized service among
their new and improved initiative.  Evidently, investors are listening.
Look for market direction before starting any new plays in EGGS.

In the news, reporters and analysts both continued to hype or hang
the much heralded birth of online shopping.  This marked the first
"real" Christmas season where shoppers went online in droves.  Rival
online retailer Cyberian Outpost reported earnings last week beating
estimates with a smaller loss than expected.  This is a positive
indicator that EGGS should do well.  

BUY CALL JAN-20.00 EGQ-AD OI=2211 at $5.38 SL=3.25
BUY CALL JAN-22.50*EGQ-AX OI=2220 at $3.88 SL=1.75
BUY CALL JAN-25.00 EGQ-AE OI=4116 at $2.75 SL=1.25
BUY CALL FEB-25.00 EGQ-BE OI=  88 at $4.63 SL=2.75, caution = low OI

no fundamentals, momentum only

Chart = http://quote.yahoo.com/q?s=eggs&d=3m
BRCM- Broadcom  $120.50 +1.38  (+8.50)

Frustrated with how slow the internet can be at times?  Here is a
stock for you.  Broadcom Corporation, a semiconductor company
based in Irvine, CA, supplies highly integrated, system-level
silicon solutions that enable broadband communications delivery
to homes and businesses.  Its products enable high-speed
transmission of data over existing wires. BRCM dominates the
broadband cable set-top box market as well as the telco DSL
(digital subscriber line) broadband side, so it is playing BOTH
sides of the faster Internet game at the same time.  (Thus it
will benefit no matter which technology wins out eventually.) Its
recently introduced chips may integrate Internet programming
technology directly into TV sets.  Someday soon, TVs will come
not only cable-ready, but internet-ready as well, and Broadcom
will be there with the technology and the products.  Their chips
also provide a better image on the TV screen, eliminating
fuzzies, sharpening graphics, and providing studio-quality text. 

Broadcom benefited from Tom Kurlak's upgrade on Intel last week
(see Intel). BRCM has been the number three best performing
Internet IPO this year. This stock is a fast Internet pipeline
provider, a specialty chip designer, and a cutting edge
communications tech company all at the same time.  Look for its
innovative products to dramatically change the way we communicate, 
entertain ourselves, and use the web in coming years.
Its co-founders, Henry Nichoas and Henry Samueli were included in
CMP's Electronic Buyer' News list of 25 executives in the
industry to watch. They were noted for their technical and
business acumen "as well as their ability to strike out on their
own and call market needs correctly." BRCM will move with the
Internet stocks as well as with the semiconductors. Both sectors
are HOT.  Although profit-taking is always a possibility after a
run-up, BRCM should continue its skyward movement, market

As of 12/21, leaps are available on Broadcom. 
BUY CALL JAN-115 RCQ-AC OI=135 at $11.75 SL= 9.50	
BUY CALL JAN 120 RCQ-AD OI=183 at $ 8.00 SL= 6.25
BUY CALL FEB-120 RCQ-BD OI= 55 at $13.25 SL=10.50
BUY CALL MAR-120 RCQ-ED OI= 34 at $20.63 SL=15.50

Picked on Dec 27th at $120.50         P/E = 184
Change since picked     $0.00         52-week low =$ 47.00	
Analysts' ratings   1-4-2-0-0         52-week high=$123.00
Last earnings   9/98 est=$.15 actual=$.17 surprise: 13%
Next earnings  12/98 est=$.18 versus= n/a  

Chart = http://quote.yahoo.com/q?s=brcm&d=3m
YHOO - Yahoo, Inc. $247.13 (+34.82)(+16.62)(+11.94)

Yahoo! Inc. is a global Internet media company that offers a 
network of branded World Wide Web programming that serves millions 
of users daily. As the first online navigational guide to the Web, 
WWW.YAHOO.COM is the single largest guide in terms of traffic, 
advertising, household and business user reach, and is one of the 
most recognized brands associated with the Internet. The Company 
provides targeted Internet resources and communications services 
for a broad range of audiences, based on demographic, key-subject 
and geographic interests.

YHOO has established a hold above the $200 level and then some. 
The last three trading days, YHOO has consolidated at the current
level. YHOO should continue to run with the other internets 
between now and its next earnings. YHOO is in definite stock split
territory and could announce with earnings on the 7th of January. 
Remember the pop that CMGI and AMZN got with their split announce-
ment. Watch for pullbacks, even intraday, to get a better price.

YHOO welcomed a new member to Yahoo! Shopping. The new company is
Delia's. They sell girl clothes, part of which has been popularized
by the Spice Girls. YHOO seems to be the place business's want
to be part of. It's all good for YHOO. There has been speculation
that with the addition of AOL to the S&P, that YHOO will be the 
next to be added.

These are expensive but then look at YHOO's weekly moves.

BUY CALL JAN-250*YHU-AJ OI=1222 at $19.88 SL=15.00
BUY CALL JAN-260 YHU-AL OI= 275 at $15.88 SL=12.25
BUY CALL JAN-270 YHU-AN OI= 343 at $12.38 SL= 9.50
BUY CALL FEB-260 YHU-BL OI=  35 at $29.75 SL=23.25
BUY CALL APR-270 YHU-DN OI=  36 at $39.63 SL=31.00

Picked on Nov.12th at $173.25   PE=588
Changed since picked   +73.88   52-week low = $ 24.00
Analysts Ratings   8-10-5-0-0   52-week high= $253.88
Last Earnings 10-98 est =.10 actual = .15
Next Earnings 01-99 est =.16 versus = .03

Chart = http://quote.yahoo.com/q?s=yhoo&d=3m
INKT – Inktomi Corp. $136.00 (-3.75)

Inktomi develops and markets scalable software applications 
designed to significantly enhance the performance and intelligence 
of large-scale networks. The company is a pioneer of the software 
architecture that enables true scalability, high system availability 
and fault tolerance, and superior price/performance compared to 
traditional mainframe or symmetric multi-processing-based systems.

INKT had struggled since we picked it last Tuesday, until the final
hours of trading on Thursday. The stock dropped as low as $125.00
on Thursday, but finished right on its high of $136.00. INKT has
been stagnant as the focus for internet stocks has been the on-line
auctioneers. Watch for confirmation of a further uptrend before
initiating new plays.

INKT put out its 10-K (annual report) on the 23rd of December.
INKT is developing software for online bidding companies. It is
not available yet, but should be a big boost in the future for
the company. If you are interested in reading about the future of
INKT as seen by its board of directors, read the 10-K.

BUY CALL JAN-140 QYK-AH OI=148 at $10.75 SL= 8.75
BUY CALL JAN-145*QYK-AI OI=814 at $ 8.50 SL= 6.50, confirm upward trend! 
BUY CALL FEB-140 QYK-AH OI=  3 at $17.63 SL=13.75 
BUY CALL FEB-145 QYK-AI OI=215 at $15.75 SL=12.25

Picked on Dec 15th at $136.00    P/E = N/A
Change since picked:    -3.75    52 week low =$ 18.50
Analysts' ratings   0-4-1-0-0    52 week high=$158.50
Last earnings  10/98 est= -$.33  actual= -$.28
Next earnings  01/98 est= -$.30  prior = N/A

Chart = http://quote.yahoo.com/q?s=inkt&d=3m
AMZN - Amazon.com $324.81 (+38.12)(+63.69)(+34.50)(-28.13)(+36.00)

One of the giants among the volatile Internet stocks burning up 
portfolios of shorts and longs alike. Now claiming 3 million titles, 
Amazon.com has dubbed themselves as the world's biggest bookstore. 
They also sell CDs and videos. With one of the web's most popular 
websites, they offer customers up to 40% discounts. 

Amazon finished the shortened holiday week up another +$38.12 with 
most of those gains coming on Monday and Tuesday.  The stock is 
still as volatile as ever but some exciting moves could still be 
in store for this high flier.  AMZN is splitting its stock 3:1 on 
January 4th (after the bell).  That means that in the four and a 
half trading days before the split, action is imminent for this 
stock who has been targeted for a price of $400/share within the 
next 12 months by an Oppenheimer analyst.  Investors seem to share 
this confidence in Amazon, who is constantly working to become more 
than just a bookstore.  With its service, "Shop the Web," AMZN is 
expanding shoppers' shopping choices to just about everything under 
the sun.  The retail investor's sentiment is that Amazon's sales 
potential outweighs the facts that it currently is overvalued and 
hasn't turned in a profit yet [we are assuming they've thought that
far].  Every day, more and more people are using the Internet to make 
purchases and Amazon is positioning itself to accommodate those 
users.  In the short term however, if you do decide to play this 
stock on split momentum, remember that we never recommend holding 
over the actual split.

News On The Week:  Early in the past week, an article in Barron's 
magazine on Morgan Stanley Dean Witter's analyst Mary Meeker may 
have caused Amazon to take off when she expressed bullish sentiments 
on the Internet sector.  In other news, the Federal Trade Commission
(FTC) is investigating the planned merger between Ingram Book Group 
and one of Amazon's competitors- Barnes & Noble Inc.  Several 
companies have voiced their objection to the merger saying that it 
"would harm both independent book dealers and Amazon.com, which 
depends on Ingram Book Group as its largest distributor."(-Newsbytes)  
The groups say the "anti-competitive" merger could lead to higher book 
prices and should not be approved.

 *Very Volatile - only take small positions*
BUY CALL JAN-320 YZZ-AD OI=1726 at $33.50 SL=26.00
BUY CALL JAN-330 YZZ-AF OI=1561 at $28.63 SL=22.50
BUY CALL FEB-330 YZZ-BF OI= 124 at $44.88 SL=35.00, post split 110s
BUY CALL APR-330 YZZ-DF OI=2430 at $65.25 SL=51.00, post split 110s


Chart = http://quote.yahoo.com/q?s=amzn&d=3m
CMGI - CMGI Inc. $121.88 (+21.18)(+26.25)(-20.25)(P4W +31.89) 

CMGI develops and operates Internet and direct marketing companies 
and as a recognized leader in the Internet arena, they combine operating
companies with strategic venture investments to create a broad and 
diverse set of businesses delivering Internet solutions. The CMGI 
Internet Group consists of a number of majority-owned subsidiary 
companies including CMG@Ventures and CMG Direct for direct marketing 
and fulfillment in turn-key arenas. Many consider them an Internet 
fund rolled into one stock. They have stakes in over a 25 different 
Internet companies. They own 23% of LYCOS and 29% of Geocities. 

This Internet powerhouse has been rocketing to new highs for the
last two weeks.  After blowing out earnings and announcing a 2:1
stock split 2 weeks ago, CMGI has enjoyed the recent Internet
craze.  Aside from officially changing its name from CMG 
Information Services to CMGI Inc., news has been relatively 
quiet.  With only 2 weeks left before their split, they should
continue to rally for the next several days (their split is 
Monday, Jan. 11th).  Since the broader market has been up several
days in a row, when it turns for a pullback, CMGI could be hit 
pretty hard [there is a lot of profit built into this stock already].
However, the next good dip would be a great time to jump in for
the remainder of the split run.  Play with stop losses!

 **CMGI is a volatile stock. Double check your capacity to 
endure wide price swings. 

BUY CALL JAN-115 QGC-AC OI=169 at $16.13 SL=12.00, ITM
BUY CALL JAN-120*QGC-AD OI=913 at $13.50 SL=10.00, Near-the-Money
BUY CALL JAN-125 QGC-AE OI=474 at $11.25 SL= 8.50, OTM
BUY CALL JAN-130 QGC-AF OI=402 at $ 8.63 SL= 6.00, more aggressive
BUY CALL FEB-130 QGC-BF OI= 14 at $15.75 SL=11.75, caution-low OI!

Picked on Oct. 22nd at $52.25      PE = 57
Change since picked   +$69.63      52 Week High=131.25
Analysts Ratings    2-4-2-0-0      52 Week Low = 13.62
Last Earnings 12-15 est -0.62  actual 1.54 
Next Earnings 03-12 est -0.45  versus  .54
Chart = http://quote.yahoo.com/q?s=cmgi&d=3m
Telecom - Sector
WCOM - MCIWorldCom $70.13 (+.82)(+$4.93)(+2.57)(-.63)(+4.94)

Telecommunications behemoth, MCIWorldCom, is the recent offspring
between a marriage of formerly #2 long distance provider MCI and 
#4 provider WorldCom.  Now the newly formed giant of giants is 
duking it out with AT&T as they stake their claim in the local phone
service, international service, cellular, paging, and Internet access

After a series of new highs, WCOM took Christmas week to consolidate
near the $70 level.  Volume tapered off the closer we got to the 
holiday as traders went home.  Brokers were mixed as Zack's ratings
added both a "moderate buy" and a "hold".  The momentum is still there 
and nobody was selling.  Look for the ascent to resume next week.
We suggest not starting any new plays until WCOM closes above $71.25.

The news this week is close to the same for AT&T.  A major court
ruling put special requirements on the Baby Bells from selling 
long distance in their home markets (they are the country's largest
providers of local phone service).  This prevents them from
being a strong competitor with AT&T and WCOM.

BUY CALL JAN-65*LDQ-AM OI=13790 at $6.13 SL=4.25, ITM $5.13
BUY CALL JAN-70*LDQ-AN OI= 1561 at $2.13 SL=1.00
BUY CALL JAN-75 LDQ-AO OI=  215 at $ .69 SL=0.00
BUY CALL MAR-70 LDQ-CN OI= 7275 at $4.63 SL=2.75
BUY CALL MAR-75 LDQ-CO OI=  897 at $2.75 SL=1.25

Picked on November 29th at $62.44       PE = 83
Change since picked       +$ 7.69       52 week high=71.25
Analysts Ratings       25-7-2-0-0       52 week low =28.50
Last Earnings 10/29 est .22  actual .21  surprise -4.5%
Next Earnings 02/19 est .22  versus .15
Chart = http://quote.yahoo.com/q?s=wcom&d=3m
T - AT&T $74.56 (+1.56)(+3.00)(P3W +9.06)

AT&T, the mother of all phone companies isn't just a long distance 
company any more. Through growth and acquisition, they now provide 
data transmission, video tele-conferencing, PCS/wireless/cellular, 
internet, paging and local phone services via microwave, fiber and 
copper infrastructure throughout the U.S. and international markets.  
Their annual revenues in excess of $55 billion dwarf their nearest 
competitor, MCIWorldCom, by 5 times.  Their 1998 acquisition of TCG 
(formerly Teleport Communications Group, the nations largest competitive 
local exchange carrier) and IBM's data services division will add 
substantially to their revenues.  Pending a merger with cable giant, 
TCI, revenues could grow even more.  Michael Armstrong, AT&T's CEO, 
has investors believing that AT&T is no longer a dinosaur heading-up 
the telecom extinction list.

Setting a new all-time high on Monday, T continued to edge higher
as the holiday week swept by.  If the market continues to climb 
higher this week, T should be able to sustain its new found momentum
and break through $75.  With the technicals still positive, wait
for T to close above $75 before starting any new plays.

In the news, long distance giants AT&T and WCOM applauded a court
decision against their giant rivals, the Baby Bells.  This ruling
prevents the Bells (who are the country's largest supplier of 
local phone services) from selling long distance in their home
markets.  This certainly bodes well for AT&T and WCOM who would
be happy to supply long distance to the Bell's customers.  

BUY CALL JAN-70*T-AN OI=15468 at $5.38 SL=3.50, ITM $4.56, prem=.82
BUY CALL JAN-75*T-AO OI= 9117 at $2.19 SL=1.00, ATM
BUY CALL APR-70 T-DN OI= 2593 at $8.75 SL=6.50
BUY CALL APR-75 T-DO OI= 1985 at $5.88 SL=4.25

Picked on Dec 20th at  $73.00    PE = 20
Change since picked   +$ 1.56    52 week low = $48.38
Analysts Ratings   9-10-8-0-0    52 week high= $76.50
Last earnings  9-98 est= 1.00    actual= 1.16  
Next earnings  2-09 est= 1.00    versus=  .81

Chart = http://quote.yahoo.com/q?s=t&d=3m
NOKA - Nokia  $123.63 (+6.75)(+8.50)(-$.31)

Nokia, of Finland, is the #1 cellular phone maker in the world and
a leading supplier of telecommunications systems and equipment.
It's strong product offering has helped it eclipse rival Ericsson 
the former #1 cell phone maker. Its net income is rising rapidly,
due to strong increases in sales and higher margins. This stock
has been climbing almost continuously all year. Even during the
overall market drop in early October, Nokia merely bounced off
its 200 day moving average and kept on climbing.  

A recent Prudential Securities upgrade, a German plant expansion,
and an announcement of new orders are helping this stock climb. A
Smith Barney Analyst believes this stock could double in 1999---
even though it has already more than tripled in 1998! With no
resistance in sight, Nokia certainly has momentum, but we are
also playing this stock as a possible split. Nokia rose $9 in one
day following its last split announcement (made in February at
$82).  It then added another $34 by the split date.  We're hoping
for more of the same sometime soon.

BUY CALL JAN-120 NKA-AD OI=673 at $ 8.25 SL= 6.25
BUY CALL JAN-125 NKA-AZ OI=111 at $ 5.13 SL= 3.25
BUY CALL FEB-120 NKA-BD OI= 88 at $11.75 SL= 9.00
BUT CALL FEB-125 NKA-BZ OI= 99 at $ 8.75 SL= 6.50
BUY CALL APR-120 NKA-DD OI=278 at $15.25 SL=11.75
BUY CALL APR-125 NKA-DZ OI= 46 at $13.00 SL=10.50

Picked on Dec 13th at  $108.38        P/E = 49
Change since picked:  +$ 15.25        52 week low =$ 31.63
Analysts' ratings    8-7-0-0-0        52 week high=$119.63
Last earnings   9-98 est= .30 actual= .41  surprise:37%
Next earnings  12-98 est= .53 versus= .55

Chart = http://quote.yahoo.com/q?s=noka&d=3m
ATI – AirTouch Communications $67.88 (+5.19)

AirTouch Communications provides wireless communications to nearly 
14 million customers in the US and in 11 countries in Asia and 
Europe. Its operations include cellular telephone service (#2 in 
the US, after AT&T), paging, and personal communications service 
through PrimeCo, its joint venture with Bell Atlantic. AirTouch has 
joint ventures in Europe and Asia, including Portugal (Telecel) 
and Sweden (Europolitan), where the cellular market is growing 
rapidly. It holds a minority stake in the Globalstar satellite 
network, which is scheduled to begin providing worldwide digital 
phone communications in 1999.

ATI has been on a tear. It has had 8 straight positive gains. On
the 14th of December, ATI was at $56.75, gaining $11.13 in 8 days.
ATI has shown positive earning surprises in 7 of the last 8 
quarters. Its consensus growth rate is 32.85%.  Next earnings are
on January 22nd. This is another stock reaching new highs. ATI 
has no history of stock splits, but has the shares to do one
earnings. This is not likely, but would definitely put pressure
on the shares to move up. 

On the 21st, ATI announced the Nexus 128, 128-bit graphics for
the Mac OS, that delivers professional 2D and workstation-class 
3D performance Next generation Nexus product delivers unparalleled 
performance in true color, at the ultra-high resolutions needed 
by graphics designers and content creators. 

BUY CALL JAN-65 ATI-AM OI=1904 at $4.38 SL=2.75 $2.88 ITM
BUY CALL JAN-70*ATI-AN OI=1918 at $1.75 SL=0.88
BUY CALL FEB-70 ATI-BN OI= 248 at $3.63 SL=2.00
BUY CALL APR-70 ATI-DN OI= 216 at $5.25 SL=3.50 
(70 is current highest strike)

Picked on Dec.22nd at  $67.88   PE=68
Changed since picked     0.00   52-week low = $38.25
Analysts Ratings  13-11-4-0-0   52-week high= $69.25
Last Earnings 10-98 est =.26 actual = .30
Next Earnings 01-99 est =.18 versus = .14

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



The Option Investor Newsletter          12-27-98
Sunday             Part 3 of 6

© 1998 The Option Investor Newsletter. - All Rights Reserved
Software - Sector
MSFT - Microsoft $141.75 (+3.95)(+3.81)(+6.62)(P2W +13.75) 

From their own words, "Mircosoft Rules." Although it's current reign 
is being rocked with revolution, the Evil M-pire (as some programmers 
and anti-Internet Explorer browser patriots call it), has been 
fighting the Federal government on anti-trust grounds for months. 
The line to take their turn and bad mouth the bully was long and 
distinguished. The fact is, MSFT is good at what they do. They are 
the world's #1 software company (Y2K compliant or not!) and their 
operating systems dominate the PC landscape. 

MSFT was another big tech stock that seemed to have a quiet week.
However, plaintiffs and "victims" continue to line up to point
their finger at the big bad bully.  This time the bad news hails
from Chicago.  The first of probably many Y2K lawsuits is being filed
this week.  This one claims that MSFT manufactured a couple of
software programs with deliberate flaws involving the year 2000 bug.
Despite the news, MSFT's stock continued its' trek upward for the
3rd week in a row.  Brokers also seemed unaffected by the news.
Zack's ratings had two brokers move their "moderate buys" to "strong
buys".  Plus, Everen Securities raised their price targets.  They
moved their intermediate price target (0-6 months) from $151 to 
$161 and their long term (6-18 months) from $190 to $200.  

We continue to call MSFT a split candidate at these levels and
with 8 bln shares authorized and only 2.5 bln issued, MSFT has
plenty of room for a stock split.

BUY CALL JAN-135 MSQ-AZ OI=13131 at $ 9.63 SL= 7.00, ITM
BUY CALL JAN-140*MSQ-AH OI=21771 at $ 6.38 SL= 4.50, lots of volume
BUY CALL JAN-145*MSQ-AI OI= 5155 at $ 3.75 SL= 2.25
BUY CALL APR-140 MSQ-DH OI= 3659 at $13.50 SL=11.00, lots of time
BUY CALL APR-145 MSQ-DI OI=  874 at $11.13 SL= 8.50

Picked on December 8th at $133.63     PE = 70
Change Since Picked      +$  8.12     52 Week High= 144.00
Analysts Ratings       14-8-5-0-0     52 Week Low =  59.00
Last Earnings 09/98 est. 0.49 actual 0.56  surprise 14.29%
Next Earnings 01-21 est. 0.58 versus 0.43

Chart = http://quote.yahoo.com/q?s=msft&d=3m
NEON - New Era of Networks $43.63 (+.50)(+3.75)

NEON makes application-integration software (about 70% of sales) for
upgrading outdated computer systems. NEON's flagship NEONet software
integrates a variety of applications, translating data from
different protocols and enabling its transmission across networks
and the Internet. Customers using NEONet include Aetna, Merrill
Lynch, and Xerox. NEON also offers online support, installation, and
consulting services. Subsidiary Rapport provides customer management
and contact software to the financial services market.

NEON was mentioned last week in a CBS MarketWatch article about how
there has been accumulation in some companies that were labeled
"speculative growers", and NEON was a company mentioned.  NEON is
the largest company in the "middleware" market.  NEON is expanding
through internal growth at a rate of 100% a year, and that growth
rate is expected to continue.  NEON is also looking to grow through
acquisitions.  This year it has completed a couple rounds of
financing that are intended for acquisitions.  

NEON set a new high on Monday, and quickly fell back.  It is a
pretty volatile stock (for a non-Internet company).  Its trading
range last week was $40.00 to $46.75.  There appears to be pretty
decent support at around $40.  Since it had trouble with cleanly
clearing $45 last week, NEON is a higher risk play until we can get
a couple of closes above $45.  For those who like volatile stocks,
this might be one to add to your watch list.

BUY CALL JAN-40 QNO-AH OI=373 at $6.13 SL=4.25
BUY CALL JAN-45*QNO-AI OI=474 at $3.38 SL=1.50, if close above $45
BUY CALL APR-45 QNO-DI OI= 68 at $7.75 SL=5.75
BUY CALL JUL-50 QNO-GJ OI= 20 at $8.38 SL=6.50

Picked on Dec 20th at $43.13   PE=N/A
Change since picked    +0.50   52 week low =$ 4.63
Analysts Ratings   6-2-0-0-0   52 week high=$46.75
Last earnings   9-98 est=.07   actual=.07
Next earnings  01-28 est=.08   versus=.03

Chart = http://quote.yahoo.com/q?s=neon&d=3m
LGTO – Legato Systems, Inc. $62.25 (+7.19)

Legato's family of products include; Legato NetWorker, a high 
performance network storage management application that protects 
the business-critical data of networked desktops, workstations 
and servers, while simplifying the administration of enterprise-
wide storage management; Legato NetWorker BusinesSuite, a family 
of add-on modules to Legato NetWorker that provide online protec-
tion of data resident on databases and large business applications; 
Legato GEMS, which allows administrators to centrally manage their 
integrated storage management solution, providing unequaled command 
and control functionality for enterprise-wide storage management; 
and Legato SmartMedia, designed to enable companies to lower their 
total cost of ownership by maximizing hardware utilization, and 
lowering overall administrative and operational costs associated 
with media and device management.

LGTO has been on a nice move up over the last 6 trading days. LGTO
traded as low as $50.50 on the 17th of December. On the 17th, LGTO 
bounced off its 20-dma and hasn't looked back. Last Thursday, LGTO
reached another 52-week high of $62.81. Next earnings are on the
14th of January. We could see a nice earnings run. LGTO could very
easily announce a stock split with earnings. LGTO has split twice
in the past right at this level. Both announcements brought about a
nice gain in the shares. LGTO has been a consistent earnings beater.
With the run we've seen, waiting for a pullback would be prudent.

LGTO was recently selected to be part of the S&P 400 Mid-Cap Index. 
This tends to provide a nice increase in share price due to the 
funds that mirror this index. LGTO also announced recently that it
has partnered with Dell to offer support for Dell's new PowerVault
Storage library. LGTO also announced an agreement with Sun to support
Sun's open management storage platform. LGTO has a consensus future
growth rate of 46.25%. 

BUY CALL JAN-60*EQN-AL OI= 137 at $5.00 SL=3.25 $2.25 ITM
BUY CALL FEB-60 EQN-BL OI=  14 at $7.63 SL=5.75 $2.25 ITM
BUY CALL MAR-60 EQN-CL OI=2260 at $8.38 SL=6.50 $2.25 ITM
(60 is current highest strike)

Picked on Dec.22nd at $62.25    PE=90
Changed since picked    0.00    52-week low = $18.50
Analysts Ratings   6-3-1-0-0    52-week high= $62.81
Last Earnings 10-98 est =.17 actual = .20
Next Earnings 01-99 est =.22 versus = .13

Chart = http://quote.yahoo.com/q?s=lgto&d=3m
Semiconductor - Sector
INTC - Intel Corporation  $125.00 (+5.00)(+3.56)(+.13)
Intel, the world's biggest semi-conductor company, is the largest
supplier of microprocessors, flash memory, and PC chipsets.  It
is also a leading supplier of embedded RISC processors, micro-
controllers, and low-end networking solutions.  It commands a 90%
sales share of the PC processor market.  While chip-makers
suffered from a glut of chips in 1997 and early 1998, inventories
have shrunk and demand is high once again.  In fact, one analyst
believes that the industry is in the early stages of a new bull
cycle and its leader, Intel, will be riding high.

Over the last five years, Intel's earnings per share have grown at
36%.  This compares with 26.6% for the industry and 13.9% for the
S&P.  From a low of less than $80.00 in early October of this
year, Intel rose to a new intra-day high of 124.00 on Tuesday,
Dec. 8, propelled in part by analysts' upgrades and analysts
raising targets on the semiconductors.  On 12/21, Intel again
reached the intra-day high of 124.00, but did not break through
this resistance until 12/23, when it closed at 125.00. It 
repeated the close of 125.00 on 12/24 and set a new intra-day high
of 126.19. Perhaps the upgrade on 12/23 from Merrill Lynch's
Intel cynic, Tom Kurlak, gave the stock a boost. His new 1999 EPS 
estimate is 4.25 (up from 3.60). He said he expects another 20%
appreciation in the near term based on easing pricing pressures,
higher growth, and accelerating demand. Revenues are strong
across virtually every segment and product line in Intel's
business. Both Christmas and corporate year-end purchases of
computers should further boost the demand for Intel's products. 

Recent news: Intel made an equity investment in NETPodium, a 
company marketing interactive broadcasting software which offers
live 2-way interactions over the internet.  On 12/7, Intel joined
other computer industry and telephone companies in making a
encourage investment in high-speed ASDL internet access. On
12/8.Intel said it will donate its design for the Pentium
processor to Doe labs, in an effort to help researchers for the
U.S. government make radiation-proof chips. And finally, Intel
has moved up the introduction of its fastest Celeron processor
yet--400 megahertz--from April to January 4th.

BUY CALL JAN-120 INQ-AD OI=25398 at $ 8.13 SL=6.25
BUY CALL JAN-125*INQ-AE OI=13072 at $ 5.38 SL=3.75
BUY CALL JAN-130 INQ-AF OI=10798 at $ 3.13 SL=1.50
BUY CALL FEB-125 INQ-BE OI=  761 at $ 8.50 SL=6.50
BUY CALL FEB-130 INQ-BF OI=  658 at $ 6.38 SL=4.75
BUY CALL APR-125 INQ-DE OI= 4418 at $12.00 SL=9.50
BUT CALL APR-130 INQ-DF OI= 4177 at $ 9.75 SL=6.75

Picked on Dec. 13th at  $116.44           P/E=36 
Change since picked      +$8.56           52-week low=$65.66
Analyst's ratings   13-13-9-0-0           52-week high=$124.00
Last earnings on 9/98 est=.79 actual=.89   surprise:  13%
Next earnings 12/98 (on 2/24) est=$1.03 versus .98

Chart = http://quote.yahoo.com/q?s=intc&d=3m
SLR - Solectron Corp. $84.50 (+8.62)(+4.38)(+1.06) 

Solectron is the world's second-largest provider of contract 
manufacturing services for original equipment manufacturers 
(after SCI Systems). It builds electronic systems and subsystems 
for customers in a range of industries, including computers, 
consumer electronics, industrial and medical instrumentation, 
avionics, communications, and semiconductor applications. 
Solectron's services include product design and prototyping, 
systems assembly, software duplication, packaging and warehousing. 
Among its customers are Hewlett-Packard, Dell Computer, Cisco 
Systems, and NCR Corporation. Solectron is the first company to 
win the Malcolm Baldrige Award -- given for manufacturing 
excellence -- twice. 

SLR had a great week. News that it is being added to the S&P 500
Index gave the stock a great boost. SLR is the first electronic
manufacturing services company to be part of the index. SLR has 
had 6 straight gains. Any time a stock has such a nice run, there
is bound to be some profit taking. Pullbacks should be considered
nice buying opportunities. SLR has bounced off it's 18-dma on 
numerous occasions, but the 18-dma is at $73.25. 

As we have discussed before, SLR is having a proxy vote in January,
on the 12th, to double the authorized shares. If SLR continues to 
trend higher, then a stock split in January would be likely. With 
the way SLR is increasing in value, we don't think they'll wait 
until earnings in March. Remember, SLR also announced great 
earnings back on the 15th of December.

Some of these have very low OI due to new strike prices coming out
during a holiday week.  If you're unsure, wait for more volume.

BUY CALL JAN-80*SLR-AP OI=346 at $7.00 SL=5.25, ITM $4.50
BUY CALL JAN-85 SLR-AQ OI= 12 at $4.13 SL=2.50
BUY CALL JAN-90 SLR-AR OI= 25 at $2.13 SL=1.00
BUY CALL FEB-85 SLR-BQ OI= 13 at $6.75 SL=5.00
BUY CALL FEB-90 SLR-BR OI= 44 at $4.63 SL=3.00
BUY CALL APR-90 SLR-DR OI=  2 at $7.00 SL=5.25

Picked on Dec.8th at $72.00   PE = 45
Changed since picked +12.50   52-week low = $28.87
Analysts Ratings  4-8-7-0-0   52-week high= $85.50
Last Earnings 12-98 est =.50 actual = .52
Next Earnings 03-99 est =.53 versus = .41
 Chart = http://quote.yahoo.com/q?s=slr&d=3m
TXN  Texas Instruments, Inc. $85.88 (-.87)(+7.32)

Texas Instruments is a global semi-conductor company and a leading
designer and supplier of DSPS--Digital Signal Processing
Solutions.  Like other chip makers, TXN suffered from the glut of 
chips that flooded the market last year and earlier this year.
Profits and revenues were down significantly during the last 9
months.  But as the excess supply has dried up and demand has
potential of this company.  Furthermore, TXN is positioning itself 
as the "Intel" of DSPS, the engines that drive the digitalization
of electronics in many products such as cell phones and hard drives.  
BancBoston sees TXN gaining as much as 70% of the DSPS
market from its current 45%. 

TXN is developing a DSP-based technology that will allow modems to
deliver voice, data, and multimedia video at the highest possible 
speed over available existing copper wires.  VDSL--Very high bit-
rate Digital Subscriber Line, designed for home and business, will
deliver real-time video and real-life tele-conferencing.  Some of
this year's lowered revenues for TXN were a result of increases
in R&D and costs associated with divesting itself of companies
that distracted it from its central businesses.  With divestitures 
behind it, Texas Instruments is now poised to reap the benefits of 
its R&D spending in a market with a high demand for its products. 
Out of the memory business, and better focused, TXN has great 
potential, but this stock surges forward and then pulls back before 
its next leap ahead. It also can react strongly to negative news on 
the sector, so choose your entry carefully. 

BUY CALL JAN-80 TXN-AP OI=1958 at $6.88 SL=5.00
BUY CALL JAN-85 TXN-AQ OI=3871 at $4.00 SL=2.50
BUY CALL FEB-85 TXN-BQ OI=  46 at $7.13 SL=5.25
BUY CALL FEB-90 TXN-BR OI=  82 at $4.25 SL=3.00
BUY CALL APR-90 TXN-DR OI= 817 at $7.25 SL=5.50

Picked on Dec 20th at  $86.75          P/E = n/a
Change since picked     -$.87          52-week low = $39.63
Analysts' ratings   9-7-5-0-1          52-week high= $88.00
Last earnings  9-98  est=.30 actual=$.41   surprise: +37%
Next earnings  1-20  est=.53 versus= .55

Chart = http://quote.yahoo.com/q?s=txn&d=3m
JBL - Jabil Circuit, Inc. $71.56 (+3.06)(+5.31)(-.19)(+5.19)

JBL is the third-largest US manufacturer of circuit board systems,
trailing SCI Systems and Solectron. The company's products are used
in PCs, printers, network hardware, cellular phones, and cars. JBL's
major customers include Hewlett Packard, 3Com, and Cisco Systems
with more than half of its revenues coming from telecommunications
companies.  JBL's customers use contract manufacturers, like JBL, to
save money and improve production times.  JBL has manufacturing
facilities in Malaysia, Mexico, the UK, and the US.  Insiders own
approximately 41% of the company.

We really didn't have any news last week on JBL except that one of
its competitors, Solectron, is being added to the S&P 500.  Whenever
it is announced that a stock is going to be added to the S&P 500, it
goes up because of all of the index fund buying.  As has been the
pattern of late, JBL followed right along.  Two weeks ago, JBL
announced earnings of 50 cents per share compared with estimates of
43 cents per share.  Revenues increased 40% for the quarter compared
to the year ago period.  JBL's president commented that the first
quarter's record revenue and operating income levels were
gratifying.  They also saw strong sequential growth in other sectors
and the just released results reflect a 52% sequential increase in
operating income.  

As we thought in last Sunday's write-up, JBL retraced back to the
high it had set two weeks ago.  It had a little trouble going much
higher than this, but managed to set a new high on Tuesday at
$73.75.  Solectron gets added to the S&P 500 after the close of
business on Wednesday, December 30.  Solectron may go up given the
buying that will take place this week.  Since the sector has been
moving in tandem, We like JBL's chances of following right along.

BUY CALL JAN-70 JBL-AN OI=5035 at $ 4.88 SL=3.25
BUY CALL JAN-75 JBL-AO OI= 192 at $ 2.06 SL=1.00
BUY CALL MAR-75 JBL-CO OI= 146 at $ 6.88 SL=5.25
BUY CALL JUN-75 JBL-FO OI=  41 at $10.50 SL=7.50

Picked on Dec 6th at  $63.38   PE=43
Change since picked    +8.18   52 week low =$23.00
Analysts Ratings  5-10-5-0-0   52 week high=$73.75
Last earnings  11-98 est=.43   actual=.50
Next earnings  02-99 est=.52   versus=.52

Chart = http://quote.yahoo.com/q?s=jbl&d=3m
Electronics/Peripherals/Hardware  - Sector
LXK – Lexmark International $93.25 (+1.31)(+5.63) 

Lexmark has good peripheral vision. Lexmark International Group 
is a leading maker of computer printers and related products, 
which generate more than 80% of its sales. Its printer line 
includes laser printers (designed primarily for corporate networks 
and desktops) and ink-jet printers (for home and business use). 
Unlike many of its competitors, Lexmark develops and manufactures
It's own printers, which results in fast product cycle times. The 
company also makes supplies for IBM and other name brand printers 
and typewriters. Lexmark's products are sold in more than 15,000 
retail outlets in more than 150 countries. 

LXK suffered some profit taking the last few days. This is to be
expected after a nice run. LXK has just about filled the gap 
open it had on the 21st. This might be a nice place to re-enter
LXK. This is found at around $92.00, which is also the spot of
LXK 10-dma. 

Business Week On-Line's Street Wise ran an article that had a
lot of good things to say about LXK. The author claims that
LXK is: "a well managed company with finely honed strategies 
that work." LXK has only 7% market share, with HWP being #1.
BUY CALL JAN-90 LXK-AR OI=236 at $ 7.13 SL=5.25 ITM $3.25
BUY CALL JAN-95*LXK-AS OI=200 at $ 4.75 SL=3.00 
BUY CALL FEB-95 LXK-BS OI= 42 at $ 8.13 SL=6.25 
BUY CALL APR-95 LXK-DS OI= 44 at $11.63 SL=9.00

Picked on Dec 15th at  $88.38   P/E = 28
Change since picked:    +3.56   52 week low =$33.63
Analysts' ratings   1-3-1-0-0   52 week high=$94.18
Last earnings  10/98 est= $ .79    actual= $.81
Next earnings  01/98 est= $1.08    prior = $.78

Chart = http://quote.yahoo.com/q?s=lxk&d=3m
EMC - EMC Corporation $81.63 (+.13)(-.31)(+2.81)(+4.00)(+5.00)

EMC is a Fortune 500 company that designs, manufactures, markets and
supports high performance storage products.  The company's products
store retrieve, manage, protect and share information from all major
computing environments, including UNIX, Windows NT and mainframe
platforms.  EMC markets its memory products under the name
Symmetrix.  EMC and its enterprise storage systems have developed a
clear cut technological edge over its competition.  The company has
been able to successfully leverage its leadership position in the
mainframe storage area into the lucrative, faster growing open 
systems market.  

In the news last week, EMC announced that VISA International
implemented an EMC storage system.  According to the press release,
the time it takes VISA to back up and restore a two terabyte
database was reduced from 10 hours to 15 minutes.  Also last week
The Motely Fool had an article that featured EMC.  It commented on
how an expanding market multiple mixed with growing financials can
sling a stock skyward.  It also mentioned that the demand for
enterprise storage systems is expected to triple over the next three
years. No wonder EMC is doing so well.  It has a product that the
market demands and is a well run company.

EMC was able to scratch out a gain last week, barely.  Its 10 day
moving average has flattened and it appears that EMC is in a basing
pattern.  A lot times a basing pattern will be a launching pad from
which point a stock will start moving up again.  The hard thing to
tell is when this will happen.  Since EMC is such a hot stock and is
getting lots of favorable press, I would watch for some buying next
week by funds who want to have in their portfolio the hottest stocks
for year end reporting purposes.  EMC is also a split candidate.  A
year ago this last November EMC split at around $63 after a strong

BUY CALL JAN-80*EMC-AP OI=4530 at $ 5.63 SL= 3.75, confirm upward trend!
BUY CALL JAN-85 EMC-AQ OI=3592 at $ 3.13 SL= 1.50
BUY CALL APR-85 EMC-DQ OI= 936 at $ 9.50 SL= 7.25
BUY CALL JUL-85 EMC-GQ OI= 237 at $13.00 SL=10.50

Picked on Nov 8th at $69.06     PE = 36
Change since picked  +12.57     52 week low = $23.50
Analysts Ratings  9-5-0-0-0     52 week high= $86.63
Last earnings  9-98 est=.36     actual=.38
Next earnings  1-28 est=.46     versus=.32

Chart = http://quote.yahoo.com/q?s=emc&d=3m
SCI – SCI Systems, Inc. $57.75 (+1.50)(+6.75)

SCI SYSTEMS, INC. is a diversified, international electronics 
manufacturer. It designs, manufactures, markets, distributes, and 
services electronic products for the computer, aerospace, defense, 
telecommunication, medical, and entertainment industries, as well 
as the U.S. Government. The Company conducts its operational 
activities through a Commercial Division and a Government Division.

SCI reached a new 52-week high on the 23rd of $57.94. SCI is above
all moving averages and has found support at the 18-dma in the 
past. For those familiar with the short-interest ratio, SCI would
need 10 days to cover all the shorts based on current volumes. 
This could produce a nice break upward if the stock rises and the
shorts start to cover. 

No recent news of SCI. Though a stock split is not imminent, SCI 
does have the shares to split and last split when the stock was
in the $70 range. With a nice run in the next few weeks, SCI 
could become a stock split candidate.

BUY CALL JAN-55*SCI-AK OI=327 at $4.88 SL=3.00 $2.75 ITM
BUY CALL JAN-60 SCI-AL OI= 33 at $2.00 SL=1.00 
BUY CALL FEB-55 SCI-BK OI=  3 at $7.00 SL=5.25 $2.75 ITM
BUY CALL FEB-60 SCI-BL OI= 42 at $4.00 SL=2.50 
BUY CALL APR-60 SCI-DL OI=  7 at $6.38 SL=4.50

Picked on Dec.19th at $56.25   PE=26
Changed since picked   +1.50   52-week low = $20.75
Analysts Ratings   9-7-0-0-0   52-week high= $57.94
Last Earnings 10-98 est =.45 actual = .45
Next Earnings 01-99 est =.50 versus = .55

Chart = http://quote.yahoo.com/q?s=sci&d=3m
IBM - $187.94 (+16.38)(+3.63)(-5.76)(+9.81)(+2.69)

The One and Only IBM.  For those of you who don't know what IBM does,
they are one of the world's leaders in computer hardware, software and
computer services.  Their product lines are cornucopia of PC's 
servers, mainframes, notebooks, printers, networking hardware, storage 
devices, telecom equip, and information and technology services.  They 
own Lotus, the creators of Lotus Notes.  Over half of their sales are 
outside the U.S.

Finally breaking through resistance at $170 (two weeks ago), IBM 
has been on a rampage.  The hardware leviathan has been up 7 out 
of the last 8 days (with the only down day being -$0.63).  Thursday,
it finished at the absolute high for the day.  After finally 
reaching and breaching several price targets of $180 to $185, it
was fish or cut bait time for the brokers.  John Jones, from 
Salomon Smith Barney, stepped up first and raised his price target
from $180 to a range of $210 to $215.  He said that IBM's mainframe
business should grow about 11% over last year and Big Blue's PC
business is "on the mend".  The chance that other brokers might 
send IBM a donwgrade is still there, but momentum is strong and
the market should continue to rally into the new year.  IBM has
been a split candidate for awhile.  While we've heard rumors of 
a 3:1, it will not come to pass.  At least not without a new
vote by the shareholders.  Currently IBM has over 920+ mln shares
outstanding and they are only authorized for 1.875 bln.  A 2:1 or 
3:2 is most likely.  If they don't announce soon (like with earnings
in January), we will be looking for a split announcement near their 
annual shareholder meeting in April.

In the news, IBM plans to move their DRAM chip operations from the 
U.S. to Taiwan.  They plan to be successful there despite competition 
from Taiwan Semiconductor Co. (TSC), Taiwan Semiconductor Manufacturing 
Corp (TSMC), and United Microelectronics Corp (UMC). 

Conservative players should wait for the next dip.

BUY CALL JAN-180 IBM-AP OI=4889 at $11.00 SL=8.50 more ITM
BUY CALL JAN-185 IBM-AQ OI=1908 at $ 7.50 SL=5.75 ITM
BUY CALL JAN-190*IBM-AR OI= 785 at $ 4.75 SL=3.00 almost ATM
BUY CALL JAN-195 IBM-AS OI=   0 at $ 2.75 SL=1.25, new strike, vol=136
BUY CALL FEB-190 IBM-BR OI=2233 at $ 9.38 SL=6.75
BUY CALL APR-190 IBM-DR OI=2469 at $14.25 SL=11.00

Picked on November 15th at $157.44     PE = 28
Change Since Picked        +$30.50     52 Week High= 187.93
Analysts Ratings        12-7-4-0-0     52 Week Low =  95.62
Last Earnings 10-20 est. 1.53 actual 1.56     surprise 1.96%
Next Earnings 01-18 est. 2.43 versus 2.11
Chart = http://quote.yahoo.com/q?s=ibm&d=3m


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             12-27-98
Sunday                4  of  6

© 1998 The Option Investor Newsletter. - All Rights Reserved
SUNW - Sun Microsystems $83.31 (+0.62)(+5.31)(+2.09)(-5.18)

UltraSPARCs, Netra servers, SPARCstations, and Solaris (for Unix) 
are all products of Sun Microsystems.  Sun is also the creator of 
the Java computer language.  They are also the recent partners with 
AOL in the Netscape merger.  

Looks like Sun Microsystems took a holiday vacation like the rest 
of us this past week.  It only tacked on a +$0.62 gain for the week.
However, it did manage to set another intraday all-time high at
$88.38 on Monday.  Plus, the outlook for the company looks good.  
Sun continues to be one of the fastest growing server vendors in
the industry.   It is also one of the "companies that will benefit
from business-to-business e-commerce which will generate a projected
$400 billion in e-commerce revenues by 2002, according to 
International Data Corporation."(-TheStreet.com)  We are currently
recommending SUNW as a split candidate and are projecting an
announcement date in the middle of January when they post their
earnings.  They have more than enough authorized shares to handle
a 2:1 split.  This looks like a great time to jump in while SUNW's 
stock "rests" under $84.  However, we suggest wait for upward movement
to resume before initiating any new plays.

News on the week:  Ahhh, the dreaded valuation downgrade on a 
great stock.  "ABN AMRO cut its rating Sun Microsystems Inc. to 
hold from outperform, citing valuation.  The move comes with Sun 
near ABN AMRO's 12-month price target of 85."(-Reuters)  In other 
news, Sun Microsystems teamed up with Alcatel "to develop and promote 
Alcatel's screenphone, a compact telephone with built-in Internet
access."(-Business Wire).  

BUY CALL JAN-80 SUQ-AP OI=3188 at $ 6.50 SL=4.75
BUY CALL JAN-85*SUQ-AQ OI=4305 at $ 3.63 SL=1.75, confirm upward trend
BUY CALL FEB-85 SUQ-BQ OI= 632 at $ 6.13 SL=4.25
BUY CALL APR-85 SUQ-DQ OI= 890 at $ 9.12 SL=6.75

Momentum Play

Chart = http://quote.yahoo.com/q?s=sunw&d=3m
Retail  - Sector
KSS – Kohls Corp. $58.69(+3.69)(+5.25) 

A lump from Kohl's in a Christmas stocking might be a good thing. 
Kohl's operates more than 200 family-oriented specialty department 
stores in the Midwest and the Mid-Atlantic, and it has stepped up 
expansion in those areas. Targeting middle-income customers, it
sells moderately priced apparel and shoes for men, women, and 
children; accessories; housewares; and soft goods such as sheets 
and towels. Kohl's runs a tight operation with fewer departments 
than traditional, full-line department stores and central 
registers to expedite checkout and keep staff costs down. The 
stores stock big brands (NIKE, Levi's) not traditionally available 
to discounters and sell them at lower prices than department stores. 

KSS has been on a tear, with a gain of $9.00 in the last two weeks. 
That is close to a 20% gain. KSS is well above all moving averages, 
and could be ready to relax with some profit taking. Make sure of a
further move up before initiating new plays. Resistance is at KSS's
52-week high of $59.00.

The 26th of December used to mark a day of returns and exchanges of
Christmas day mistakes, but now stores see the day after Christmas
as a time to bring in large numbers of shoppers looking for deep
discounts. This post-holiday shopping spree should only help KSS add
to its bottom line.

BUY CALL JAN-55 KSS-AK OI=394 at $5.25 SL=3.50 
BUY CALL JAN-60*KSS-AL OI=355 at $2.63 SL=1.25
BUY CALL FEB-60 KSS-BL OI=  2 at $4.13 SL=2.50
BUY CALL APR-60 KSS-DL OI= 37 at $6.13 SL=4.25

Picked on Dec.17th at $53.56   PE=52
Changed since picked   +5.13   52-week low = $31.31
Analysts Ratings   4-2-5-0-0   52-week high= $59.00
Last Earnings 11-98 est =.25 actual = .25
Next Earnings 02-99 est =.54 versus = .45

Chart = http://quote.yahoo.com/q?s=kss&d=3m
WMT - Wal-Mart  $81.13 (+3.38)(1.44)($3.12)

Wal-Mart is the leading discount retailer in the world, with a
presence in all 50 states, as well as Canada, Asia, Latin America,
and Europe.  They operate the #2 grocery chain, behind Kroger's,
and Sam's clubs is the #2 warehouse chain.  Recently, worries
over a warning from Sears hit the stock prices of retailers. 
Sales of department stores are down due to unseasonably warm
weather and changes in shoppers' preferences. However, November
sales reports just out show that specialty stores and discount
retailers are doing just fine, thank you.  Wal-Mart reported a
net sales increase of 13.7% and a same-store sales increase of
7.6%.  This compares to an increase of 6.1% during the same
period a year ago.  

Wal-Mart has been slowly but steadily climbing since late
September, and although it corrected somewhat during the summer
and fall market turmoil, it never saw the precipitous drop that
many other stocks suffered. Each week the King of retailers sets
new highs. Wal-Mart is on track for over $120 billion in sales
for its year end January 1999. It has an increasing presence on
the internet. This is a strong stock, and most important for
option investors, a stock that is already well above the price of
all but one of its ten 2-for-1 stock splits.  As previously
mentioned, the last three splits occurred when the stock was
trading in the mid- 60s.  It has not split since February, 1993,
but the company may be looking for a higher split price this 

On Dec 9th, Wal-Mart agreed to purchase 74 stores in Germany from
Spar Handels AG.  The Interspar hypermarkets to be acquired have
a combined annual sales of about $1.7 billion.  Wal-Mart and
other 24-hour retailers report that increasing numbers of
shoppers are choosing to shop in the calm hours during the night
at their stores instead of facing the Christmas frenzy at the
malls.  WMT is also benefiting from a shift in toy shoppers from
stores like Toys"R"US to discounters like WMT. Finally, on 12/22,
the judge presiding over Wal-Mart's lawsuit against Amazon.com
stepped down because he owns shares of the stock. WMT believes
Amazon hired key employees to learn WMT's data systems and other

BUY CALL JAN-75 WMT-AO OI=3497 at $7.00 SL=5.25, ITM $6.13, PREM=$.87
BUY CALL JAN-80*WMT-AP OI=3790 at $3.13 SL=1.50
BUY CALL JAN-85 WMT-AQ OI= 209 at $1.00 SL=0.00
BUY CALL FEB-80*WMT-BP OI= 699 at $4.88 SL=2.75
BUY CALL FEB-85 WMT-BQ OI= 120 at $2.50 SL=1.25
BUY CALL MAR-85 WMT-CQ OI= 414 at $3.88 SL=2.50

Picked on Dec 6th at  $73.19            P/E = 42
Change since picked +  $7.94            52 week low = 36.75
Analysts' ratings 7-10-4-0-0            52 week high= 77.75
Last earnings 10/98 est=$.44 actual=.45   surprise:  3%
Next earnings  2-24 est=$.65 versus .57

Chart = http://quote.yahoo.com/q?s=wmt&d=3m
HD - The Home Depot, Inc.  $60.00 (+2.75)(+4.06)(+2.31)(-.88)(+2.44)

HD has over 700 stores, and is the largest home improvement retailer
in the US and has a significant presence in Canada. The company's
primary market is the "do-it-yourself" market, but it also serves
the professional contractor.  The company stresses customer service
(including plenty of how-to information), low prices, and a broad
product assortment.  It is a pioneer in the warehouse store
category.  The typical store is more than 100,000 sq. ft. and stocks
40,000 to 50,000 items, including lumber, floor and wall coverings,
plumbing supplies, hardware, tools, and paint.  HD is expanding
into Puerto Rico and South America.

The positive analysts comments on HD from two weeks ago are being
followed up by confirming facts.  There was an article last week
about increased paint sales around the country.  The reason it gave
for the increased sales was the warm weather in many parts of the
country (until recently) allowed "do-it-yourselfers" and contractors
to perform exterior painting later than usual.  There was another
article about how building products companies were expected to post
a strong fourth quarter because of many of the reasons the paint
article mentioned.  A lot of these products are being purchased at
retailers like HD, and HD is the largest.

HD set a new 52 week high on Thursday and closed near the high.  HD
keeps on setting new highs week after week.  The high two weeks ago
was on very strong volume.  HD has gotten a little ahead of its 10
day moving average, so I wouldn't be surprised if it took a little
bit of a rest and allowed it to catch up.  But, since it is the last
week of the year, that might not happen until the first week of
January.  In any event, HD is on a nice extended run.

BUY CALL JAN-55*HD-AK OI=4820 at $5.88 SL=4.25, ITM $5.00, PREM=$.88
BUY CALL JAN-60*HD-AL OI=7271 at $2.31 SL=1.00
BUY CALL JAN-65 HD-AM OI= 337 at $0.63 SL= .00
BUY CALL FEB-60 HD-BL OI=2063 at $3.88 SL=2.50
BUY CALL MAY-60 HD-EL OI=6638 at $6.00 SL=4.25

Picked on Nov 29th at $51.75   PE=51
Change since picked    +8.25   52 week low =$26.47
Analysts Ratings  8-12-8-0-0   52 week high=$60.50
Last earnings  10-98 est=.25   actual=.26
Next earnings   2-24 est=.26   versus=.20

Chart = http://quote.yahoo.com/q?s=hd&d=3m
MYG - Maytag $61.75 (+1.81)(+1.44)(+1.81)(+2.63)(+4.00)(-1.32)

Maytag manufactures appliances from components made in Asia. Their 
component prices have been falling but the prices of their products 
have been stable. They announced record profits a few weeks ago as 
consumers have been buying the new models of their products in 
record numbers. Income rose +50%. They are also benefiting from a 
new distribution agreement with Sears.  Maytag is well positioned 
to weather any economic slow down because of its strength in the 
higher priced market segments and in commercial products. Maytag is 
the stealth play of the month. Maytag is not a sexy fast mover and 
kind of gets over looked in the winner category.

If you will notice above, Maytag's weekly changes have been positive 
the last five weeks in a row.  Although they aren't huge gains, they 
are money makers.  And who doesn't like to make money?  If you take 
a look at Maytag's graph for the last three months, you'll see one of 
our text book graphs- one with a nice, consistent up trend.  You will 
also see that Maytag is in blue sky territory.  Its resistance levels
now become the latest all time high for the stock.  It's most current 
resistance level was established on Wednesday, December 23rd in 
intraday trading at a price of $62 a share.  We just want to 
reiterate that we feel Maytag is a steady play and also that we are 
currently considering it as one of our split candidates since it 
has split at these levels back in the '80s. 

No new news for Maytag.

This is a "safe" play but not a fast mover. Options are cheap.

BUY CALL JAN-60 MYG-AL*OI= 649 at $2.75 SL=1.50
BUY CALL FEB-60 MYG-BL OI=  17 at $4.13 SL=2.50, caution = low OI!
BUY CALL APR-60 MYG-DL OI= 351 at $5.38 SL=3.75

Momentum play only

Chart = http://quote.yahoo.com/q?s=myg&d=3m
LOW - Lowe's Companies $50.25 (+4.25)(+2.19) 

LOW is a retailer of home center products, consumer durables, 
and contractor building supplies. Lowe's Companies, Inc. is one 
of America's largest retailers, serving the do-it-yourself home 
improvement, home decor, and home construction markets. 

LOW is sitting just under its 52-week high of $50.75. This is the
only resistance that LOW has. Even with LOW at all-time highs, its
PE ratio is still below the industry average of 47. LOW is 
benefiting from the high numbers of new homes being built. LOW lost
only $.06 on Thursday after 7 straight days of gains. Watch to see
if there will be any profit taking before initiating new plays. 

No recent news on LOW, but on the 22nd of December, CS First Boston 
started LOW as a buy. LOW, along with the other retailers, will be
effected by the Christmas season sales numbers, due out in early

BUY CALL JAN-47.50 LOW-AT OI= 990 at $4.00 SL=2.50, ITM $2.75
BUY CALL JAN-50.00*LOW-AJ OI=1057 at $1.50 SL= .75 
BUY CALL FEB-50.00 LOW-BJ OI= 393 at $3.88 SL=2.25
BUY CALL APR-50.00 LOW-DJ OI= 570 at $5.38 SL=3.50 
(50 is highest strike)

Picked on Dec.22nd at $48.38    PE=37
Changed since picked   +1.87    52-week low = $21.56
Analysts Ratings  8-11-4-0-0    52-week high= $50.75
Last Earnings 11-98 est =.31 actual = .33
Next Earnings 02-99 est =.25 versus = .20

Chart = http://quote.yahoo.com/q?s=low&d=3m
SPLS - Staples Inc. $45.19 (+4.06)

Staples is currently ranked as the #2 office supply company in the 
United States and is second to only the Office Depot.  Staples once 
tried to buy out its competitor but the FTC denied the attempt on 
antitrust grounds.  Staples instead purchased the privately held 
Quill Corporation- a direct retailer of office supplies.  SPLS now
sells office products, furniture, computers, as well as printing and
photocopying services in approximately 800 stores.  The company also 
has mail-order and contract stationery businesses.   

We are initiating Staples as a momentum/split play based on the fact 
that the stock is splitting on January 28th.  We feel that Staples 
is another steady mover like Maytag and could post some nice gains
between now and the split.  It is currently residing at the highest
price levels in the history of the stock.  On Wednesday Dec 23rd, it 
set an all-time high at $46.19 in intraday trading.  We like 
Staples and the places they are heading.  Back in November,
Staples launched staples.com, an online office supply superstore,
and also signed advertising and promotional agreements with Yahoo!
Inc. to become their premier office supplies merchant.  In December,
Staples decided to acquire Claricom Holdings Inc., a telecommunications
products and services firm.  The dip Staples took in Thursday's half
day of holiday trading might be a great time to jump in and position
yourself for the upcoming run.  

News:  Back on Dec 17th Staples Inc. said it was making "substantial
investments in its electronic commerce business, while planning 
to relocate 58 outdated stores and open in fiscal 1999 150 new 

BUY CALL JAN-40.00*PLQ-AH OI=703 at $5.75 SL=4.00, ITM $5.19, prem=.56
BUY CALL JAN-42.50*PLQ-AV OI=487 at $3.63 SL=1.75
BUY CALL JAN-45.00 PLQ-AI OI= 84 at $1.94 SL=1.00
BUY CALL FEB-45.00 PLQ-BI OI=135 at $3.25 SL=1.75, post-split 22.50s


Chart = http://quote.yahoo.com/q?s=spls&d=3m
Miscellaneous  - Sector
TWX - Time Warner $62.38 (+6.75)   

Time Warner is the world's leading media company. Time, Inc.
publishes 32 magazines and accounted for 21% of the total
advertising revenue generated by U.S. magazines last year.
Thirty-two of its books made the New York Times best-seller list
in 1997. With Warner Brother movies (Superman, Lethal Weapon,
etc.); Warner's and its Castle Rock division's TV shows
(Seinfeld, ER, Friends, etc.); the musical recordings divisions;
etc, TWX is a well-diversified company.  But the real growth
potential of this media and entertainment giant is its cable
business.  Time Warner owns CNN, TBS Superstation, TNT, Cartoon
Network, and Turner Classic Movies.

Cable companies represent a defensive investment choice because
their growth continues even in times of economic slowdown.  And
since cable companies capital spending requirements are
declining, they are finally showing positive free cash flow.
Viewer market share for the major networks continues to slip and 
cable companies are the beneficiaries. In addition, they benefit
from interest rate cuts.  Credit Suisse claims that each 100-
basis-point drop should result in an 8% increase in stock price.
A 16% long-term growth rate is expected for TWX and Credit
Suisse has a less-than 12-month target of $115.  Time Warner also 
is involved in broadband data transmission, a new wave of the
future. After its split on Dec 15th, Time Warner stock dipped a
little on the 16th, moved sideways for a couple of days, and
resumed its upward movement. With any post-split depression
behind it, and up 6.75 for the week, TWX is looking strong.

TWX will appeal a $454 million verdict against its affiliates in a 
case arising from a contract dispute at the Six Flags Over Georgia 
theme park. On 12/23, ValueVision International Inc. settled a 
lawsuit filed by TWX, agreeing to pay the media giant $7 million.
There are rumors that TWX is talking with CDNow on a deal that
would give TWX a big jump into online music commerce.
BUY CALL JAN-60.00*TWX-AL OI=3248 at $3.63 SL=1.75 
BUT CALL JAN-62.50 TWX-AT OI= 388 at $2.44 SL=1.25
BUY CALL FEB-60.00*TWX-BL OI= 469 at $5.13 SL=3.25    
BUY CALL MAR-62.50 TWX-CT OI= 364 at $4.63 SL=2.75    

Picked on Dec 22ND at   $59.50          P/E = n/a
Change since picked    +  2.88          52 week low =$29.06
Analysts' Ratings   6-13-1-0-0          52 week high=$59.50
Last earnings   9/98 est=-.04  actual= -.13  surprise:  25%
Next earnings   2-10 est= .07  versus=  .03 

Chart = http://quote.yahoo.com/q?s=twx&d=3m
AIG - American International Group $98.94 (-.50)(+8.88)

AIG is a holding company which through its subsidiaries is primarily
engaged in a broad range of insurance and financial services in the
US and abroad.  AIG primary insurance activities include both
general and life insurance operations.  AIG's general insurance
subsidiaries are multiple line companies writing all lines of
property and casualty insurance.  Back in August, AIG announced that
it is acquiring Sun America. SAI markets tax-deferred long-term
savings plans and investments, including annuities and guaranteed
investment contracts, through its own broker-dealers and via
independent securities firms, financial institutions, and general
insurance agents.  The merger was recently approved by both
company's shareholders and is indicated to be effective in late 1998
or early 1999.  SAI shareholders will receive .855 shares of AIG
stock in the merger.

The insurance industry is an industry that has had a lot of
acquisition activity and there was an article two weeks ago that
discussed more deal activity in the future.  Last week, it was
rumored that CIGNA was going to be selling its property and casualty
business, but this has not been confirmed.  It is believed that the
US life and property-casualty insurance sectors are ripe for more
activity.  Three weeks ago, some insurance companies were
downgraded, but the analyst did not downgrade AIG because of its
diversification  especially in light of the acquisition of SAI.  

AIG set a new high of Monday, but then fell back.  There is a
significant amount of resistance on AIG at $100 to $102.50.  Last
week we didn't know whether SAI or AIG's chart would rule, but it
appears as though AIG's chart is more significant.  If you recall,
SAI had cleared out all resistance.  I wouldn't play AIG until it
clears resistance at $102.50.  If we do get a significant market
move, AIG may not have a problem with the resistance given its Beta
is 1.20 [That means its Dow reactive].

BUY CALL JAN-95  AIG-AS OI=319 at $ 6.13 SL=4.25
BUY CALL JAN-100 AIG-AT OI=692 at $ 3.13 SL=1.50
BUY CALL FEB-100 AIG-BT OI=716 at $ 5.75 SL=4.00
BUY CALL MAY-100 AIG-ET OI= 58 at $10.13 SL=7.50

Picked on Dec 20th at $99.44   PE=27
Change since picked     -.50   52 week low =$ 64.88
Analysts Ratings  4-13-4-0-0   52 week high=$102.63
Last earnings   9-98 est=.93   actual=.88
Next earnings  02-10 est=.93   versus=.82

Chart = http://quote.yahoo.com/q?s=jbl&d=3m
Put plays can be very profitable but have a larger risk than
call plays. When a stock is falling the entire investment
community (except the shorts) is hoping it will reverse and
start back up. The company management is also doing everything
they can to shore up their stock price. The company issues
press releases, brokers talk it up, analysts try to put a
positive spin on everything. Then of course there is the death
knell, the "buy recommendation" simply because the price has
dropped to some level that analysts feel attractive again. 
Buyers who like the stock wait until it appears a bottom has
been reached and then jump on it in a feeding frenzy. They may
already have a large position and are averaging down. Many
factors can stop a free falling stock in mid drop.

No puts this week due to expected market rally


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            12-27-98
Sunday                5  of  6

© 1998 The Option Investor Newsletter. - All Rights Reserved
The Dow edged closer to new highs last week, but many stocks still
sagged as holiday-bound investors cashed in on big gains from the
recent record-setting rally. Including Wednesday's 157-point romp,
the Dow has tacked on 427 points during that streak, closing in on
its November record of 9374.27. Analysts have attributed much of
the gains to favorable factors associated with the holiday season
and year-end portfolio polishing by money managers. As the market
approaches new all-time highs, the Market Volatility Index (VIX),
(an options-market gauge of investor anxiety), also moved higher
amid fears the rally was topping out. The index is now reflecting
incredible optimism and some say the market is ripe for a sell-off.
The onslaught of fourth quarter earnings, which gets under way in
about two weeks, could be the impetus for a decline. At the close
on Wednesday, there were 393 negative pre-announcements for the
fourth quarter, and that's another record number. As we move into
the new year, it's very possible we will see some sector rotation
as big-cap technology stocks consolidate recent gains and other
secondary and lower priced issues regain their popularity. Market
sentiment continues to remain bullish but the current over-bought
condition requires a very conservative approach to be successful.
Once again, we will focus on stocks that are technically favorable
and construct positions with ITM calls to provide an extra measure
of downside protection. Good Luck!

Note: TDFX suffered a significant drop in price after the recent
announcement that it agreed to acquire a leading manufacturer and
distributor of multimedia products; STB Systems (STBI). This move
will enable 3Dfx to deliver direct-to-customer graphics solutions.
The deal is expected to close in March and is valued at about $141
million. While the immediate effects of this transaction are very
negative, the combined strengths of STB and 3Dfx should enable the
company to deliver more powerful and focused brand strategies for
their products and will eventually lead to higher revenues. This
play will probably be negative for a few weeks but we believe the
long-term outlook for the company and favorable option premiums
will eventually allow a profitable exit from this position. Review
all of the facts concerning the merger and make your own decision!
SUMMARY OF PREVIOUS PICKS (3 weeks to the January strike)
Stock  Price  Currnt Mon-Strike Opt    Profit   ROI  Annual
Sym    Picked Price      Price  Bid    /Loss         ROI 

TERA    7.88   7.63  Jan- 7.50  1.19  *$ 0.81   12%  158%
MCHM    8.25   7.78  Jan- 7.50  1.63  *$ 0.88   13%  139%
FILE   10.38  10.00  Jan-10.00  1.44   $ 1.06   12%  124%
DOSE    4.06   4.06  Jan- 5.00  0.50   $ 0.50   14%  122%
BMP    24.56  24.13  Jan-20.00  6.00  *$ 1.44    8%  101%
ITVU   13.25  14.06  Jan-10.00  4.13  *$ 0.88   10%  101%
VRTY   22.50  27.69  Jan-20.00  4.13  *$ 1.63    9%   93%
PPRT   13.88  12.69  Jan-12.50  2.25  *$ 0.87    7%   78%
EOG    16.94  16.88  Jan-15.00  2.75  *$ 0.81    6%   74%
PPOD    6.75   6.06  Jan- 5.00  2.13  *$ 0.38    8%   71%
MANU   13.75  12.13  Jan-10.00  4.25  *$ 0.50    5%   69%
VIRS   12.75  12.75  Jan-10.00  3.25  *$ 0.50    5%   69%
VOLVY  23.75  25.44  Jan-20.00  4.75  *$ 1.00    5%   69%
MICA   17.13  15.06  Jan-12.50  5.25  *$ 0.62    5%   68%
MWHS   28.38  33.75  Jan-25.00  5.13  *$ 1.75    8%   65%
VSVR   16.75  18.13  Jan-15.00  2.44  *$ 0.69    5%   63%
SDTI   18.31  21.88  Jan-15.00  4.13  *$ 0.82    6%   60%
PTVL   14.69  18.25  Jan-10.00  5.13  *$ 0.44    5%   60%
ABTX   12.69  10.38  Jan-10.00  3.25  *$ 0.56    6%   52%
SER     6.38   6.13  Jan- 5.00  1.63  *$ 0.25    5%   46%
PSCX   11.31   9.31  Jan-10.00  2.19   $ 0.19    2%   18%
IMNR   13.13  11.13  Jan-12.50  2.00   $ 0.00    0%    0%
HDL    12.94  11.44  Jan-12.50  1.44   $-0.06   -1%    0%
SYBS    7.81   6.81  Jan- 7.50  0.94   $-0.06   -1%    0%
APLX    4.94   4.13  Jan- 5.00  0.63   $-0.18   -4%    0%
TDFX   16.44  12.19  Jan-15.00  2.44   $-1.81  -13%    0%

-ROI is equal to the profit (or loss) divided by the cost-basis.
Annual ROI represents the return on a yearly basis (example: a 
10% return in 20 days equals 183% ROI for a year).  
-Margin is not used in any calculations.
-Profit/Loss Column: Asterisk indicates stock price above strike 
price and should be called.  Stock that will not be called is 
assumed sold at current price (for tracking purposes).
Determining when to exit a play is a matter of personal preference
but we strongly recommended closing any play that falls more than
20% below the initial cost-basis. Some positions may eventually
become profitable but it is generally more productive to exit a
losing play and move your capital into another prospective trade.
OI - Open Interest
CB - Cost Basis (Prc pd - Prm rec'd = CB, the break-even point)
RC  - Return Called
RNC - Return Not Called (Stock Price Unchanged)
Sequenced by Company
Stock  Price  Mon-Strike Option Opt  Open   Cost   RC      RNC
Sym               Price  Symbol Bid  Intr   Basis   

CYLKE   4.31  Jan- 5.00  YQB AA 0.50 239     3.81  31.23%  13.12%
NOVT   24.06  Jan-22.50  QOH AX 2.88 75     21.18   6.23%   6.23%
NTKI   15.75  Jan-12.50  QNK AV 4.00 294    11.75   6.38%   6.38%
SPYG   20.88  Jan-17.50  YQG AW 4.38 409    16.50   6.06%   6.06%
WAVO    9.38  Jan- 7.50  WKQ AU 2.31 636     7.07   6.08%   6.08%
GALTF  25.50  Feb-22.50  QFG BX 5.38 0      20.12  11.83%  11.83%
NSTA   26.25  Feb-25.00  NQB BE 4.13 0      22.12  13.02%  13.02%
PTVL   18.38  Feb-12.50  QUT BV 6.88 0      11.50   8.70%   8.70%
SDTI   22.00  Feb-20.00  QSD BD 4.38 73     17.62  13.51%  13.51%
Sequenced by Return Called 
Stock  Price  Mon-Strike Option Opt  Open   Cost   RC      RNC
Sym               Price  Symbol Bid  Intr   Basis   

CYLKE   4.31  Jan- 5.00  YQB AA 0.50 239     3.81  31.23%  13.12%
NTKI   15.75  Jan-12.50  QNK AV 4.00 294    11.75   6.38%   6.38%
NOVT   24.06  Jan-22.50  QOH AX 2.88 75     21.18   6.23%   6.23%
WAVO    9.38  Jan- 7.50  WKQ AU 2.31 636     7.07   6.08%   6.08%
SPYG   20.88  Jan-17.50  YQG AW 4.38 409    16.50   6.06%   6.06%
SDTI   22.00  Feb-20.00  QSD BD 4.38 73     17.62  13.51%  13.51%
NSTA   26.25  Feb-25.00  NQB BE 4.13 0      22.12  13.02%  13.02%
GALTF  25.50  Feb-22.50  QFG BX 5.38 0      20.12  11.83%  11.83%
PTVL   18.38  Feb-12.50  QUT BV 6.88 0      11.50   8.70%   8.70%
Sequenced by Return Not Called
Stock  Price  Mon-Strike Option Opt  Open   Cost   RC      RNC
Sym               Price  Symbol Bid  Intr   Basis   

CYLKE   4.31  Jan- 5.00  YQB AA 0.50 239     3.81  31.23%  13.12%
NTKI   15.75  Jan-12.50  QNK AV 4.00 294    11.75   6.38%   6.38%
NOVT   24.06  Jan-22.50  QOH AX 2.88 75     21.18   6.23%   6.23%
WAVO    9.38  Jan- 7.50  WKQ AU 2.31 636     7.07   6.08%   6.08%
SPYG   20.88  Jan-17.50  YQG AW 4.38 409    16.50   6.06%   6.06%
SDTI   22.00  Feb-20.00  QSD BD 4.38 73     17.62  13.51%  13.51%
NSTA   26.25  Feb-25.00  NQB BE 4.13 0      22.12  13.02%  13.02%
GALTF  25.50  Feb-22.50  QFG BX 5.38 0      20.12  11.83%  11.83%
PTVL   18.38  Feb-12.50  QUT BV 6.88 0      11.50   8.70%   8.70%
Company Descriptions
CYLKE - Cylink Corporation  $4.31  *** Reward VS. Risk? ***

Cylink Corp. supplies network information security products that 
enable secure transmission of data over LANs, WANs, public packet
switched networks, such as the Internet, and broadcast networks.
Having to revise earnings for the first three quarters (showing a
loss instead of profit) has caused numerous lawsuits and the CEO
to resign.  The speculation since has caused a couple price jumps
which correlate to high option premiums. You have to decide what
your risk tolerance is...strong support at $3.

JAN 5.00 YQB-AA BID=0.50 OI=239 CB=3.81 RC=31.23% RNC=13.12%

Chart = http://quote.yahoo.com/q?s=CYLKE&d=3m
NOVT - Novoste  $24.06

NOVT is a development stage enterprise engaged in developing the
Beta-Cath System, a intraluminal beta radiation catheter delivery
system designed to reduce restenosis. DLJ initiated coverage in
Nov. with a "BUY". The AMEX and CBOE listed options in early Dec.
and J.P. Morgan/Volpe Brown also issued new "buy" recommendations
with a target price around $30. A strong technical history since
mid-October and some positive news in the sector with the recent

JAN 22.50 QOH-AX BID=2.88 OI=75 CB=21.18 RC=6.23% RNC=6.23%

Chart = http://quote.yahoo.com/q?s=NOVT&d=3m
NTKI - N2K Inc.  $15.75   *** Internet/Merger ***

N2K is an on-line music entertainment company using the Internet 
as a global platform for promoting, marketing and selling music 
and related merchandise. Speculation on the OCT 23rd merger with
CDnow and Internet mania.  DEC 24, TWX has refused to comment on 
possible interest in CDNW. NTKI has climbed with recent Internet
craze and is still exhibiting strong technicals.

JAN 12.50 QNK-AV BID=4.00 OI=294 CB=11.75 RC=6.38% RNC=6.38%

Chart = http://quote.yahoo.com/q?s=NTKI&d=3m
SPYG - Spyglass, Inc. $20.88  *** Internet Mania ***

SPYG develops/markets/distributes Internet enabling technologies,
content services and professional services that enable various 
non-PC devices to work with the Internet.  Spyglass's improving
financial situation and rumors of an "alliance" have propelled 
this stock to a new 2 yr high. Several short-term indicators have
indicated a BUY and the recent correction may offer an excellent
entry point.

JAN 17.50 YQG-AW BID=4.38 OI=409 CB=16.50 RC=6.06% RNC=6.06%

Chart = http://quote.yahoo.com/q?s=SPYG&d=3m
WAVO - WavePhore, Inc.  $9.38  *** Short Squeeze ***

WAVO is a developer/provider of proprietary products and services 
for low-cost/high-speed, data broadcasting sys's for distributing 
electronic information via television, radio, satellite and the 
Internet. Comments on CNBC by money manager James Cramer (saying
there were no shares available to short) and the ensuing responses
by the CEO and CNBC censure seem to have increased the speculation
in WAVO. Short-term buy indicators have been triggered with recent
movement and new support level is just above our cost basis.  

JAN 7.50 WKQ-AU BID=2.31 OI=636 CB=7.07 RC=6.08% RNC=6.08%

Chart = http://quote.yahoo.com/q?s=WAVO&d=3m
GALTF - Galileo Tech.  $25.50     *** Semiconductors ***

Galileo Technology, a market leader in complex data communications
systems on silicon, is one of the semiconductor industry's fastest
growing suppliers of complex, high-performance, integrated circuit
devices. The Fabless Semiconductor Association (FSA) recognized
GALTF as an Outstanding Financial Performer and a company that
doubled their revenue and/or net income year-over-year. Merrill
Lynch raised to a short-term "Accumulate" in mid-November. Getting
a bit over-extended (a common flaw lately) but still showing strong 

FEB 22.50 QFG-BX BID=5.38 OI=0 CB=20.12 RC=11.83% RNC=11.83%

Chart = http://quote.yahoo.com/q?s=GALTF&d=3m
NSTA - NSTA - Anesta Corp.  $26.25  *** Pharmaceutical ***

NSTA, a development stage company, is engaged in the research, 
development and commercialization of pharmaceutical products 
incorporating its proprietary oral transmucosal drug delivery
systems.  Priced a 3mil offering at $21.25 in mid-Dec. Stock has 
climbed since the pricing and with recent accumulation looks 
ready to break through resistance at $27.  Our cost basis is 
at the new support level.

FEB 25.00 NQB-BE BID=4.13 OI=0 CB=22.12 RC=13.02% RNC=13.02%

Chart = http://quote.yahoo.com/q?s=NSTA&d=3m
PTVL - Preview Travel, Inc.  $18.38  *** Internet Hysteria ***

PTVL is a provider of branded online travel services for leisure 
and small business travelers. Preview Travel has been in a stage 
I base since Oct though it just corrected after a quick doubling
in price due to the recent Internet craze. DEC 23 coverage was
initiated by Wedbush Morgan as a long-term buy. Short term buy
signals are evident with support around our cost basis.

FEB 12.50 QUT-BV BID=6.88 OI=0 CB=11.50 RC=8.70% RNC=8.70%

Chart = http://quote.yahoo.com/q?s=PTVL&d=3m
SDTI - Security Dynamics Tech.  $22.00  *** WEB Security ***

SDTI provides enterprise network and data security solutions to 
help companies conduct business securely, protect corporate assets
and facilitate electronic commerce. Some lawsuits filed after the
recent upgrades seemed to have little effect and the company has
just introduced SecurWorld, a new flexible program for delivering
two-factor authentication on the web. Now trading above resistance
on it's current up-trend; cost basis is near support around $14.

FEB 20.00 QSD-BD BID=4.38 OI=73 CB=17.62 RC=13.51% RNC=13.51%

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

These Pct are not calculated using margin. These are pure 
returns. Margin will increase the percentages. No recommendation
is made on these plays. This is only a numerically produced list 
of the options with the highest percentage of return for dollars
invested. If you want to do your own research this is where to 

Stock      Price    Month  Strike Symbol    Price  PctRtn    Vol   OpnInt
CHIR       24.69    Jan    27.50  CIQAY     5.50   22.28       1     787
ZITL        4.94    Jan     5.00  ZQIAA     0.69   13.92     321    1826
CYCH       17.00    Jan    17.50  KBQAW     2.00   11.76     260    1485
TLXN       12.44    Jan    12.50  TNQAV     1.44   11.56      41      98
EGHT        6.50    Jan     7.50  EDQAU     0.75   11.54     273     255
EGGS       23.75    Jan    25.00  EGQAE     2.63   11.05    1327    4116
WAVO        9.31    Jan    10.00  WKQAB     1.00   10.74      76    2153
NTKI       15.75    Jan    17.50  QNKAW     1.69   10.71     124     845
FRTE        4.81    Jan     5.00  RQFAA     0.50   10.39      34     438
AMTD       29.00    Jan    30.00  TQAAF     3.00   10.34      78     191
MANU       12.13    Jan    12.50  ZUQAV     1.25   10.31      79    1262
PRMS        9.88    Jan    10.00  RQSAB     1.00   10.13      63     200
ZILA        9.94    Jan    10.00  QWCAB     1.00   10.06      98    1439
ALYD        7.50    Jan     7.50  QLIAU     0.75   10.00      10      15
CYCH       17.00    Feb    17.50  KBQBW     3.75   22.06      25     538
SPGLA       4.56    Feb     5.00  SQEBA     1.00   21.92      55     466
EGGS       23.75    Feb    25.00  EGQBE     5.00   21.05      74      88
ZAP        12.38    Feb    12.50  ZAPBV     2.50   20.20     104     380
SIR         5.00    Feb     5.00  SIRBA     1.00   20.00      30    1346
ZITL        4.94    Feb     5.00  ZQIBA     0.94   18.99     100     469
ZILA        9.94    Feb    10.00  QWCBB     1.88   18.87      10     130
WAVO        9.31    Feb    10.00  WKQBB     1.75   18.79      25     815
TAVA        6.94    Feb     7.50  QTVBU     1.25   18.02      99     994
OMKT       14.13    Feb    15.00  OQMBC     2.50   17.70      47     744
EGHT        6.50    Feb     7.50  EDQBU     1.13   17.31      75     474
GMGC        4.75    Feb     5.00  GGQBA     0.81   17.11      56    2547
MANU       12.13    Feb    12.50  ZUQBV     2.00   16.49      10      87
PTVL       18.25    Feb    20.00  QUTBD     3.00   16.44      47      49
TLXN       12.44    Feb    12.50  TNQBV     2.00   16.08       5      40
SAVLY      17.25    Feb    17.50  QVYBW     2.75   15.94      20     218
ALYD        7.50    Feb     7.50  QLIBU     1.19   15.83      18     515
CEXP        4.75    Feb     5.00  XQPBA     0.75   15.79      12      50
UWW         6.44    Feb     7.50  UWWBU     1.00   15.53     100     406
SMTK        3.25    Feb     5.00  QMMBA     0.50   15.38      40    1513
PRMS        9.88    Feb    10.00  RQSBB     1.50   15.19      24      19
BNYN        8.69    Feb    10.00  QYNBB     1.31   15.11      20      37
CELG       16.63    Feb    17.50  LQHBW     2.50   15.04      15      53
AMKR        9.63    Feb    10.00  QELBB     1.44   14.94       8      31
OMKT       14.13    Feb    17.50  OQMBW     2.06   14.60      53     325
VIAS        6.94    Feb     7.50  QVVBU     1.00   14.41      40     529
ZAP        12.38    Feb    15.00  ZAPBC     1.75   14.14     420     613
IHS        12.06    Feb    12.50  IHSBV     1.69   13.99      65     142
CIEN       14.31    Feb    15.00  EUQBC     2.00   13.97      58     808
SEV         7.63    Feb    10.00  SEVBB     1.06   13.93      50      40
DANKY       4.50    Feb     5.00  DNQBA     0.63   13.89       1    1035
DOSE        4.06    Feb     5.00  XUQBA     0.56   13.85      20     320
CPU        12.25    Feb    12.50  CPUBV     1.69   13.78      83     725
VLNC        6.44    Feb     7.50  VHQBU     0.88   13.59       4      55
TEAM        7.50    Feb     7.50  QEABU     1.00   13.33      25     115
APOL       24.50    Feb    25.00  OAQBE     3.25   13.27       4      99
NEM        17.50    Feb    17.50  NEMBW     2.31   13.21      13      24
CNDS        4.88    Feb     5.00  KQNBA     0.63   12.82       8      20
APM         6.88    Feb     7.50  APMBU     0.88   12.73      10      60
MDM         4.94    Feb     5.00  MDMBA     0.63   12.66      10     157
ZITL        4.94    Feb     7.50  ZQIBU     0.63   12.66      70     897
CORR       12.38    Feb    12.50  CHQBV     1.56   12.63       8      10
CYBX       12.88    Feb    15.00  QAJBC     1.63   12.62       2      50
AND         8.94    Feb    10.00  ANDBB     1.13   12.59      50     483
HS         14.94    Feb    15.00   HSBC     1.88   12.55       8     400
XYLN       16.69    Feb    17.50  YXQBW     2.06   12.36      15     544
SPYG       20.81    Feb    25.00  YQGBE     2.56   12.31       1      10
ODIS        7.13    Feb     7.50  QSEBU     0.88   12.28       3      30
PAGE        4.63    Feb     5.00  PGQBA     0.56   12.16       5      62
BRKT       17.00    Feb    17.50  BUQBW     2.06   12.13       5      60
SGI        12.44    Feb    12.50  SGIBV     1.50   12.06       9    1690
USWB       27.00    Feb    30.00  QWBBF     3.25   12.04       6      92
ZONA       19.75    Feb    20.00  NQZBD     2.38   12.03      12     130
IDC         4.69    Feb     5.00  IDCBA     0.56   12.00     105     172
SPLN       17.13    Feb    20.00  QSPBD     2.00   11.68       5      10
MEDA        3.78    Feb     5.00  MQABA     0.44   11.57       3      13
SIII        7.03    Feb     7.50  SQIBU     0.81   11.56      10      31
SMTK        3.25    Feb     7.50  QMMBU     0.38   11.54      81    2835
PTEK        6.00    Feb     7.50  TQOBU     0.69   11.46     120    1142
ASPT       14.38    Feb    15.00  ATQBC     1.63   11.30      30     113
ACAI       23.25    Feb    25.00  QKABE     2.63   11.29      10      48
SCIO        9.44    Feb    10.00  JQSBB     1.06   11.26       2     110
PSFT       19.56    Feb    20.00  PQOBD     2.19   11.18     201     469
TGX        16.81    Feb    17.50  TGXBW     1.88   11.15      10      71
FORE       19.13    Feb    20.00  FQOBD     2.13   11.11      10      38
ZAP        12.38    Feb    17.50  ZAPBW     1.38   11.11      97     761
ITCD       14.13    Feb    15.00  QIJBC     1.56   11.06       5      27
BGP        23.19    Feb    25.00  BGPBE     2.56   11.05     107     176
IDTC       15.88    Feb    17.50  IQJBW     1.75   11.02      50      84
WDC        15.94    Feb    17.50  WDCBW     1.75   10.98     143     248
AKLM       11.50    Feb    12.50  KKQBV     1.25   10.87      15     113
MANU       12.13    Feb    15.00  ZUQBC     1.31   10.82      25      69
PWAV       18.56    Feb    20.00  VFQBD     2.00   10.77       2     541
TWLB       13.38    Feb    15.00  QBTBC     1.44   10.75       6     128
PAW         9.31    Feb    10.00  PAWBB     1.00   10.74      20      25
SRM         7.00    Feb     7.50  SRMBU     0.75   10.71      30      15
TKLC       18.69    Feb    20.00   KQBD     2.00   10.70      10     115
GADZ        6.44    Feb     7.50  EQKBU     0.69   10.68      20      12
ELY        10.00    Feb    10.00  ELYBB     1.06   10.63      10    1434
EGHT        6.50    Feb    10.00  EDQBB     0.69   10.58      28    4225
STRX       11.25    Feb    12.50  TQQBV     1.19   10.56       6     185
VST         8.94    Feb    10.00  VSTBB     0.94   10.49     100     373
REGI        5.97    Feb     7.50  QRGBU     0.63   10.47      15      95
IGEN       28.94    Feb    30.00   GQBF     3.00   10.37      14      30
QNTM       21.13    Feb    22.50  QNQBX     2.19   10.36      67    1656
HQ         24.38    Feb    25.00   HQBE     2.50   10.26      30     277
DDIM        8.53    Feb    10.00   QMBB     0.88   10.26       7     355
CLCX        5.50    Feb     7.50  QXTBU     0.56   10.23      21     957
FP          2.50    Feb     5.00   FPBA     0.25   10.00      10     210
ALYD        7.50    Feb    10.00  QLIBB     0.75   10.00      16     888
ZITL        4.94    Mar     5.00  ZQICA     1.38   27.85      76    3718
EGGS       23.75    Mar    25.00  EGQCE     6.00   25.26     100     563
CYCH       17.00    Mar    17.50  KBQCW     4.13   24.26       1     140
MRVT       13.63    Mar    15.00  SQDCC     3.00   22.02      50     135
AAM         2.56    Mar     5.00  AAMCA     0.50   19.51     134    1638
AMKR        9.63    Mar    10.00  QELCB     1.88   19.48     180     432
EGGS       23.75    Mar    30.00  EGQCF     4.50   18.95      39     512
SEV         7.63    Mar    10.00  SEVCB     1.38   18.03      10     535
DHSM        2.44    Mar     5.00  DQJCA     0.44   17.95      10     179
CNDS        4.88    Mar     5.00  KQNCA     0.88   17.95       5     167
MCDE        4.19    Mar     5.00  UCQCA     0.75   17.91      20      10
ENER        7.00    Mar     7.50  EQICU     1.25   17.86      50     930
VRC         7.38    Mar     7.50  VRCCU     1.31   17.80       5     249
VRTY       27.69    Mar    30.00  YQVCF     4.88   17.61       4      14
GSTX        6.75    Mar     7.50  QGSCU     1.13   16.67       2     164
AMMB        8.63    Mar    10.00  UKQCB     1.44   16.67      20     488
GSTRF      18.94    Mar    20.00  YVQCD     3.13   16.50       5     473
BEAM        4.56    Mar     5.00  BAQCA     0.75   16.44      10    1273
TERA        7.63    Mar    10.00  QIPCB     1.25   16.39       5     288
ADAX        3.06    Mar     5.00  AQHCA     0.50   16.33      30     185
OPTI        4.63    Mar     5.00  OQPCA     0.75   16.22      20     145
XYLN       16.69    Mar    17.50  YXQCW     2.63   15.73       1     511
NEM        17.50    Mar    17.50  NEMCW     2.75   15.71      31     693
TLXN       12.44    Mar    15.00  TNQCC     1.94   15.58      44     225
DOSE        4.06    Mar     5.00  XUQCA     0.63   15.38      80    1192
CMPC        3.69    Mar     5.00  ICQCA     0.56   15.25       2     276
ZITL        4.94    Mar     7.50  ZQICU     0.75   15.19     212    1185
MRVT       13.63    Mar    17.50  SQDCW     2.06   15.14       1     183
QADI        3.75    Mar     5.00  QDKCA     0.56   15.00       3     145
SAMC        5.94    Mar     7.50  QDSCU     0.88   14.74      20     452
GEMS        4.25    Mar     5.00  GQMCA     0.63   14.71      10     154
IDC         4.69    Mar     5.00  IDCCA     0.69   14.67      76    4463
LVCI       20.00    Mar    20.00  QVLCD     2.88   14.38      58      28
DGN        17.44    Mar    17.50  DGNCW     2.50   14.34      30     249
PHL         2.63    Mar     5.00  PHLCA     0.38   14.29      15     326
TGX        16.81    Mar    17.50  TGXCW     2.38   14.13       6     167
MIKE       17.13    Mar    17.50  IKQCW     2.38   13.87       3      15
GADZ        6.44    Mar     7.50  EQKCU     0.88   13.59      34      81
CATP       22.25    Mar    25.00  TQPCE     3.00   13.48      42     195
DLGC       18.50    Mar    20.00  DQLCD     2.44   13.18      20      85
SYBS        6.81    Mar     7.50  SBQCU     0.88   12.84     100     377
IKN         8.88    Mar    10.00  IKNCB     1.13   12.68      13     527
AAIR        2.97    Mar     5.00  VJQCA     0.38   12.63      70    2169
CYCH       17.00    Mar    22.50  KBQCX     2.13   12.50      30     103
AFCI        8.09    Mar    10.00  AQFCB     1.00   12.36      30    1965
TERA        7.63    Mar    12.50  QIPCV     0.94   12.30      50     758
HRC        14.88    Mar    15.00  HRCCC     1.81   12.18      50     640
NVX         7.81    Mar    10.00  NVXCB     0.94   12.00     130     397
NBTY        6.28    Mar     7.50  NBQCU     0.75   11.94      22    1670
ICN        21.31    Mar    22.50  ICNCX     2.50   11.73      22     248
VLNC        6.44    Mar    10.00  VHQCB     0.75   11.65      38    1294
KSF        10.75    Mar    12.50  KSFCV     1.25   11.63       5     218
THQI       28.00    Mar    30.00  QHICF     3.25   11.61       6     322
BEAS       11.97    Mar    15.00  BRQCC     1.38   11.49       9     792
DAVX        7.63    Mar    10.00   VQCB     0.88   11.48      10     133
ZITL        4.94    Mar    10.00  ZQICB     0.56   11.39      30    1239
UNA        17.00    Mar    17.50  UNACW     1.88   11.03      10      15
PIR         9.25    Mar    10.00  PIRCB     1.00   10.81      10    1041
NEM        17.50    Mar    20.00  NEMCD     1.88   10.71      77    1838
GML        22.50    Mar    22.50  GMLCX     2.38   10.56     154     125
ICGX       20.31    Mar    25.00  QIGCE     2.13   10.46      20     851
HOLX       12.00    Mar    12.50  XHQCV     1.25   10.42      10      30
DRMD        3.69    Mar     7.50  DUQCU     0.38   10.17      50    1027
RAYS        5.56    Mar     7.50  RQYCU     0.56   10.11      50     707
XYLN       16.69    Mar    20.00  YXQCD     1.69   10.11      30     367
CHRZ       25.44    Mar    30.00  ZQHCF     2.56   10.07       5     200

The January Effect: Will this seasonal trading cycle occur or just
repeat last year's failure to appear?

It's that time of the year to start thinking about the historical
trading relationship between small-cap and large-cap stocks. Some
experts refer to this phenomenon as the JANUARY EFFECT. The change
is barely noticeable but generally the big-caps outperform smaller
issues from mid-November to mid-December due to profit taking in
the lower priced stocks. As we move towards the new year, many
investors transition into the small-caps and the trend reverses.
The historically strong performance of small stocks in the first
few months of the year is well known and easily proven but many
experts are wondering if the cycle will repeat with all of the
recent negative sentiment concerning the smaller issues. Everyone
is flocking to the big-caps and unless a stock is Internet related,
it's probably been long forgotten. Without a significant change in
institutional and fund investing, the small stocks will once again
suffer through a long winter.

On another subject, the speculation of future interest rate cuts
may be dwindling. The most recent unfavorable signal from the Fed
came in November when it changed the so-called bias to neutral.
The FOMC backpedaled from its bias toward easing just after voting
10-1 to cut the short-term rate for the third time in four months.
They commented that the growth of the economy was expected to slow
appreciably over the year ahead but the current expansion was only
showing modest signs of easing from an unsustainable pace. Indeed,
some members expressed concern that the economy was not as weak as
might be expected and worried that new credit might be too easy to
come by. In 1999, most members expect that slower economic growth
and continued competition from Asian and other depressed countries
will help dampen wage and price pressures but without significant
deceleration in the American economic machine, the FOMC will be
very reluctant to bolster the markets with another rate reduction.
				  - STRATEGIES -
Selling naked-puts offers an attractive method of generating small
profits on portfolio collateral. A premium is received for the
obligation to buy the underlying security at a specific price. A
successful outcome is achieved if the stock remains above the sold
strike at expiration. It is also one of the best ways to achieve a
technically correct entry position for owning a stock.
                         *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.
Stock  Price  Currnt Mon-Strike Opt    Profit   ROI  Annual
Sym    Picked Price      Price  Bid    /Loss         ROI 

TERA    7.88   7.63  Jan- 7.50  1.00  *$ 1.00   26%  345%
ITVU   13.25  14.06  Jan-10.00  0.75  *$ 0.75   22%  230%
PTVL   14.69  18.25  Jan-10.00  0.50  *$ 0.50   15%  189%
CDNW   17.25  23.19  Jan-10.00  0.69  *$ 0.69   17%  174%
ITVU   14.00  14.06  Jan-10.00  0.69  *$ 0.69   20%  172%
ZILA   10.25   9.94  Jan- 7.50  0.38  *$ 0.38   16%  163%
CDNW   17.63  23.19  Jan-10.00  0.50  *$ 0.50   12%  162%
VRTY   22.50  27.69  Jan-17.50  0.75  *$ 0.75   14%  149%
PDQ    10.38  10.19  Jan- 7.50  0.25  *$ 0.25   11%  140%
APM     8.69   6.88  Jan- 5.00  0.25  *$ 0.25   13%  131%
ABTX   11.19  10.38  Jan- 7.50  0.25  *$ 0.25   10%  131%
NXTR   10.13   9.44  Jan- 7.50  0.25  *$ 0.25   11%  114%
BMP    24.56  24.13  Jan-17.50  0.44  *$ 0.44    8%  107%
CELG   15.00  16.63  Jan-10.00  0.25  *$ 0.25    8%  100%
SDTI   18.31  21.88  Jan-12.50  0.38  *$ 0.38    9%   98%
TALK   10.13  14.06  Jan- 5.00  0.25  *$ 0.25   11%   95%
SRCM   17.19  16.00  Jan-10.00  0.25  *$ 0.25    7%   88%
CELG   11.38  16.63  Jan- 7.50  0.25  *$ 0.25   10%   86%
GALTF  22.69  25.38  Jan-15.00  0.38  *$ 0.38    8%   81%
ABTX   12.69  10.38  Jan- 7.50  0.25  *$ 0.25    9%   78%
SPYG   20.50  20.81  Jan-12.50  0.31  *$ 0.31    7%   73%
TDFX   16.44  12.19  Jan-12.50  0.31   $ 0.00    0%    0%

-ROI is equal to the profit (or loss) divided by the original
investment requirement. Annual ROI represents the return on 
a yearly basis (example: a 10% return in 20 days equals
183% ROI for a year).
-Profit/Loss Column: Asterisk indicates stock price above strike
price and put option should expire - not be exercised.  Stock 
to be exercised assumed sold at current price.(for tracking)
OI  - Open Interest
CB  - Cost Basis (break-even point if put exercised) 
ROI - Return On Investment - formula: premium received divided by
the collateral required by the broker (the greater of 40% of the
current price of the stock plus the premium, minus the difference
between the cost of the stock and the strike price; or 20% of the 
current price of the stock plus the premium.) As you move further
from the stock price, the 20% requirement will take precedence.
ROI may vary based on equity required by each individual broker.
Sequenced by Company
Stock  Price  Mon-Strike Option  Opt   Open   Cost   ROI Opt
Sym               Price  Symbol  Bid   Intr   Basis  Expired 

CELG   16.69  Jan-12.50  LQH MV  0.50  330    12.00  13.03%
NOVT   24.06  Jan-20.00  QOH MD  0.56  0      19.44   9.14%
SDTI   22.00  Jan-15.00  QSD MC  0.25  237    14.75   5.38%
SPLN   17.19  Jan-12.50  QSP MV  0.44  90     12.06  11.35%
VIRS   13.13  Jan-10.00  VQP MB  0.19  130     9.81   6.75%
ZAP    12.38  Jan- 7.50  ZAP MU  0.25  40      7.25   9.17%
Sequenced by Return on Investment  
Stock  Price  Mon-Strike Option  Opt   Open   Cost   ROI Opt
Sym               Price  Symbol  Bid   Intr   Basis  Expired 

CELG   16.69  Jan-12.50  LQH MV  0.50  330    12.00  13.03%
SPLN   17.19  Jan-12.50  QSP MV  0.44  90     12.06  11.35%
ZAP    12.38  Jan- 7.50  ZAP MU  0.25  40      7.25   9.17%
NOVT   24.06  Jan-20.00  QOH MD  0.56  0      19.44   9.14%
VIRS   13.13  Jan-10.00  VQP MB  0.19  130     9.81   6.75%
SDTI   22.00  Jan-15.00  QSD MC  0.25  237    14.75   5.38%
Company Descriptions
CELG - Celgene  $16.69

CELG is a specialty company engaged in the development of human
pharmaceuticals and agrochemicals. Recently announced smaller
than expected loss in earnings report due to record sales of first
pharmaceutical product, THALOMID(TM) and that they acquired rights
to ENMD's patents and technology for thalidomide. Also filed a new
drug application to the FDA for its Inhibitory Drug for treatment
of Crohn's Disease after the trials yielded promising results.
Other news that several molecules it is developing effectively
suppressed production of an inflammatory protein linked to
congestive heart failure in a study of animals.

JAN  12.50  LQH-MV  BID=0.50  OI=330  CB=12.00  ROI=13.03%

Chart = http://quote.yahoo.com/q?s=celg&d=3m
NOVT - Novoste  $24.06

NOVT is a development stage enterprise engaged in developing the
Beta-Cath System, a intraluminal beta radiation catheter delivery
system designed to reduce restenosis. DLJ initiated coverage in
Nov. with a "BUY". The AMEX and CBOE listed options in early Dec.
and J.P. Morgan/Volpe Brown also issued new "buy" recommendations
with a target price around $30. A strong technical history since
mid-October and some positive news in the sector with the recent

JAN  20.00  QOH-MD  BID=0.56  OI=0  CB=19.44  ROI=9.14%

Chart = http://quote.yahoo.com/q?s=NOVT&d=3m
SDTI - Security Dynamics Tech.  $22.00  *** WEB Security ***

SDTI provides enterprise network and data security solutions to 
help companies conduct business securely, protect corporate assets
and facilitate electronic commerce. Some lawsuits filed after the
recent upgrades seemed to have little effect and the company has
just introduced SecurWorld, a new flexible program for delivering
two-factor authentication on the web. Now trading above resistance
on it's current-up trend; cost basis is near support around $14.

JAN  15.00  QSD-MC  BID=0.25  OI=237  CB=14.75  ROI=5.38%

Chart = http://quote.yahoo.com/q?s=SDTI&d=3m
SPLN - Sportsline USA  $17.19     *** Internet-mania ***

Sportsline USA, Inc. is an Internet-based sports media company
that provides branded, interactive information and programming
as well as merchandise to sports enthusiasts worldwide. Some say
its #1 in sports information on the Internet and more rumors of
a target-price upgrade. The new issue of the Dines Letter rates
SPLN as one of 4 top Internet stocks to buy now! A steady climb
since mid-Oct and good support around $15.00

JAN  12.50  QSP-MV  BID=0.44  OI=90  CB=12.06  ROI=11.35%

Chart = http://quote.yahoo.com/q?s=SPLN&d=3m
VIRS - Triangle Pharmaceuticals  $13.13  *** Drug Sector ***

Triangle Pharmaceuticals is a pharmaceutical company engaged 
in the development of new drug candidates primarily in the
antiviral area. Still playing this stock again as it has exited
the tip of the isosceles triangle formation and started to move
higher. Dec 15 entered into definitive purchase agreements to
sell 4.8m newly issued shares of stock to selected investors for
a price of $10. Technically still neutral (basing) to bullish.

JAN  10.00  VQP-MB  BID=0.19  OI=130  CB=9.81  ROI=6.75%

Chart = http://quote.yahoo.com/q?s=VIRS&d=3m
ZAP - Zapata  $12.38   *** Internet Speculation at its Best! ***

ZAP conducts operations in two business segments: marine proteins
and food services. The fish-oil processor surged last week after
announcing it will revisit its Web-domination plans. The latest
bizarre turn for Zapata, which burst onto the Net scene last May
with an unsolicited offer to buy Excite. The newest bid to become
an Internet conglomerate comes a mere two months after the firm
aborted its net strategy due to "volatile" market conditions. Now
expected to open it's zap.com website in the next few weeks. Just
absolute speculation, but some technical support around $7.50.

JAN  7.50  ZAP-MU  BID=0.25  OI=40  CB=7.25  ROI=9.17%

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


See Disclaimer in Section One.


The Option Investor Newsletter            12-27-98
Sunday                6  of  6

© 1998 The Option Investor Newsletter. - All Rights Reserved
On Wednesday, U.S. stocks surged, closing sharply higher with the
Nasdaq and S&P 500 ending at record closes. The Dow was nearing
another record as well and unofficially closed up 157 points. Some
bullish news from bluechip technology companies boosted the market
sentiment and it moved comfortably higher even as investors began
squaring positions ahead of the Christmas holiday period. Traders
said the Internet stocks in particular were susceptible to short
covering because the stocks are heavily traded and often make big
moves up and down. With an abbreviated session scheduled Thursday
prior to a three-day Christmas break, players who had been "short"
did not want to take any chances.

The rally in technology shares was spurred by news Tuesday night
that America Online, the world's largest Internet service provider,
was added to the S&P 500 index. The news sent AOL shares up $15, a
a new record high close at $138 for the stock, and fueled investor 
excitement about the overall legitimacy of the technology sectors.
Another boost came when a Merrill Lynch analyst said they expected
Intel, the world's largest semiconductor maker, to earn even more
in 1999 after new cost-cutting measures and strong growth for PCs.

Internet stocks were also particularly strong as shares of uBid
and Multiple Zones International soared higher. Analysts said that
part of the recent rally in Internet and technology shares is the
result of portfolio managers striving to show the market's "hot"
stocks on their 1998 balance sheets.

On Thursday, stocks were generally lower in the shortened session.
The Dow was up slightly, lifted by IBM, GE and Procter & Gamble as
all touched new highs. It was sixth straight day of gains for the
Dow, bringing the index of blue-chip stocks closer to breaking
through its record high.

Internet stocks lit up trading screens with some stocks swinging
wildly in fierce activity. The action was so fierce it dominated
not just the tech-heavy Nasdaq but was also responsible for many
volume leaders on the New York Stock Exchange. Many of the gains
were awesome but other Internet stocks got a nasty surprise. The
big mover was once again uBid, shedding $66 of the $100 that it
had previously gained on Tuesday and Wednesday.

Our portfolio plays went fairly well on Wednesday. The AAPL play
was our focus and as recommended, a call option purchased at the
open; JAN47.5C for $0.62 was later sold for $0.87, a $0.25 gain
for the day. Those who chose to sell the JAN45C to open a credit
spread would have achieved a $0.62 premium for the play. CMGI was
also quite unpredictable and I still have no idea which way it is
going to go but the JAN80P/85P put-credit was available at about
$0.56 credit. ATI was our new LEAP play and the opening debit was
$8.75. Be sure to close the JAN70C on the expiration date if ATI
is trading above $70. TWX continues to be one of our better LEAP
spreads and you will most likely have to close the short position
at the January expiration. The straddle on CKR had no prices for
the March positions so there were obviously no contracts trading
and we will not list any prices for that play.

Note: This new summary contains only the plays after 12/20, for
previous results or questions about other active positions, send
any questions to ray@OptionInvestor.com
Stock   Pick    Last    Position   Credit   Cost    G/L   Status

ALA    $23.19  $25.13  JAN17P/15P  $0.31   $0.25   $0.06   Open
AGPH   $48.93  $54.00  JAN40P/30P  $0.43   $0.19   $0.25   Open
GT     $52.12  $50.63  JAN47C/45C  $0.43   $0.12   $0.31   Open
CMGI   $119.87 $121.88 JAN85P/80P  $0.62   $0.62   $0.00   Open
AAPL   $38.00  $39.25  JAN65C/60C  $0.50   $0.38   $0.12   Open

Credit spreads are profitable if both positions remain OTM until
expiration. The cost-to-close price can be used to compare the
initial opening credit to the current spread value.
Stock   Pick    Last    Position      Debit   Value   G/L  Status

CPQ    $42.68  $43.13  APR45C/JAN45C  $2.50   $3.00  $0.50  Open
GM     $71.50  $73.44  MAR70C/JAN70C  $2.00   $2.00  $0.00  Open
ATI    $64.93  $67.88  LJAN70/JAN70C  $8.75   $9.00  $0.25  Open

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis). Each month,
as we sell a new call against the long position, the cost-basis
should decline or the position value should increase.
				- NEW PLAYS -
RSLN - Rosalyn Bancorp  $20.68     Momentum Spreads

Roslyn Bancorp is the bank holding company for The Roslyn Savings
Bank. In what has certainly been one of the most complicated
mergers of the year, RSLN announced that its stockholders approved
the acquisition of TR Financial Corp (ROSE) and its subsidiary,
Roosevelt Savings Bank. RSLN shares firmed on the final day of a
period for calculating an average closing share price for a stock
swap with TR Financial Corp. Roslyn plans to swap 2.05 shares for
each share of TR Financial stock but if the 15-day, consecutive,
average closing price of Roslyn is below $20.72 by December 24, TR
Financial could terminate the deal. Most traders are betting the
deal is in good shape and once the transaction is complete, the
new companies should produce record income. Some even expect the
stock to move up significantly next week based on renewed interest
from institutional investors. Our play is based on good support
for RSLN at $19 and some excellent option volume on the recent

PLAY (conservative debit-spread):

BUY  CALL JAN-17.50 OQU-AW OI=1040 A=$3.62
SELL CALL JAN-20.00 OQU-AD OI=2416 B=$1.68
NET DEBIT TARGET=$1.75 ROI(max)=42% B/E=$19.25

Chart = http://quote.yahoo.com/q?s=RSLN&d=3m
BGP - Borders Group  $23.19     Momentum Spreads

BGP is an operator of book and music superstores and mall-based
bookstores in the U.S. BGP operates its stores under the Borders,
Waldenbooks, and Planet Music and CD Superstore names. Speculation
and rumors are rampant! Border's is rumored to be working on a new
e-commerce site and promotion (BORDERS.COM) with IBM. Others say
there will be sites/portals on YHOO or SEEK. They definitely have
a comprehensive website with cool music samples and other assorted
gifts. The stock has lots of interest in the option pits and was a
volume leader on Thursday with NO news. Technically comfortable in
a range from $22-$25 and we can speculate for a small initial debit
based on the option premiums.

PLAY (conservative debit-spread):

BUY  CALL JAN-22.50 BGP-AX OI=248 A=$2.38
SELL CALL JAN-25.00 BGP-AE OI=389 B=$1.25
NET DEBIT TARGET=$1.00 ROI(max)=150% B/E=$23.50

PLAY (conservative calendar-spread):

BUY  CALL FEB-25.00 BGP-BE OI=176 A=$2.62
SELL CALL JAN-25.00 BGP-AE OI=389 B=$1.25

Chart = http://quote.yahoo.com/q?s=BGP&d=3m
AAS - Amerisource Health  $59.93     Call-Credit Spread

AmeriSource is a wholesale distributor of pharmaceuticals and
related health care products to hospitals and other managed care
facilities, independent community pharmacies and chain drug stores.
The company is the fourth largest distributor of pharmaceuticals
and related health care products and services in the U.S. Some
recent aquisitions including the purchase of 19% of the stock of
ADDS Inc, (a technology leader in pharmacy automation), and a
dismissed (industry wide) lawsuit are the only significant news
items. The play is based on technicals. AAS has failed at $65 for
the past month and the TSV/BOP are now leading the stock lower. A
good risk/reward opportunity.

Play (aggressive):

BUY  CALL JAN-70 AAS-AN OI=45 A=$0.56

Chart = http://quote.yahoo.com/q?s=aas&d=3m
VNWK - Visual Networks  $35.25     Put-Credit Spread

Visual Networks, Inc. designs, manufactures and sells wide-area-
network (WAN) service level management systems for statistically
multiplexed technologies such as Frame Relay and IP/Internet.
Last month we speculated on the downward trend of this stock and
it was promptly blindsided for a $3 loss after DLJ downgraded the
company to "market perform". We missed the play because the stock
moved down at the open. Now we see a strange rebound taking place
even as selling pressure increases. Once again, something may be
in the works but serious competition looms in this group from the
recent partnering of sector foes with larger companies like CSCO
and ASND. To complicate matters, Bank-Boston Robertson Stephens
initiated coverage last week with a "long-term attractive" rating.
A three week play to hold above $30 with support near the sold put.

PLAY (aggressive):

BUY  PUT JAN-25 QVN-ME OI=50  A=$0.50
SELL PUT JAN-30 QVN-MF OI=515 B=$1.00

Chart = http://quote.yahoo.com/q?s=vnwk&d=3m
MTRS - Metris Companies, Inc.  $45.88     Call-Debit Spread

MTRS is an info-based direct marketer of consumer credit products
and fee-based services and extended service plans. For the nine 
months ended 9/98, total interest income rose 85% to $82 million.
Falling 78% ($80 to $18) in two months at the end of summer, MTRS 
was a victim of the financial turmoil that hit in October. Some
accounting changes (in the company's revenue recognition policy)
at the same time of a general market downturn didn't help and was
probably one of the reasons their CFO resigned. Even though 3Q EPS
increased, the lawsuits that followed hampered any attempt to join
the renewed market rally. Metris recently completed an acquisition
from PNC which brings Metris' credit card portfolio to over $5.0
billion in receivables and 3 million accounts. Also announced it
has entered into a strategic alliance with CCR, for residential
mortgage products. Technically in a good up-trend with TSV moving
above zero and BOP reflecting good accumulation. With a low P/E,
the undervalued MTRS appears ready to stage a rebound!

PLAY (long-term/very conservative):

BUY  CALL FEB-$40.00 TQW-BH OI=0   A=$8.87
SELL CALL FEB-$45.00 TQW-BI OI=500 B=$5.62
NET DEBIT TARGET=$3.00 ROI(max)=67%

Chart = http://quote.yahoo.com/q?s=MTRS&d=3m
JMED - Jones Pharmaceuticals  $35.19     Net-Debit Straddle

JMED manufactures and distributes specialty pharmaceuticals under
its own trademarks and tradenames. A positive earnings report in
October and increased product sales has brought this stock back
into favor with investors. One of the more well-known issues at
the OIN, we have played various positions with this stock in the
past. One of the more successful strategies has been the straddle
and JMED is once again a good candidate for this technique as it
moves back into the middle of its recent trading range around $35.
The option prices are fair and the past volatility is respectable.
The time frame should allow an easy exit from this play with a
reasonable profit.

PLAY (conservative/long-term):

BUY CALL MAR-35 JQM-CG OI=448 A=$3.00
BUY PUT  MAR-35 JQM-OG OI=159 A=$2.75
INITIAL GTC CLOSING PRICE (both positions)=$7.00

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

Market Sentiment ­ By Pinnacle Capital Advisors
Sunday, December 27, 1998

The Power of Sentiment Analysis

Tracking market sentiment can give savvy option traders a decided
advantage when the market reaches a key benchmark.

Over the past several weeks, the market has been testing the
summer highs set during the summer months while the overhead 
sentiment had been building to extreme levels. But last Tuesday 
(12/22), Pinnacle alerted subscribers that the excessive overhead
sentiment had evaporated allowing the market to advance higher.

The next day (Wednesday 12/23), the Dow closed more than 140 points
higher and the S&P 100 and 500 record new 52-week highs.

From a macro perspective, the market is shaping up to advance even
higher after several of the trouble industry sectors have firmed 
and began to move higher including the Russell 2000 (RUT) and the 
Brokerage (XBD) sectors. For this reason Pinnacle has turned Bullish
on these sectors as reflected in our stated Market Posture. 
See Market Posture link.

New Website 

As explained in Sundayšs (12/20) newsletter, Option Investor will
be introducing its new website on January 1, 1999. 

Pinnacle Capital Advisors will be changing the name of its
section from "Hedge Strategy & Recommendations" to "Market
Sentiment" and can be found on the website with the same title.

The focus of the new section will be sentiment analysis and
providing new indicators and tools that help option traders
track and monitor changing market sentiment ­ sector by
sector. So if you are looking for the big picture, you donšt
want to miss this section.

Pinnacle Indexes

Trading Range     Lower End      Upper End
Dow Jones        8,500 ­ 8,600 9,400 ­ 9,950
S&P 500 (SPX)    1,080 ­ 1,100 1,190 ­ 1,200
S&P 100 (OEX)      530 - 540     590 - 600 

Pinnacle Indexes
OEX Friday Friday Tues Thurs
Benchmark (12/17) (12/25) (12/29) (12/31)

Resistance (610-615) 55.0 
(600-605) 51.8 1.8

Support (585-590) 9.2 1.3 
(575-580) .7 1.0

Average ratings: 
Resistance levels 2.0 / Support .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is heavy at the OEX 610/615
level while the underlying support is moderate.

OEX Skybox 

This week marks the last week for the OEX Skybox. Beginning
January 4th, OptionInvestor.com will be introducing a new
DAILY service for those who want to actively trade the S&P
100 (OEX). It will be called the OEX Trading Pit and is designed
to provide OEX traders real-time daily updates of OI

The benefits of this new DAILY service we be tremendous
because it gives subscribers clear and specific trading
instructions. The new service can be found on the new website
under the link entitle "OEX Trading Pit"

OEX Skybox Replay

On Wednesday (12/23), the market traded higher reached a new 52-week
high increasing the value of our long (call) option position. As shown 
below, we are advising subscribers to tighten their protective sell stop
to lock in a good profit.

Current Positions
Symbol Last Trade Protective Gain/Loss
Entry/Exit Date Entry Price Stop (+/-)

OEX DEC-600 PUT / OEY-AT | 17.63
12/21 | 9.25 15.50 8.38 +

Trading Instructions: 
12/21 New Call position Filled @ $9.25
12/23 Protect entire position tightly at $8.75
12/28 Tighten protective ell stop to $15.50 


Index Power Grid

Beginning January 1st, Pinnacle Capital Advisors will be combining
the Index Power Grid and the Market Posture into one tool for
reference by subscribers. Our plan is to update the new Market
Posture whenever our posture change.

The focus of the enhanced Market Posture section will be short-term
1-2 weeks and will include key benchmarks, support/resistance
levels, market posture and the date we change our posture. We will
also continue to present our posture by industry sector.

Potential Failed Rallies

The following summarizes the potential failed rallies our
analysts are tracking this week and our NEW recommended short
positions. We have also included the current value of the
Pinnaclešs sentiment indicator (PI) as a point of reference
for the level of optimism or expectation. We recommend
taking positions only if they trade through our recommended
entry price. Short positions should be initiated using STOP
orders. After the market sold off precipitously last week, we have 
updated several of our protective sell stops to lock in profit. 
Please make a note of these changes.

Symbol 50/100/200 Last Trade
Entry/Exit Date dma PI Entry/Stop Gain/Loss(+/-)


Computer Assoc / CA +|@|- 5.6 | 41.25 12/4 | 43.75 42.25 2.50 +

Cabletron / CS +|-|- 2.6 | 8.06 12/4 | 8.75 9.25 .69 +

Lehman Brothers / LEH +|@|- 1.1 | 43.75 12/8 12/21 | 46.75 44.25 2.50 +
Stopped Out 

BMC Software / BMCS -|-|- 5.6 | 43.69 | 42.75 45.25 NEW

BUY PUT JAN-45 MCQ-MI OI=1620 at $4.00 SL= 2.75
BUY PUT JAN-40 BCQ-MH OI=405  at $1.63 SL= .75

Boeing / BA +|@|- 5.6 | 32.25 12/2 | 33.69 35.25 1.44 +

Bristol Myers / BMY  +|+|+ 4.3 | 127.88 | 126.75 128.25 NT

Merck / MRK          +|+|+ 5.4 | 148.81 | 146.75 149.25 NT

Warner Lambert / WLA -|+|+ 3.1 | 71.25 12/21 | 72.75 75.25 1.50 +

* NEW ­ New recommendation / NT ­ Not Triggered

Beginning January 1st, Pinnacle Capital Advisors will be including
our popular "Failed Rally" section within the Put Recommendations
section on the Internet. This link on the website will also
include specific Put recommendations for each stock listed.

NFL Challenge Update

This weekend is the big finale of our NFL Challenge 
as we will be announcing the winner of our competition
Tuesday night (12/29). Stayed tuned to your TV sets on
Sunday for the Arizona, NY Giants and Tampa Bay. The
outcome of these games will determine the winner of the
NFL Challenge as the last NFC spot is still up for grabs.

We want to thank all of the subscriber who participated
in the contest and trust that it has helped underscore 
several important elements of trading options including
time decay and risk management.

Beginning January 1st, Pinnacle Capital Advisors will be including
our popular "Failed Rally" section within the Put Recommendations
section on the Internet.  This link on the website will also
include specific Put recommendations for each stock listed.

Pinnacle Capital Advisors

Certain market views and recommendations by Pinnacle Capital
Advisors may differ on occasion from the Option Investor due
to our market timing models and underlying technical and
sentiment indicators. Investors are advised to make their own
investment decision based upon their own investment/risk


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This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
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The newsletter staff makes every effort to provide timely 
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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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