Option Investor
Newsletter

Daily Newsletter, Sunday, 01/03/1999

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

Sunday  1-3-98  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
******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
       WE 12-31         WE 12-25         WE 12-18         WE 12-11
DOW     9183.43 - 36.56  9217.99 +342.17  8875.82 + 85.22  -194.38  
Nasdaq  2192.60 + 29.52  2163.03 +119.15  2043.88 + 34.52  - 26.15  
S&P-100  604.03 -  3.91   608.91 + 25.30   583.61 +  8.49  -  5.47  
S&P-500 1229.23 +  4.15  1226.27 + 46.31  1179.96 + 18.02  - 10.28  
RUT      421.96 + 16.42   405.56 + 11.78   393.78 +  3.93  -  3.96  
TRAN    3149.31 +108.48  3044.08 + 73.44  2970.64 +100.82  -119.89
VIX       25.41            22.04            28.07            28.46
Put/Call    .55              .52              .47              .66
******************************************************************


1998 is now history and 1999 will go down in history.


1998 finished with a whimper for the Dow but the underlying market
was smoking at the close. Even though the Dow was down -93.21 the
Nasdaq overcame a host of Internet problems and set a new closing
high. 

AOL gave us the mother of all spikes at the close on Thursday as
some index fund bought 20 million shares at the close and the price
jumped from $144 to $160 after the bell. Shorts and limit sellers
are now in serious trouble without any opportunity to cover. Some
estimates for the open on Monday are $170-180 as other funds and
shorts scramble to cover after the surprise spike. Other rumors
flying fast this weekend include AOL announcing a split Tue/Wed
next week. Congratulations to everyone that held on for the expected
bump at the close Thursday. You got way more than you bargained for!

New statistics just came out for AOL. They passed 15 million customers
this week. Up from 1 million Christmas week of 1994. The current rate
of new Internet users is 68,000 every day. AOL is signing up 23,000
every day. ONE THIRD OF ALL NEW INTERNET USERS!! This puts AOL on
track for 25 million users by next Christmas. Since AOL is already
profitable what will 10 million new users do for them?? Internet
blue chip anyone?

The highlight of Thursday was the very bullish closing ticks, over
+1000 and the broad breadth. The advancers led decliners 2307 to 
780 on the NYSE and 3094 to 1331 on the NASDAQ. The totals of 5401
advancers and only 2111 decliners showed how strong the coming rally 
might be. Traders have been waiting for volume to reassert a direction.
This should give them the proof they need.

The eight day streak came to a close with a -140 drop in the Dow
but the positive market breadth on Friday looks like a good start
for a new year. Sure, we have some blue chips that people think are
now overvalued but the broader market is racing to catch up. The 
Russell turned in an incredible performance on Thursday as it jumped
+10.07 and +16.42 for the week. This was a +4% gain for the week!!
The Russell was expected to outperform the blue chips in the post
holiday rally and is still expected to be strong again next week.

The choppy market, caused mostly by profit taking and year end
portfolio restructuring, only put a little fear back into investors.
The put/call ratio only came up from .51 to .55, hardly noticeable.
The VIX did rise some from 22 early in the week to 25.41 at the
close Friday. Without some volatility, as evidenced by the VIX the
option premiums will go flat. That means time premium will decay
rapidly without "expectation" built into the market. If everybody
expects the market to move in one direction then there is no 
speculation. No speculation equals no inflated premium prices. This
is good if you are buying but bad if you are selling. 

On Monday European financial markets will start trading in the new 
Euro currency. Analysts are not expecting too much disruption for 
U.S. equity markets but we will keep our fingers crossed.

Now that the parties are over and the decorations are coming down
Wall Street will be faced with an impeachment trial, the Euro and
earnings projections that are falling daily.

The week ahead will produce a large amount of economic data that is
likely to show a split in the U.S. economy. Manufacturing will be
sluggish but the techs and service sector will be strong. The 
December unemployment report on Jan-8th is expected to show an 
increase in the jobless rate to 4.5% from 4.4% in November. Traders
will also look at the Monday NAPM index for the manufacturing sectors
health in December. 

With blue chips lacking momentum from Wed/Thr there may be some
further consolidation in the Dow but the broader market should 
continue to move upward without any market killing bad news. This
should be a good week to buy the dips and look for the longer trend
for the month to be upward.

Several people have asked recently what "buying the dip" meant and
how to know when it was a dip and not a crash. Obviously if anyone
could accurately call the "dips" they would not share this holy grail
info with anyone else. This is a tough call. You have to be in tune
with the broader market and current market trends. When you see the
market moving up strongly for some period of time you can expect a
dip for profit taking ever 5-7 days. Experienced traders wait for 
these dips to take positions. The correct way to play the dips is
to wait for the dip to be over. For example, I would call the -140
drop on Wed/Thr a dip. The broader market has already started the
rebound but then the broader market was dipping before the Dow 
finally dropped last week. When the major stocks you are watching
start back up along with the rising market then it is time to buy.
A rule of thumb could be 25%. Since the Dow dropped -140 then a +35
point or greater gain with positive ticks would look like a rebound
beginning. Individual stocks may lead before the Dow moves upward.
Stocks like MRK, LU, MSFT, BA, C, may start up early and then ignite
a Dow rally. The key here is patience and observation. You can't 
look at some stocks prices once a day and expect to be "in tune" with
the market. I have some traders that I correspond with by email daily
and even several times a day and we have trouble agreeing on when 
the market will turn. You just have to wait and watch everything and
look for positive signs in more than one place. Just watching one
or two stocks or one or two indexes will not work.    

I had several readers ask this week about open interest and its
relevance to us. One reader asked about certain strikes on CSCO
which had 10,000, 12,408 and 14,852 open interest. The questions I
get are something like "the stock is $100 and the Jan-120 strike
has 15,000 open interest. Why are you not recommending that strike?
With that large an open interest isn't that a great play?"  Our
quick answer is Open Interest(OI) DOES NOT MAKE A GREAT PLAY. Lack of
open interest can make a play more risky but high OI has no relevance
to us as traders. These far out of the money strikes got this high OI
because the stock was close to the strike at one time. This stock
may have been tacking on $2 a day for a week until it got to $118
and every option player alive may have been betting on the $120 as
a sure thing. One morning they woke up to see a downgrade or earnings
warning had taken -$5 off their sure thing and denial set in. It will
come back up!! It was up +$15 the last three weeks, it will recover!
Famous last words. Nothing is ever a sure thing and nothing ever has
to come back up. The stock can lose $2 a day for weeks as expectation
slowly drains away. Traders who did not want to sell their $5 option
for $3 the day of the announcement just watch the value drop another
$1 a day until it is $.50 and "not worth selling" in their eyes. Many
traders still in denial will then "load up" on these bargain options
to wait for the eventual return to glory. (good money after bad) This
is how a strike that is far out of the money gets a huge OI. This is
also why OI does not matter or make a good trade. 

Low OI however can mean you are at the mercy of the market maker when
you try to sell your option. If you are deep in the money then this
is not a problem. If you are out of the money and the stock does not
move then the market maker will "mark down" the price of the option
drastically as the expiration date closes in. Be cautious when buying
any option with OI less than 500 and be ready to pull the trigger
quickly if the trade goes against you. Higher OI strikes will hold
value longer as the "denial" factor will erode a bit slower.
  
In summary we think the market will rebound from the dip on Wed/Thr
and move up. There is some uncertainty from the conflicting signals
but the broader market looks ready to run. The only minefield ahead
would be missed earnings but that is a week or two away. Remember,
a noted analyst (RA) said he could see a Dow 11,500 this year. Same
guy can also see 8,500. That gives him a 3,000 point margin of error
but at least gives us a great upper target to shoot for. Lets hope
we only break one of his predictions! 


Good Luck


Jim Brown
Editor



*****************************************************************
JIM'S PLAYS		 
*****************************************************************
On vacation last week.

Current open option positions: None, all cash.



*****************************************************************
BROKERS CORNER		 
*****************************************************************


STOP!! That falling option!

HELP!! HELP!! My car is rolling down hill. I forgot to put on my
parking brake. Sometimes the market resembles a roller coaster or
a hilly city like San Francisco. As investors, we tend to forget 
to pull up that parking brake on our investments and stop the 
option positions from losing anymore. I am referring to the use 
of Stop orders to protect your capital and sometimes profit. I 
receive many calls and E-Mails concerning the different uses and
parameters to use for stops. I would like to briefly cover the 
use of stops. Although I would love to tell all you reading this 
exactly how much protection to set on each position, I cannot 
recommend any specifics due to each individuals desired risk 
exposure and degree of speculation.

STOP vs. STOP LIMIT

Many investors do not realize that a STOP order can be placed to 
either buy or sell a security. However, for this commentary I will
only discuss the Sell STOP and Sell STOP LIMIT orders. A Sell STOP
order is a sell order placed below either the current price or 
purchase price. The Sell STOP order becomes a market order when a
trade (a buy or sell) is executed at the specific stop price the 
investor placed. A Sell STOP LIMIT order is also a sell order 
placed below either the current price or purchase price. The Sell
STOP LIMIT order becomes a LIMIT order when a trade (a buy or sell)
is executed at the specific stop price the investor placed. The 
limit can be any amount desired. But it is important to know that 
a stop limit order may be more difficult to execute than the market
order. However, there is no telling what price you may be filled 
at with the market order. In a fast market, the price you actually 
get filled at may be much less than you had hoped. 

It is also important to realize that you may not get filled on your
stop order due to a couple of reasons. For example, the active 
exchange is the AMEX. A Sell STOP is entered to the active exchange. 
An execution at the STOP price occurs on the Pacific exchange. 
However, this trade execution on the Pacific exchange may not trigger
the stop. Therefore, the stop is skipped over. It is also important 
to know that if a stock gaps down at the open or intra day, a stop 
order may be skipped over. In addition, sometimes the CBOE doesn't
take GTC orders. Furthermore, a stop will not be activated if the bid
is equal to the stop price. With all that said, I am sure many of you
wonder what the purpose is if there are so many thing that can go wrong.
My advice would be to discuss the order placement with your broker
to see if there is anything additional that may be done to help ensure 
that your capital is protected. 

NOTE: I use protected very loosely. Options are very risky and should
only be used by advanced investors that can afford to lose the entire
amount of risk capital. However, the reason for this commentary is to 
educate subscribers that they don't have to lose everything. One 
strategy is to just sell the option if the bid hits the stop price 
before it passes through it. Many quote systems have audible alarms 
that initiate an alarm when the price hits the desired exit point. 

If the stop hits the target price and does not execute, make sure that
you are disciplined enough to sell the option.

Robert J Ogilvie, ROP & GSP
Baxter, Banks & Smith, Ltd.
Sarasota, FL
800-982-2119
RJOgil@AOL.COM 




*********************************************************
Market Posture
*********************************************************
As of Market Close ­ Thursday, December 30, 1998 

               Major Support
Broad Market    /Resistance  Last  Posture/Since Alert
****************************************************************

DOW Industrials 8,600 9,400  9,181 Neutral 11.24 
SPX S&P 500     1,180 1,240  1,229 Neutral 12.30 * 
OEX S&P 100       580   615    604 Neutral 12.30 * 
RUT Russell 2000  385   405    422 BULLISH 12.24 

NDX NASD 100    1,640 1,740  1,836 BULLISH 12.18 
MSH High Tech     770   790    874 BULLISH 12.18 

               Major Support
Technology      /Resistance   Last Posture/Since Alert
****************************************************************
XCI Hardware      740   815    797 Neutral 12.30 * 
CWX Software      560   615    638 BULLISH 12.29 
SOX Semiconductor 325   360    352 Neutral 11.24 
NWX Networking    360   400    398 Neutral 11.24 
INX Internet      300   340    397 Neutral 12.29 

                Major Support
Financial        /Resistance   Last Posture/Since Alert
****************************************************************
BIX Banking       610   680    667 Neutral 12.17 
XBD Brokerage     415   540    551 BULLISH 12.24 
IUX Insurance     555   620    595 Neutral 12.17 

                Major Support
Other            /Resistance   Last Posture/Since Alert
****************************************************************
RLX Retail        770   780    849 BULLISH 12.18 
DRG Drug          730   765    780 BULLISH 12.29 
HCX Healthcare    730   760    771 BULLISH 12.29 
XAL Airline       270   300    303 Neutral 12.17 
OIX Oil & Gas     250   260    249 BEARISH 12.3 



Posture Alert

Although the Nasdaq, Midcap and Russell 2000 climbed into 
higher territory, we have turned Neutral across the broader
market following our reversal signals on the S&P 100 and 500
indices.

We have also turned Neutral across the Hardware sector as the
PC makers consolidate their recent gains. 

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

www.OptionInvestor.com/marketposture


*****************************************************
The Top-50 Stock Options by volume on 12/31/98
*****************************************************


Stock  Price Month  Year  Strike Option  Price    Bid   Ask  Change Volume

CMB     71.00 JAN    1999   50.00  Call   21.50  17.88 18.13  -0.50 27300
CMB     71.00 JAN    1999   45.00  Call   26.50  22.88 23.13   0.00 26200
CMB     71.00 JAN    1999   55.00  Call   16.75  12.88 13.13  -1.25 21500
CMB     71.00 JAN    1999   35.00  Call   36.50  32.88 33.13   0.00 21005
CMB     71.00 JAN    1999   40.00  Call   32.25  27.88 28.13   0.75 19002
CMB     71.00 JAN    1999   30.00  Call   41.50  37.88 38.13   0.13  7028
COMS    44.81 JAN    1999   50.00  Call    0.75   0.81  0.94  -0.50  6885
MSFT   138.69 JAN    1999  135.00  Call    7.25   6.38  6.75   0.13  6196
MSFT   138.69 JAN    1999   90.00  Call   49.63  48.50 48.63   0.13  5519
AOL    155.13 JAN    1999  150.00  Call   11.75  11.63 11.88  -0.50  5507
ORCL    43.13 JAN    2000   25.00   Put    0.88   0.94  1.19  -0.06  4700
ORCL    43.13 JAN    2000   35.00   Put    3.88   3.75  4.13   0.25  4653
AOL    155.13 JAN    1999  145.00  Call   13.88  13.75 14.00   0.38  4507
MTC     47.50 JAN    1999   50.00  Call    1.25   1.25  1.50   0.75  3889
IOM      7.31 JAN    1999    7.50  Call    0.50   0.38  0.50   0.06  3791
AOL    155.13 JAN    1999  160.00  Call   10.13  12.25 12.75   2.75  3745
JBL     74.50 JAN    1999   70.00  Call    6.00   5.88  6.13   0.75  3626
MOT     61.06 JAN    1999   50.00   Put    0.19   0.00  0.19   0.00  3612
CPWR    78.13 FEB    1999   80.00  Call    5.50   5.50  5.75  -0.13  3527
INTC   118.56 JAN    1999  125.00  Call    2.25   2.25  2.38  -0.31  3460
IFMX     9.88 JAN    1999   10.00  Call    0.75   0.69  0.75   0.44  3430
MSFT   138.69 JAN    1999  140.00  Call    4.00   3.63  4.00  -0.25  3345
INTC   118.56 JAN    1999  120.00  Call    4.00   4.00  4.13  -0.50  3139
ATI     72.44 JAN    1999   70.00  Call    5.25   4.50  4.75   3.13  3124
INTC   118.56 JAN    1999   60.00  Call   58.88  58.13 59.13  -1.88  3015
MO      53.50 JAN    2000   45.00   Put    3.00   2.94  3.38   0.00  3000
MO      53.50 JAN    2000   35.00   Put    0.81   0.69  1.06   0.06  3000
X       23.00 JAN    1999   20.00  Call    3.63   3.25  3.63   0.63  2812
DELL    73.19 JAN    1999   75.00  Call    1.81   1.81  2.06  -0.56  2812
LU     109.94 JAN    1999  110.00  Call    4.25   4.13  4.50   0.25  2736
HRC     15.44 MAR    1999   20.00   Put    5.00   4.75  5.00  -1.50  2701
CSCO    92.81 JAN    1999   95.00  Call    3.25   3.00  3.38  -0.13  2611
CSCO    92.81 JAN    1999  100.00  Call    1.50   1.50  1.69  -0.19  2545
MTC     47.50 JAN    1999   45.00  Call    3.88   3.63  3.88   1.38  2531
PFE    125.00 JAN    1999  130.00  Call    1.50   1.38  1.50  -0.50  2523
MSFT   138.69 JAN    2000  115.00   Put    7.63   7.13  8.13   1.13  2502
MO      53.50 JAN    2000   50.00   Put    4.75   4.88  5.25   0.00  2500
MSFT   138.69 JAN    2000   75.00   Put    7.63   7.13  1.13   0.00  2500
WFC     39.94 JAN    1999   40.00  Call    0.75   0.81  1.00  -0.19  2481
IBM    184.38 JAN    1999  165.00   Put    0.50   0.44  0.56  -0.06  2417
CELL    13.75 JAN    1999   15.00  Call    0.88   0.81  1.00   0.38  2284
AOL    155.13 JAN    1999  140.00   Put    7.25   6.75  7.25  -1.38  2256
HAL     29.63 JAN    1999   30.00  Call    1.25   1.13  1.38  -0.19  2207
ASND    65.75 JAN    1999   65.00  Call    5.38   5.13  5.50   2.25  2166
DELL    73.19 JAN    1999   70.00  Call    4.88   4.63  5.00  -0.50  2111
HRC     15.44 JAN    1999   17.50   Put    2.38   2.13  2.31  -0.50  2111
AOL    155.13 JAN    1999  140.00  Call   17.25  17.00 17.50   1.50  2093
AOL    155.13 JAN    1999   45.00  Call   99.38 109.13109.88   0.75  2072
SBC     53.63 JAN    1999   45.00  Call    8.25   8.63  8.75  -0.50  2053
MSFT   138.69 JAN    1999  120.00  Call   19.50  18.88 19.38  -0.38  2051

 
*****************************************************
Coming Events
*****************************************************
Monday: 

NAPM Index       Dec       Forecast:  46%    Previous: 46.8%

Tuesday:

LJR Redbook       1/02     Forecast: 0.00    Previous:  0.4%
BTM/Schroeders    1/02     Forecast: 0.00    Previous:  3.1%
API Oil Stocks   12/19     Forecast: 0.00    Previous: 334.7M
Construction $$    Nov     Forecast: 0.5%    Previous:  0.3%

Wednesday:

New Home Sales     Nov     Forecast: 845k    Previous: 851k
NAPM Non-Mfg       Dec     Forecast:  --     Previous: 53%

Thursday:

Jobless Claims    1/02     Forecast: 368k    Previous: 300K
Factory Orders     Nov     Forecast: 0.6%    Previous: 1.6%

Friday:

Non-Farm Payroll   Dec     Forecast: 200k    Previous: 267k
Unemployment Rate  Dec     Forecast: 4.5%    Previous: 4.4%
Avg Hour Earnings  Dec     Forecast: 0.2%    Previous: 0.2%
Avg Hour Week      Dec     Forecast: 34.4    Previous: 34.6
Wholesale Invent.  Nov     Forecast:  --     Previous: -0.2%
Consumer Credit    Nov     Forecast: $8 bln  Previous: $9.7 bln


*****************************************************
Last weeks change for this weeks picks:
*****************************************************
Index	Last	Week		
Dow	9183	-36.56		
Nasdq	2192	29.52		
$OEX	604	-3.91		
$SPX	1229	4.15		
$RUT	422	16.42		
				
#Symbol	Last	Week		
				
AOL	155.13	18.5	Huge afterhours trading after being added to the S&P	
SLR	92.94	8.44	just added to the S&P 500, up 4 weeks in a row.	
LXK	100.5	7.26	Earnings run has started?	
AGPH	58.75	4.75	New pick with strong momentum	
ATI	72.44	4.56	Takeover candidate	
LGTO	65.94	3.68	Split candidate with earnings in January.	
EMC	85	3.38	Very strong week, also Split candidate	
JBL	74.5	2.94	Up 3 weeks in a row	
KSS	61.44	2.75	No Christmas lag here!	
EDS	50.19	2.63	New pick with strong momentum	
SUNW	85.63	2.32	Split candidate	
SWY	60.94	1.75	Doing a good MYG imitation	
WCOM	71.75	1.62	New 52 week highs	
T	75.75	1.19	New 52 week highs	
HD	61.19	1.18	4 Week stretch!	
LOW	51.19	0.94	Soon to own Eagle hardware	
MYG	62.25	0.5	Strong and steady, 6 weeks in a row	
WMT	81.44	0.31	Waiting for those December sales #s	
BRCM	120.75	0.25	Came back on Thursday to repair losses	
SCI	57.75	0.00	Closed at high of the day	
TWX	62.06	-0.32	Profit-taking	
CSCO	92.81	-1.37	Buying opportunity	
SPLS	43.69	-1.5	..dropped.. splits 3:2 in late Jan.	
GDT	110	-1.94	New pick with split coming	
LU	109.94	-2.12	Consolidation before the next earnings run	
AIG	96.63	-2.31	..dropped.. overhead resistance too tough	
EGGS	20.81	-2.94	..dropped..lack of performance	
MSFT	138.69	-3.06	Earnings in 3 weeks	
NOK/A	120.44	-3.18	Definite buying opportunity for Split candidate	
IBM	184.37	-3.33	Holiday profit-taking.	
AMZN	321.25	-3.56	Splits 3:1 on Jan. 4th, watch for street reaction	
INKT	129.38	-6.63	..dropped..Split announcement did not help price	
YHOO	236.94	-10.19	..dropped..lack of peformance but a split candidate	
CMGI	106.5	-15.37	Splits 2:1 on Jan. 11th	



***************************************************
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
*****************************************************
THE PLAY OF THE DAY -CALLS- ONLY PLAY IN RISING MARKET
*****************************************************
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.

*****************************************************
LU – Lucent Technologies, Inc. $109.94 (-2.12)(+4.56) 

See Call Section for Play Description.

Chart = http://quote.yahoo.com/q?s=LU&d=3m
*****************************************************
IBM - $184.37 (-3.57)(+16.38)(+3.63)(-5.76)(+9.81)(+2.69)

See Call Section for Play Description.

Chart = http://quote.yahoo.com/q?s=ibm&d=3m
*****************************************************
AGPH - Agouron Pharmaceuticals, Inc. $58.75 (+4.75)(P3W +8.50)

See Call Section for Play Description.

Chart = http://quote.yahoo.com/q?s=AGPH&d=3m
*****************************************************
THE PLAY OF THE DAY -PUTS- ONLY PLAY IN FALLING MARKET
*****************************************************

No special put. Choose your favorite from the put section

*****************************************************
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.

http://www.interquote.com/


*****************************************************
HOW TO SUBSCRIBE
*****************************************************

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.

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and click on "subscribe" to use our secure credit 
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or you may call us at 303-797-0200 and give us the 
information over the phone.

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

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








The Option Investor Newsletter              1-3-98
Sunday                   2  of  6
© 1998 The Option Investor Newsletter. - All Rights Reserved
**************************************
PICK SUMMARY
**************************************
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.


*****************************************
STOCKS ADDED TO THE PICK LIST
*****************************************

Calls

EDS   - Electronic Data Systems
GDT   - Guidant
AGPH  - Aguron Pharma

Puts



*****************************************
PICKS WE DROPPED THIS WEEK
*****************************************
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.
*****************************************

CALLS:

AIG - $96.63 (-2.31) It appears as though the resistance starting at
$100 and continuing to $102.50 is too strong for AIG to break
through in the near term.  AIG announced that the merger with SAI is
effective on 1/1/99.  We don't think that this will impact the short
term price movement of the stock one way or the other, so we are
going to drop them as a pick.

SPLS - $43.69 (-1.50) With so much potential, SPLS is failing
to live up to our expectations.  They have a 3:2 split coming on
Jan. 28th and a split run may still occur.  However, after falling
below their 10 dma on Wednesday, they were unable to pull out of it
when the market experienced stronger than expected volume Thursday.  
We're going to send them on their way.

INKT – $129.38 (-6.62) INKT is being dropped until we see a new 
run. This might happen in the next few weeks, but we feel that if
AMZN hits some major profit-taking and YHOO doesn't announce strong
earnings then there will be some tough times for internets the next 
week or so. INKT got a nice jump with the stock split announcement, 
but lost all the gains it had made since then. After we see what is in
store for the internets, we'll decide on picking INKT back up for
it's split run. Split is scheduled for January 27th.

YHOO - $236.94 (-10.19) We have decided to drop YHOO until we see a 
new run. YHOO has dropped below it's 10-dma, which has been a sign 
of consolidation in the past. We will see how things play out the next 
week. Earnings are in two weeks and a split is most likely in store. 
Though we are dropping YHOO, watching it for a good re-entry point is 
not a bad idea. If we feel the split and earnings run reappears, we 
will pick YHOO up next week.  Remember, we don't advise holding a 
pick over earnings. YHOO most likely will see nice gains the week of 
the earnings announcement.

EGGS - $20.81 (-2.94)  Dropped.  Hard boiled or scrambled, no
matter how we cook it, these EGGS just won't roll up hill.  EGGS 
didn't keep pace with other Internet stocks by the market's close 
last Thursday.  We think an Internet stock should exhibit a little 
more excitement and positive momentum.  EGGS is priced roughly where 
we picked it 2 weeks ago and doesn't appear to have any news, good or 
bad, except the CEO's apology last week, so we're dropping them for 
now. If EGGS cooks up this week with better performance, we'll add 
it back.


PUTS: 

none


***************************************
STOCK SPLIT CANDIDATES 
***************************************

AOL  - America Online
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


*****************************************
STOCKS WITH UPCOMING SPLITS 
*****************************************
We don't list all splits available, only those we feel may have
play possibilities. 

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
page.


***************************************
NETWORKING - Sector
***************************************
CSCO - Cisco Systems $92.81 (-1.38)(+3.75)(+6.94)(P4W +18.80)

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.  About 85% of 
the routers used to decipher and direct data traffic on the 
Internet are made by Cisco.

Still no news as the press release department seems to have
extended their Holiday.  No major product release or enhancement, 
no major contracts signed, no major event; and CSCO finally 
succumbed to some profit taking (only $1.38) after 3 strong weeks.
Thanks to the holidays, all 4 trading days last week registered 
barely any price movement on volume substantially below its 
average of 17 million shares.  With traders and fund managers 
returning tomorrow, we expect volume returning, and thus the 
price, too.  Prior to Christmas, Donaldson, Lufkin & Jenrette 
raised its target price on CSCO to $120.  However, play these with
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.  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.

**January plays only have 2 weeks left**
BUY CALL JAN- 90 CYQ-AR OI=10000 at $6.00 SL=4.25, ITM $2.81
BUY CALL JAN- 95 CYQ-AS OI=12408 at $3.38 SL=1.75 
BUY CALL FEB- 95*CYQ-BS OI= 5013 at $6.75 SL=4.75
BUY CALL FEB-100 CYQ-BT OI= 4727 at $4.88 SL=2.75
BUY CALL APR-100 CYQ-DT OI= 2640 at $7.63 SL=5.75

LEAPS:

BUY LEAP JAN-2000-100 LCY-AT at $17.13 SL=14.00 
BUY LEAP JAN-2001-100 ZCY-AT at $26.00 SL=20.00

SELL PUT JAN-90 CYQ-MR OI=5764 B=2.69 A=2.81 ROI=12.65%
SELL PUT JAN-85 CYQ-MQ OI=7440 B=1.19 A=1.38 ROI= 6.02%  (safer)
 ** review the substantial risks with selling puts **
** put plays are 2 weeks long **

Picked on Oct   8th   $46.69            PE= 98
Change since picked  +$46.12            52 week low =$34.37 
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 $155.13 (+18.50)(+32.37)(+12.62)(P3W +20.07)

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!)

More gasoline for the fire!  Standard & Poor's added AOL to their 
S&P 500 index after the close December 31st  Beginning with 
tomorrow's trading, all index funds will have to have AOL in their
portfolios to accurately mimic the S&P 500 index.  Although C.S.
First Boston issued a downgrade from "strong buy" to a "buy" after
the sudden increase in share price following the announcement, 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.  Furthermore, In the 
middle of Wednesday's trading, the company announced that its 
membership now exceeded 15 million users.  Its Chairman, Steve 
Case, said that more new users signed up with AOL on Christmas Day
than any other day in the company's history (-briefing.com).

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 took 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 as high as $160 indicates a lack of sellers
In addition, 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, as 
reported by Motley fool and other sources, are on January 27th.  
Look for the split announcement then.  Usually, these dates are 
accurate, however, we've been unable to confirm this date with 
AOL's investor relations.  Rumors have started circulating that
AOL might announce a split as soon as next week (remember, most
rumors are false but they can move stock prices).  We still think 
that odds of a split being announced in the next few weeks are 
strong.  We'll be sure to keep you posted

Still an Internet stock.  

**Expect these prices to jump around Monday morning.  There
were a large number of buy on close orders Thursday and AOL
price jumped dramatically in after hours trading (to around $160).
Thus there a few errors in option prices already as you can
see below.

**January plays only have 2 weeks left**
BUY CALL JAN-150 AOE-AJ OI= 7945 at $11.88 SL= 8.75,ITM 
BUY CALL JAN-155 AOE-AK OI= 5936 at $11.00 SL= 8.75,ATM
BUY CALL JAN-160 AOE-AL OI=13383 at $12.75 SL= 9.50,OTM(MISPRICED)
BUY CALL JAN-165 AOE-AM OI= 1591 at $10.38 SL= 7.50
BUY CALL FEB-160*AOE-BL OI= 3048 at $17.00 SL=13.25
BUY CALL FEB-170 AOE-BN OI=  478 at $13.63 SL=10.50 aggressive!

SELL PUT JAN-135 AOE-MG OI=2930 B=$5.25 A=$5.75 ROI=15.6% *safer 
SELL PUT JAN-140 AOE-MH OI=4492 B=$6.75 A=$7.25 ROI=17.9%
SELL PUT JAN-145 AOE-MI OI=2985 B=$8.63 A=$9.13 ROI=21.7%
 ** review the substantial risks in selling puts **
**puts...are 2 week plays **

 - Momentum play.

Chart = http://quote.yahoo.com/q?s=AOL&d=3m
*******************************************
BRCM - Broadcom $120.75 (+.25)(+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
fuzziness, sharpening graphics, and providing studio-quality text. 

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. It hit 135 on Monday, Dec. 28th when the internet
stocks were soaring. The next two days Broadcom spent 
consolidating, and this provided a good entry point for options
players, since the stock moved up a solid 5.75 on Dec.31st to
close out the year on a strong note. Steve Harmon, of
Internet.com, has suggested that BRCM's broadband chips would
make a perfect complement to Intel's PC chip line. (A future
acquisition, perhaps?) The market is placing a high value on BRCM 
and the potential in its cutting edge technology. With a market
cap of over $6 billion on a company that has generated only $150
million in the past year, this is a company that traders love to
short. However, they keep getting squeezed, and when they cover
their positions, they drive the price even higher. Try to buy on
dips.

First Call has BRCM's next earnings due out Jan. 15th (2 weeks).
Estimates are $0.18 vs. $.18 for last year.

**January plays only have 2 weeks left**
BUY CALL JAN-115 RCQ-AC OI=150 at $11.00 SL= 8.75
BUY CALL JAN 120 RCQ-AD OI=280 at $ 8.38 SL= 6.50
BUY CALL FEB-120 RCQ-BD OI= 78 at $14.13 SL=11.25
BUY CALL FEB-125*RCQ-BE OI=105 at $11.75 SL= 9.25

Picked on Dec 27th at $120.50        P/E = 184
Change since picked  +$  0.25        52-week low =$ 47.00
Analysts' ratings  1-4-2-0-0         52-week high=$135.00
Last earnings on  9/98 est=.15 actual=$.17 surprise: 13%
Next earnings on  1-15 est=.18 versus= n/a
Chart = http://quote.yahoo.com/q?s=BRCM&d=3m
*******************************************
AMZN - Amazon.com $321.25 (-3.56)(+38.12)(+63.69)(+34.50)(-28.13)

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. 

Surprisingly, Amazon finished the week down -$3.56 even with its 
stock split due after the bell Monday Jan 4th.  Just looking at the 
weekly moves above, you never would have known that AMZN spent a good
part of Monday at $360.  After the big jump, investors took the end
of the year to lock in some quick profits, but things were more positive
on Thursday as AMZN added about $10 in the last half hour of trading. 
How they came up with an even close is beyond us.  This has become a tricky 
play.  We usually don't recommend holding over splits.  But, this 
case could be different.  You have two legitimate choices if you are
currently playing.  You could sell on Monday because normally after 
a split, post split depression usually follows.  Since AMZN doesn't
do anything small, its liable to be a drastic sell-off which would
pull down the entire sector.  On the other hand, you might want to 
hold over this particular split.  The stock is currently selling 
for $321.25.  After the  3:1 split, investors might flood in and 
gobble up the stock at such a low prices ($100 vs. $300).  When 
making your decision, keep in mind that the internets seem to be 
losing some of their steam.  The sell off might continue.  Also, 
"investors who want to put off paying taxes on their profits for 
another year will be selling in earnest next week."(-Reuters)  If 
you like EXTREME risk- go for it and hold over the split.  Otherwise, 
cash in hand is definitely safer.  

News on the week:  Again, there wasn't a lot of news for Amazon this 
week due to the holidays.  Reports of retail sales over the Internet 
during the holidays were higher than expected.  Bob Sullivan from 
MSNBC.COM said that some colleagues think that Amazon should have 
incredible revenue reports due out Jan 22nd.  One analyst believes 
that Amazon will beat an estimate of $198 million in revenues by as 
much as 50% as a result of the increased online holiday shopping.
In other news, AOL was added to the S&P 500 on Jan 1st.  Some feel 
that stocks like AMAZON could be next.  

 *Very Volatile - only take small positions*
**January plays only have 2 weeks left**
BUY CALL JAN-320 YZZ-AD OI=1429 at $29.38 SL=23.00
BUY CALL JAN-330 YZZ-AF OI=1594 at $26.25 SL=20.50
BUY CALL FEB-320 YZZ-BD OI= 156 at $48.88 SL=38.00
BUY CALL FEB-330 YZZ-BF OI= 754 at $45.25 SL=35.50
BUY CALL APR-330 YZZ-DF OI=2416 at $65.38 SL=51.00, post split $110s

PURELY MOMENTUM/SPLIT PLAY - NO FUNDAMENTALS

Chart = http://quote.yahoo.com/q?s=amzn&d=3m
*******************************************
CMGI - CMGI Inc. $106.50 (-15.38)(+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.

As we have been saying, CMGI had a lot of profit already built into 
it and we had advised that a buying opportunity would exist on the 
next pullback.  Well, we got the pull back on the last two days of 
trading for the year.  CMGI opened at $109.25, shot up to $116.50 
then tumbled to a daily low of $106.00, but managed to squeak out 
a close above its low to $106.50. The market savvy traders who played 
with stop losses, were taken out and given another chance for Mondays 
anticipated open.  If you are not already in this play, we recommend 
you WAIT until we see how the "street" deals with Amazon's split.  
They have become the Internet flagship and if they hit some post-split 
selling then the whole sector could tumble.  CMGI has a 2:1 split on 
Monday Jan. 11th.

On the news front the (NFL) and Lycos, announced a joint venture in 
designing and building the official Web site for Super Bowl XXXIII 
(at http://www.superbowl.com).  Lycos advertising will run during 
the "Road to the Super Bowl" show (airs at 5 PM EST on Saturday, 
January 30 on Fox TV) and a Lycos ad will be included in the official 
Super Bowl XXXIII program (-Business Wire).

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

**January plays only have 2 weeks left**
BUY CALL JAN-100 QGC-AT OI=373 at $13.75 SL=10.50, ITM $6.50
BUY CALL JAN-105 QGC-AA OI=395 at $10.88 SL= 7.00
BUY CALL JAN-110 QGC-AB OI=315 at $ 8.38 SL= 6.25
BUY CALL JAN-115 QGC-AC OI=263 at $ 6.13 SL= 4.25
BUY CALL FEB-115 QGC-BC OI= 96 at $13.13 SL=10.00, post split 57.50s
BUY CALL MAR-115 QGC-CC OI= 86 at $16.00 SL=12.25

Picked on Oct. 22nd at $52.25      PE = 51
Change since picked   +$54.25      52 Week High=135.50
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 $71.75 (+1.62)(+.82)(P3W +6.88)

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 arenas.  Just for the record, WorldCom's $37
billion purchase of MCI last September qualifies it the 7th largest
merger or acquisition in 1998

WCOM started the week with nice gains (up $2.31 to close at $74.25
on Tuesday)but gave part of it back Wednesday and Thursday as 
profit takers showed up.  WCOM actually gapped up to open at $75 
on Wednesday and traded as high as $75.75.  We still think with 
the rash of telecom mergers and acquisitions, WCOM will benefit.
Chart still looks OK, but WCOM could consolidate a bit further at 
this level before advancing again.  With court rulings preventing 
the baby bells from entering the long distance market in their 
home areas, 20% growth in voice traffic and 100% growth in data 
traffic every 4 months (!!! Gilder Technology Report) this spells 
good news and continued earnings growth for the big 3 long 
distance providers.  Look for fund mangers and long term investors 
to snap these up beginning this week.  Wait for positive direction 
in the stock and the industry before making the play.

WCOM is one of the largest Internet backbone providers in the 
world.  If you're reading this letter, somewhere in the 
transmission, WCOM fiber brought it to you.  There were reports 
last Tuesday that WCOM is being "eyeballed" by investors as an 
Internet play with real earnings, unlike the Internet brethren 
(AOL, YHOO, AMZN), which defy logic in the fundamentals department.
If day traders grab hold, it could be a wild ride (though, with 
1.7 billion shares in float, this will be tough).  That's why we 
suggest you confirm direction before making your play.

**January plays only have 2 weeks left**
BUY CALL JAN-65 LDQ-AM OI=11808 at $7.50 SL=5.75, ITM $6.75
BUY CALL JAN-70 LDQ-AN OI= 2579 at $3.50 SL=1.75
BUY CALL MAR-70*LDQ-CN OI=10703 at $6.88 SL=4.75
BUY CALL MAR-75 LDQ-CO OI= 4502 at $4.63 SL=2.25

Picked on November 29th at $62.44       PE = 83
Change since picked       +$ 9.31       52 week high=75.75
Analysts Ratings       25-7-3-0-0       52 week low =28.00
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 $75.75 (+1.19)(+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.

OK – on the surface, the reasons for making this play don't look 
so hot.  Technicals are neutral, AT&T loses long distance market 
share to smaller upstarts; proposed Air Touch acquisition by Bell 
Atlantic get tons of press.  We think the market saw the AT&T 
glass ½ empty last week.  Our ½ full take: choppy Holiday volume; 
the whole market pie is growing; does anyone remember that the 
government approved AT&T's $47 billion acquisition of TCI (pending 
AT&T's spinning off their 23% ownership of Sprint PCS over 5 
years)?  This is great news!  It means AT&T now has a green light 
to use TCI infrastructure to deliver internet, data transmission, 
local phone service, etc. through your cable TV hookup!  We think 
price fallback the last Wednesday and Thursday was just a function 
of lack of volume over the Holidays and think AT&T will resume 
course upward.  Still a huge company with a great story, but 
confirm upward movement before starting a new play.

In the news as mentioned, AT&T got the green light to merge with 
TCI thus creating a huge bandwidth pipe (lots of transmission 
capacity) over "the last Mile" or that short distance between the 
street and your phone jack.  It's estimated that it costs $1200 
per home for a typical utility to trench and install any 
transmission equipment.  That's why even though the fiber optic 
cable runs down your street, you can't yet access it.  It's too 
expensive to get it to you.  Soon, you'll be able to bypass that 
fiber in favor of AT&T/TCI cable.  It's already there.  Old news 
still getting mileage, 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.  

**January plays only have 2 weeks left**
BUY CALL JAN-70 T-AN OI=12827 at $6.00 SL=4.25, ITM $5.75
BUY CALL JAN-75 T-AO OI= 9328 at $2.50 SL=1.25, ATM
BUY CALL APR-70 T-DN OI= 2678 at $9.25 SL=6.75
BUY CALL APR-75*T-DO OI= 2346 at $6.25 SL=4.25

Picked on Dec 20th at  $73.00    PE = 22
Change since picked   +$ 2.75    52 week low = $48.38
Analysts Ratings   9-10-9-0-0    52 week high= $79.00
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
*******************************************
NOK.A-Nokia $120.44 (-3.19)(+6.75)(+8.50)

Nokia, of Finland, is the #1 cellular phone maker in the world
and a leading supplier of telecommunications systems and
equipment. It also supplies products for multimedia terminals and
computer monitors. Its 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 
igher margins. This stock has been climbing almost continuously 
ll year. During the overall market drop in early October, Nokia
merely bounced off its 200 day moving average and kept on
climbing. A Smith Barney analyst believes this stock could double
in 1999---even though it has already more than tripled in 1998!

After last Monday's new high of 125.44, NOKA trended lower for
two days with most of the other ADRs, before turning up slightly
on the last day of the year. This may be the pullback you are
looking for if you are not already in this stock. We are playing
Nokia as a possible split candidate as well as a momentum play.
It rose $9.00 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.  With their
fiscal year ending 12/31/98, we should be expecting their Q4 
earnings report shortly.

In early December, Nokia passed the 100 million unit mark in the
production of cellular phones. On 12/18, the company announced a
deal to buy Canadian Internet Protocol Telephony Company Vienna
Systems for $90 Million, which will strengthen its expertise in
IP Telephony. On 12/21, it announced plans to invest FIM 1
billion to enlarge its German plant to meet increasing demand. On 
2/28, Nokia transferred 32 million shares (5.3%) from a
Netherlands subsidiary to a Finnish subsidiary, a move that will
allow it to buy back shares in the spring. 

**January plays only have 2 weeks left**
BUY CALL JAN-115 NKA-AC OI=349 at $ 8.13 SL= 6.25, ITM $5.44
BUY CALL JAN-120 NKA-AD OI=712 at $ 5.25 SL= 3.25
BUY CALL JAN-125 NKA-AZ OI=628 at $ 2.81 SL= 1.50
BUY CALL FEB-120 NKA-BD OI= 98 at $ 9.50 SL= 6.75
BUT CALL FEB-125 NKA-BZ OI=271 at $ 7.00 SL= 5.25
BUY CALL APR-125 NKA-DZ OI=156 at $10.50 SL= 7.50

Picked on Dec 13th at $108.38        P/E = 51
Change since picked: +$ 12.06        52 week low =$ 33.25
Analysts' ratings   9-7-0-0-0        52 week high=$125.44
Last earnings  9/98 est=.67  actual=.88    surprise: 31%
Next earnings 12/98 est=.99  versus= n/a
Chart = http://quote.yahoo.com/q?s=NOKA&d=3m
*******************************************
ATI – AirTouch Communications $72.44 (+4.56)(+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 had a nice gain on Thursday due to takeover speculation. It
seems Bell Atlantic is targeting ATI for approximately $45 billion
in stock. This equates to about a 10% premium over present value. 
News articles state that this is close to being completed. A merger
between the two companies would make Bell Atlantic the 2nd largest
wireless company behind AT&T. Bell Atlantic knows that with ATI,
they could compete with AT&T on the national cellular service 
level. CNBC reported that the deal could be announced as early as
this week. 

Takeover plays are very volatile so be careful on how you play ATI.
News that puts a damper on the takeover will cause ATI shares to
suffer, whereas positive news will take the shares higher. Watch
out for pumped up option premiums. Market makers often inflate
premiums on takeover candidates.

**January plays only have 2 weeks left**
BUY CALL JAN-65 ATI-AM OI=1807  at $7.75 SL=6.00 $7.44 ITM
BUY CALL JAN-70 ATI-AN OI=3370  at $4.75 SL=3.00 $2.44 ITM
BUY CALL FEB-70*ATI-BN OI= 396  at $6.50 SL=4.75 $2.44 ITM
BUY CALL APR-70 ATI-DN OI= 344  at $7.50 SL=5.75 $2.44 ITM
(70 is current highest strike)

Picked on Dec.22nd at  $67.88   PE=72
Changed since picked    +4.56   52-week low = $38.25
Analysts Ratings  13-11-4-0-0   52-week high= $75.00
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
********************************************
LU – Lucent Technologies, Inc. $109.94 (-2.12)(+4.56) 

LU is the leading US producer of telecom equipment and software. 
Their products range from telephones to switching equipment to 
wireless networks. Lucent is also a global leader in digital 
signal processors and telecom power systems. 

LU did have some profit taking this last week. We expected this
and suggested new plays should wait to be opened until this 
happened. LU has had consistent earnings surprises. The last 
three earnings runs have been pretty substantial. LU is a
definite stock split candidate. Earnings are expected on the
21st of January. This would be the most likely time for a split
announcement. Being that a split is likely, the earnings run 
should have increasing strength. Last time LU split it was 
announced at the shareholders meeting in February of 1998. The 
1999 meeting is also in February. The proxy lists a vote on 
increasing shares. Since they already have authorization for 
3 bln shares and they only have 1.3 bln outstanding (enough room
for another 2:1 split); this tells us that the stock split most 
likely to happen before the shareholder meeting, meaning earnings. 

TeleMatrix Inc., a leading provider of in-room guest telephone and 
telephone technology for the hotel/motel industry worldwide, has 
signed an agreement allowing LU and its authorized dealers to offer 
TeleMatrix products to hotels and motels throughout the United 
States. LU will market the Tele-Matrix products primarily in 
conjunction with LU's GuestWorks system, a communications system 
designed specifically for the hospitality industry. 

**January plays only have 2 weeks left**
BUY CALL JAN-105 LU-AA OI= 1861 at $7.75 SL=6.00
BUY CALL JAN-110 LU-AB OI=14351 at $4.50 SL=2.75
BUY CALL FEB-110*LU-BB OI= 2158 at $8.63 SL=6.50
BUY CALL FEB-115 LU-BC OI= 1549 at $6.50 SL=4.75
BUY CALL APR-120 LU-DD OI= 3402 at $7.88 SL=5.75

Picked on Dec.29th at $112.06    PE = 53
Change since picked     -2.12    52 week low =$ 34.18 
Analysts Ratings   8-9-12-0-0    52 week high=$113.88
Last earnings on 10/98 est=.39   actual=.41
Next earnings on 01-22 est=.98   versus=.86
Chart = http://quote.yahoo.com/q?s=LU&d=3m
********************************************

SEE DISCLAIMER IN SECTION ONE 

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









The Option Investor Newsletter          1-3-98
Sunday             Part 3 of 6
© 1998 The Option Investor Newsletter. - All Rights Reserved
*******************************************
Software - Sector
*******************************************
MSFT - Microsoft $138.69 (-3.06)(+3.95)(+3.81)(+6.62)(P2W +13.75) 

From their own words, "Microsoft 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 had a really sedate week of trading, sliding slightly in 
price every day last week on volume only 1/3 of their daily 
average of 15 million shares.  Not much news coming from MSFT 
either, they remained off investors' radar screens.  Couple this 
with Holiday trading style and you get back-burner status.  
Unfortunately, the lack of volume makes the technicals look quite 
weak and we caution you to confirm the stock's direction followed up 
with heavier volume before starting a new play 

News of 2 lawsuits, 1 directed at MSFT's alleged monopoly 
practices, slipped under investors' radar.  First, Microsoft has 
filed a federal lawsuit against two Texas men who have registered 
Internet domain names including microsoftwindows.com and 
microsoftoffice.com.  Microsoft claims the two men are infringing 
on trademarks for popular Microsoft products and are misleading 
the public (Dow Jones).  Second, Bristol, which makes software 
allowing programs designed to run-on Windows to work on some 
versions of Unix, claims that Microsoft is aiming to remove the 
Windows-Unix bridge and force developers to create applications 
only for Windows.  A Federal Judge ruled on Dec. 30 to deny 
Microsoft's request for a motion to dismiss or a summary judgment 
(-Reuters).  This goes to trial on June 1st.  In general terms, 
plaintiffs and "victims" continue to line up to point their finger 
at the big bad bully.  This week it was the CEO of Intuit, Bill 
Harris'turn.  Y2K lawsuits still in the news too - the first of 
probably many lawsuits is being filed last week in Chicago.  This 
one claims that MSFT manufactured a couple of software programs 
with deliberate flaws involving the year 2000 bug.  Brokers seem 
unaffected by the news as Zack's ratings had another broker join 
the "strong buy" camp.  Plus, Everen Securities still has their 
price targets(0-6 months) of $161 and their long term (6-18 
months) of $200.  Broken record: "no material effect on earnings"

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...and earnings are 3 weeks away.

**January plays only have 2 weeks left**
BUY CALL JAN-135 MSQ-AZ OI=13086 at $ 6.75 SL= 4.75, 3.69 ITM
BUY CALL JAN-140 MSQ-AH OI=23782 at $ 4.00 SL= 2.50, lots of volume
BUY CALL APR-140*MSQ-DH OI= 4104 at $11.88 SL= 8.75, lots of time
BUY CALL APR-145 MSQ-DI OI= 1366 at $ 9.63 SL= 6.75

Picked on December 8th at $133.63     PE = 68
Change Since Picked      +$  5.06     52 Week High= 144.00
Analysts Ratings       15-8-5-0-0     52 Week Low =  61.06
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
*******************************************
LGTO – Legato Systems, Inc. $65.94 (+3.69)(+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 continued it's upward move this last week. LGTO reached an
intraday and 52-week high of $67.75 before settling for a gain of
$3.94 to close on Thursday at $65.94. LGTO had some buying 
pressure because of it's addition to the S&P Midcap 400 Index. 
Earnings are in a few weeks and there is a better than good chance 
that LGTO will announce a stock split. An intraday pullback on 
Monday could be a nice buying opportunity. LGTO has consistently 
beat earnings estimates in the past.

Now that LGTO has officially been added to the S&P Midcap 400 Index,
the volume should decrease a bit from the last few trading days.
LGTO has been on a nice run, even besting the software industry
which has been on a nice run itself.

**January plays only have 2 weeks left**
BUY CALL JAN-60 EQN-AL OI=253 at $7.25 SL=3.25 ITM $5.94 
BUY CALL JAN-65 EQN-AM OI= 96 at $4.00 SL=2.50   
BUY CALL FEB-65*EQN-BM OI= 58 at $7.38 SL=5.75 
BUY CALL MAR-65 EQN-CM OI= 25 at $8.63 SL=6.50 
(65'S ARE NEW STRIKES)

Picked on Dec.22nd at $62.25    PE=90
Changed since picked   +3.69    52-week low = $18.50
Analysts Ratings   6-4-1-0-0    52-week high= $67.75
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
*******************************************
SLR - Solectron Corp. $92.94 (+8.44)(+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 an another great week. On Wednesday, after the close, SLR was
added to the S&P 500. If anyone watched this during the day, it was
very interesting. Volume was tremendous as index fund after index
fund bought shares for their respective funds. SLR sat pat on 
Thursday with a .06 cent loss. Not much profit taking after such
huge runs. SLR might consolidate for a few days after such huge 
gains, but still is a likely stock split candidate.  

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. Last week one analyst changed from a hold
to a strong buy.

**January plays only have 2 weeks left**
BUY CALL JAN-90 SLR-AR OI=373 at $6.25 SL=4.50, ITM
BUY CALL JAN-95 SLR-AS OI=124 at $2.88 SL=1.50
BUY CALL FEB-90*SLR-BR OI=320 at $9.38 SL=7.25, ITM
BUY CALL FEB-95 SLR-BS OI= 74 at $6.25 SL=4.50
BUY CALL APR-95 SLR-DS OI=  1 at $9.00 SL=6.75

Picked on Dec.8th at $72.00   PE=41
Changed since picked +20.94   52-week low = $28.87
Analysts Ratings  5-8-6-0-0   52-week high= $93.50
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
*******************************************
JBL - Jabil Circuit, Inc. $74.50 (+2.94)(+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.

The only news last week, besides one of JBL's competitors being
added to the S&P 500, was that Goldman Sachs started coverage on JBL 
with a market outperform rating.  JBL still appears to be living off
the news of three weeks ago when they 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.  You
will also remember that earlier that week Solectron announced better
than expected earnings as well.

JBL set a new high on Thursday, and closed near the high on above
average volume.  As we expected, JBL had a good move last week on
Wednesday when one of its competitors, Solectron, was added to the
S&P 500.  JBL has been following the lead of Solectron.  With the
close on Wednesday and Thursday last week, JBL cleared out some
minor resistance at around $72.50.  With the above average volume on
those days as well, our expectation would be for JBL to continue its
run with this caveat, you have to keep an eye on the sector since
they appear to be tied at the hip. 

**January plays only have 2 weeks left**
BUY CALL JAN-70 JBL-AN OI=4020 at $ 6.13 SL=4.25
BUY CALL JAN-75 JBL-AO OI= 342 at $ 3.25 SL=1.50
BUY CALL FEB-75*JBL-BO OI= 139 at $ 6.38 SL=4.75
BUY CALL JUN-75 JBL-FO OI=  47 at $12.38 SL=9.50

Picked on Dec 6th at  $63.38   PE=43
Change since picked   +11.12   52 week low =$23.00
Analysts Ratings  5-10-5-0-0   52 week high=$74.88
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 $100.50 (+7.25)(+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. 

Last week we mentioned the consolidation LXK was in and that it
might be a good risk/reward entry point.  This turned out to be
the case. LXK went up $5.12 on Thursday to close a $1.50 off its
intraday and 52-week high. We can't find any news to account for 
the large gain last Thursday. We still feel there is a good chance
that LXK will announce a stock split with earnings on the 20th of
January.

LXK has earnings this month and has had positive earning surprises
in each of the last 7 quarters. If we look at the two weeks before
each of the last three quarterly earnings, we see that LXK has
averaged over a $6 gain. 
 
**January plays only have 2 weeks left**
BUY CALL JAN- 95 LXK-AS OI=331  at $ 7.25  SL= 5.50
BUY CALL JAN-100 LXK-AT OI= 60  at $ 4.25  SL= 2.50
BUY CALL FEB-100*LXK-BT OI=  9  at $ 8.63  SL= 6.50,wait for volume 
BUY CALL APR-100 LXK-DT OI=  4  at $12.50  SL=10.00

Picked on Dec 15th at  $88.38     P/E = 28
Change since picked:   +12.12     52 week low =$ 33.63
Analysts' ratings   1-3-1-0-0     52 week high=$102.00
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 $85.00 (+3.38)(+.13)(-.31)(+2.81)(+4.00)

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, there was another glowing customer
testimonial released.  Thomson Consumer Electronics, the number one
US manufacturer of TV's and VCR's under the brand names of RCA, GE
and ProScan, implemented an EMC storage system in its engineering
and product development group.  Thomson indicated that the
information sharing that was possible with the EMC system has
resulted in reduced time to market new products, higher
profitability, and an overall competitive advantage.

EMC posted a nice gain last week, and did not have a losing day. 
EMC closed at some minor resistance on Thursday.  Actually we would
like to see EMC move through this minor resistance and take out the
high that it set back on December 8, 1998 ($86.63).  As we have 
discussed, EMC has really been in a basing pattern since that high 
was set in December.  Extended basing patterns can sometimes lead to 
powerful moves.  EMC is also a split candidate.  A year ago this last
November EMC split at around $63 after a strong move.

**January plays only have 2 weeks left**
BUY CALL JAN-80 EMC-AP OI=4463 at $7.00 SL=5.25
BUY CALL JAN-85 EMC-AQ OI=3806 at $3.75 SL=1.75
BUY CALL FEB-86 EMC-BQ OI= 349 at $7.38 SL=5.50
BUY CALL FEB-90*EMC-BR OI= 273 at $5.13 SL=3.25, wait for close over high.
BUY CALL APR-95 EMC-DS OI= 187 at $6.25 SL=4.25

Picked on Nov 8th at $69.06     PE = 36
Change since picked  +15.94     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 (+0.00)(+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 went down the first three days of the week and then proceeded 
to make up those losses all on Thursday with a gain of $2.75. This
happened after SCI bounced off it's 20-dma. SCI closed right on 
the high of the day, which is bullish in nature. Wait to see SCI
trade and hold above $58 before initiating new plays. This would
place SCI into blue-sky territory. 

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. Earnings are expected on the 21st of January. SCI does
have a high short interest ratio. With another nice jump in the
shares, we could have a nice short squeeze.

**January plays only have 2 weeks left**
BUY CALL JAN-55 SCI-AK OI=283  at $4.38  SL=2.75 $2.75 ITM
BUY CALL JAN-60 SCI-AL OI= 38  at $1.63  SL= .75 
BUY CALL FEB-55 SCI-BK OI=  3  at $6.88  SL=5.25 $2.75 ITM
BUY CALL FEB-60*SCI-BL OI= 45  at $3.88  SL=2.25
BUY CALL APR-60 SCI-DL OI= 61  at $6.25  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 - $184.37 (-3.57)(+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 a 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. 
 
Did someone say profit taking?  There was a lot of that as the 
year wound down and IBM was not left out.  After almost piercing 
$190 on Monday, Big Blue drifted aimlessly downward the remainder 
of the year.  If Monday opens strong then we should see IBM again 
on the March to the upside.  IBM remains a split candidate and a 
popular time to announce is with earnings.  IBM reports near 
1/18/99.

In the news, Australia's Cable & Wireless Optus Ltd. said
Wednesday it has signed a 750 million Australian dollar (US$458.9 
million) outsourcing agreement with IBM's Australian unit.  C&W 
Optus is 52.8% owned by Cable & Wireless PLC (CWP) of the U.K., 
and is Australia's second largest telecommunications concern behind 
Telstra Corp (-Dow Newswire).  Part of IBM's drifting may
have been spurred by the loss of a large ($1 bln) computer 
privatization contract with the state of Connecticut to EDS.

**January plays only have 2 weeks left**
BUY CALL JAN-180 IBM-AP OI=5367 at $ 8.00 SL=6.25 ITM
BUY CALL JAN-185 IBM-AQ OI=2531 at $ 5.00 SL=3.25 
BUY CALL JAN-190 IBM-AR OI=3562 at $ 2.75 SL=1.50, risky play!
BUY CALL FEB-190 IBM-BR OI=3001 at $ 7.88 SL=6.00
BUY CALL APR-190 IBM-DR OI=2616 at $12.50 SL=9.50

Picked on November 15th at $157.44       PE = 28
Change Since Picked        +$26.93       52 Week High=189.94
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
*******************************************
EDS - Electronic Data Systems Corp $50.19 (+2.63)

EDS, is the official information technology services provider for 
World Cup 1998, is a leader in the global information services 
industry. The company specializes in applying a range of ideas and 
technologies to help business and government clients improve their 
economics, products, services and relationships. EDS, which serves 
clients in 45 countries, reported revenues of $15.2 billion in 1997. 
The company's stock is traded on the New York Stock Exchange.
and the London Stock Exchange

Just exploding in the month of December, EDS has been on fire and
just recently set a new 52 week high.  Since Dec. 7th, six major
brokerages have upgraded the stock and investors have been piling
in.  With a price target of $75 and a strong showing of new contracts, 
EDS has been an investor and analyst favorite for 1999.  Currently it 
is sitting just underneath resistance it set back in March.  We would 
recommend waiting until after it closes above $51 before starting any 
new plays.

Big news this last week for EDS was the new Connecticut contract.
EDS beat out IBM and CSC for a $1 bln/7year contract to privatize
the state's computer system.  Other recent news is EDS recently
announced its Spectrum Commercial Card processing system is
Y2K compliant.  They are the first major credit card system that
is ready for the year 2000 bug.  

**January plays only have 2 weeks left**
BUY CALL JAN-45 EDS-AI OI=3656 at $5.75 SL=3.50 ITM, low premium.
BUY CALL JAN-50 EDS-AJ OI=7997 at $1.94 SL= .75
BUY CALL FEB-50 EDS-BJ OI= 268 at $3.38 SL=1.50 
BUY CALL MAR-50*EDS-CJ OI= 949 at $3.88 SL=2.50

Picked on Jan. 3rd at $50.19       PE=27
Change since picked  +$ 0.00       52 week high=51.31
Analysts Ratings  3-9-10-0-0       52 week Low =30.44
Last Earnings on  9/98 est= .35  actual = .35 
Next Earnings on  2-05 est= .52  versus = .62
Chart = http://quote.yahoo.com/q?s=EDS&d=3m
*******************************************

PLAYS CONTINUED IN SECTION FOUR.

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




The Option Investor Newsletter             1-3-98
Sunday                4  of  6
© 1998 The Option Investor Newsletter. - All Rights Reserved
********************************************************************
SUNW - Sun Microsystems $85.63 (+2.32)(+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.  

Sun Microsystems seems to be ready for the New Year.  It finished 
the last week of 1998 with a nice gain of +$2.32.  Hopefully that 
momentum will carry through 1999.  SUNW is slowly moving closer and 
closer to its all time high and current resistance level of $88.38 
set during intraday trading on 12/21.  Look for SunMicrosystems to 
challenge these high levels if the market can get off to a good 
start this week.  Sun is one of our split candidates.  It posts 
earnings in the middle of January - a prime time to announce a 
possible 2:1 split.

News on the week:  The U.S. Commerce Department relaxed U.S. export 
laws on strong encryption technology.  Online merchants like SUNW 
will be able to do more business overseas and become more 
competitive with encryption manufacturers around the world.  Sun 
also is offering Hong Kong Unix users a free computer system check 
up for Y2K compliance in hopes that it will get more subscribers 
to use its computer servicing system.

**January plays only have 2 weeks left**
BUY CALL JAN-80 SUQ-AP OI=3114 at $ 7.00 SL=5.25
BUY CALL JAN-85 SUQ-AQ OI=4333 at $ 4.00 SL=2.50
BUY CALL FEB-85 SUQ-BQ OI= 930 at $ 7.00 SL=5.25
BUY CALL FEB-90*SUQ-BR OI= 444 at $ 4.75 SL=3.25
BUY CALL APR-90 SUQ-DR OI=1084 at $ 7.88 SL=6.25

Momentum Play

Chart = http://quote.yahoo.com/q?s=sunw&d=3m
*******************************************
Retail  - Sector
*******************************************
SWY - Safeway Stores $60.94 (+1.74) 

Safeway is one of the largest food retailers in the nation.  Only
Kroger and Wal-Mart are larger.  Safeway has approximately 1,400 
stores concentrated in the western areas of the US and Canada. Two 
of Safeways's largest possessions are the Vons Companies and Casa 
Ley, two large supermarket chains.  Safeway also manufactures and 
sells private-label merchandise.  Safeway is continually building 
bigger stores and upgrading their older possessions.

After spending a couple of weeks basing between $52 and $53, SWY 
finally managed to break free and has been in breakout mode ever 
since.  Unfortunately, breakout mode for SWY appears a little subdued 
compared to some of the other stocks we are playing.  But,if you are 
looking for another conservative play, SWY's chart is starting to 
look like MYG's who has had a great run.  

Whats this, a stock that finshed up on such a down day for the market? 
SWY opened on a low of $59.937 moved up and over a little resistance 
at $60.00 slid to a low of $59.87 then managed to finish on a positve 
side at $60.93. Maybe its not one of those volatile techies, but a 
little conservative play never hurts a traders portfolio. Again news 
is very sparse for this play, maybe no news is good news?

**January plays only have 2 weeks left**
BUY CALL JAN-55 SWY-AK OI=524 at $6.38 SL=4.25, ITM
BUY CALL JAN-60 SWY-AL OI=470 at $2.50 SL=1.00 
BUY CALL FEB-60 SWY-BL OI=158 at $4.13 SL=2.50
BUY CALL MAR-60*SWY-CL OI=934 at $5.00 SL=3.25

Picked on Dec. 29th at $61.06           PE = 40
Change since picked   -$ 0.13           52 week low = $29.40
Analysts Ratings    7-4-2-0-0           52 week high= $61.38
Last earnings on 09/98 est= .37  actual= .38 surprise +2.7%
Next earnings on 01-28 est= .48  versus= .43 
Chart = http://quote.yahoo.com/q?s=SWY&d=3m
*******************************************
KSS – Kohls Corp. $61.44 (+2.75)(+3.69)(+5.25) 

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 continues to trend higher and has pushed through it's prior 52-
week high and is now in blue-sky territory. Watch for any profit
taking to establish new positions. If KSS reports improved sales
for December, than it should continue to trend higher. These sales
numbers will be out sometime this week, most likely Thursday.

Preliminary retail numbers have shown that department stores as a
whole were a little less than anticipated. This should not effect
the better department stores like KSS. Earnings are not due out
until February. 

**January plays only have 2 weeks left**
BUY CALL JAN-55 KSS-AK OI=361 at $7.25 SL=5.50 
BUY CALL JAN-60 KSS-AL OI=362 at $3.50 SL=1.75
BUY CALL FEB-60*KSS-BL OI= 32 at $5.38 SL=3.75
BUY CALL APR-60 KSS-DL OI= 69 at $7.38 SL=5.50

Picked on Dec.17th at $53.56   PE=54
Changed since picked   +7.88   52-week low = $31.31
Analysts Ratings   4-2-5-0-0   52-week high= $62.50
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 $81.44 (+.31)(+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. It operates the #2 grocery chain, behind
Kroger's, and Sam's clubs is the #2 warehouse chain. It also has
an increasing presence on the internet. Wal-Mart's international
operations are growing significantly, most recently with the
Interspar hypermarkets acquisition in Germany.

Wal-Mart was down on Wednesday, after hitting a record 82.75 on
Tuesday. In the last half hour of trading on New Year's Eve, WMT
began climbing with increasing volume in last-minute window-
dressing. 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. Wal-Mart says that December
sales have exceeded plans and it is comfortable with earnings
forecasts. It is on track for over $120 billion in sales for its
year end January 1999. Tom Tashijian, of Nationsbanc Montgomery
Securities said, "...in eight of the last 10 years, the first
quarter has been the best time to own retail stocks." Wal-Mart is
the king of retail stocks and it sets new highs each week.
Perhaps most important for option investors, this stock 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 said they were looking 
for a higher split price this time.  

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 in order to learn WMT's
coveted data systems and other technology. WMT will again be
listed as one of the "100 best companies to work for in America"
in an upcoming January issue of Forbes Magazine.

**January plays only have 2 weeks left**
BUY CALL JAN-75 WMT-AO OI=3277 at $7.13 SL=5.25, ITM
BUY CALL JAN-80 WMT-AP OI=4177 at $3.00 SL=1.50
BUY CALL FEB-80*WMT-BP OI=1051 at $5.38 SL=3.25
BUY CALL FEB-85 WMT-BQ OI= 702 at $2.88 SL=1.50
BUY CALL MAR-85 WMT-CQ OI=1537 at $4.13 SL=2.50

SELL PUT JAN-80 WMT-MP OI= 587 B=1.31 A=1.56 ROI=7.4%
 ** review the substantial risks in selling puts**
** this is a 2 week play **

Picked on Dec 6th at  $73.19            P/E = 42
Change since picked + $ 8.25            52 week low = 37.56
Analysts' ratings 7-10-4-0-0            52 week high= 82.75
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.  $61.19 (+1.19)(+2.75)(+4.06)(+2.31)(-.88)

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.

In the news last week, HD announced that homeowners can get
personalized home and garden tips from the HD website by signing up
for it HomeMinder service.  HomeMinder is a free, Internet based
reminder service that delivers bi-weekly home improvement tips to
the customers email address.  Also, a reminder about the positive
comments last week from several building products manufacturers
about strong sales in the fourth quarter which also equates to
strong sales for HD.

HD set a new 52 week high on Wednesday.  Actually, the gain that HD
posted last week all came from the move it made on Tuesday.  We
can't complain, HD keeps on setting new highs week after week, and
is on a nice extended run.  HD's 10 day moving average has just
about caught up with it and is currently at $59.30.  Once it catches
up, the expectation would be for HD to resume its current run. 
Remember the positive analysts comments from a couple of weeks ago
when they projected that HD would post a good fourth quarter.  

**January plays only have 2 weeks left**
BUY CALL JAN-60 HD-AL OI=7128 at $2.56 SL=1.25
BUY CALL FEB-60*HD-BL OI=2790 at $4.25 SL=2.50
BUY CALL MAY-65 HD-EM OI= 684 at $4.13 SL=2.50

Picked on Nov 29th at $51.75   PE = 51
Change since picked    +9.44   52 week low =$26.47
Analysts Ratings  8-12-8-0-0   52 week high=$62.00
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 $62.25 (+0.50)(+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 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.

Maytag is still on a roll.  It finished the week up +$0.50, making 
that six consecutive weeks ending with a net gain.  Maytag even set 
another intraday high at $64.50 this past Tuesday which will serve 
as its latest resistance level.  As we predicted, Maytag did fall 
to profit taking on Wednesday.  It lost $2.38.  But, that is actually 
good news.  The stock has consolidated and is starting another upward 
run as demonstrated on Friday when it finished up $0.25.  We still 
are predicting a split for Maytag.  This could possibly be announced 
as early as February 5th during earnings or as late as May when they 
hold their annual shareholder's meeting.  Regardless, Maytag is a 
steady, strong play.  

No new news for Maytag.

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

**January plays only have 2 weeks left**
BUY CALL JAN-60 MYG-AL OI= 715 at $3.13 SL=1.50
BUY CALL FEB-60 MYG-BL OI=  96 at $4.38 SL=2.75
BUY CALL APR-60*MYG-DL OI= 492 at $6.00 SL=4.25
BUY CALL APR-65*MYG-DM OI= 188 at $3.38 SL=1.50

Momentum play only

Chart = http://quote.yahoo.com/q?s=myg&d=3m
*******************************************
LOW - Lowe's Companies $51.19 (+.94)(+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. 

The last four trading days, we have had very little movement from
LOW. The high and low difference over the last week was just under
$2. Consolidation is common after some nice gains. Wait to see LOW
breakout above $52.25 before initiating new plays. This would be a
new 52-week high and would wipe out any resistance.  

LOW announced on Thursday that it expects to complete its $1 billion
stock-swap acquisition of Eagle Hardware & Garden (EAGL) late in the
first quarter of 1999. The two companies are currently working with
the FTC to provide needed information for its antitrust review. 
EAGL shareowners vote on the merger in February. This merger will
help LOW to increase its number of stores in the west. LOW would 
like to have 100 stores opened in the west in the next three to 
four years. EAGL operates 35 stores currently.

**January plays only have 2 weeks left**
BUY CALL JAN-50 LOW-AJ OI=822  at $2.63 SL=1.25 
BUY CALL FEB-50*LOW-BJ OI=459  at $4.13 SL=2.50
BUY CALL FEB-55 LOW-BK OI=113  at $1.94 SL=1.00
BUY CALL APR-55 LOW-DK OI=287  at $3.50 SL=1.75 

Picked on Dec.22nd at $48.38    PE=40
Changed since picked   +2.81    52-week low = $21.56
Analysts Ratings  8-11-4-0-0    52-week high= $52.19
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
*******************************************
Miscellaneous  - Sector
*******************************************
GDT-Guidant  $110.00 (-1.94)

A global leader in the medical device industry, Guidant provides 
innovative, minimally invasive products and services to treat 
cardiovascular and vascular disease. Its Cardiac Rhythm Management 
provides implantable defibrillators and pacemakers. Its Cardiac 
and Vascular Surgery Group provides minimally invasive surgical 
devices for advanced aparoscopic procedures. Its Vascular Intervention 
unit provides stents, guides, balloons, and other devices. Since its 
spin-off from Johnson and Johnson a few years back, GDT has become 
the #2 stent maker behind Arterial Vascular(AVE), and a leading maker 
of defibrillators. It was the first company to represent all three 
areas of vascular intervention products.

Guidant's stent "duet", already the top choice of surgeons in Europe 
and other foreign countries, now has FDA approval in the U.S. and 
promises to take market share away from Arterial Vascular (recently 
acquired by Medtronic). Furthermore, AVE's newest stent, the GFX2, 
has been delayed by 3 to 4 months from its originally expected date 
of launch, and that will help sales of the Duet. Competition from 
BSX, which is also making inroads against AVE, may be slowed due to 
problems BSX has had with accounting irregularities and with a faulty 
stent that injured 26 patients. 800,000 stents were implanted in 
500,000 patients last year, and in this country they cost about $1500 
each. Since they are only $600 in Canada, there will undoubtedly be 
future pricing pressures. However, GDT is not one to rest on its 
laurels. On Dec. 1, it launched Megalink, its first peripheral stent, 
and on Dec. 9, it launched the VENTAK MINI IV, the latest in a series 
of down-sized defibrillators.  It has stepped up R&D spending in a 
variety of areas, including some totally new ones, such as using 
radiation to prevent restenosis (plaque reformation). Its next 
generation of implantable defibrilators have even greater potential 
than its vascular intervention products (i.e. stents). And Angioplasty 
is the next wave. Guidant's stock has been rising since late October, 
and took off after the company declared a 2-for-1 stock split in the 
form of a 100% dividend to be distributed Jan. 27.  Guidant will 
eliminate future quarterly dividends and has called for senior 
management to maintain a minimum stock ownership of six to 15 times 
salary. This stock has momentum and the post-Christmas pull-back may 
represent an opportunity to get in on a pre-split run.

Guidant will be on Fortune's "100 Best Companies to work for in 
America" list in January. JP Morgan included GDT in its top picks 
for 1999. On a negative note, on Dec 22, St Jude Medical Inc. won 
$9.6 mln in a patent infringement against a unit of Guidant.
But it doesn't appear to have critically affected the stock.

**January plays only have 2 weeks left**
BUY CALL JAN-105 GDT-AA OI=216 at $7.88 SL= 6.00, ITM $5.00
BUY CALL JAN-110 GDT-AB OI=113 at $4.75 SL= 3.00
BUY CALL FEB-110*GDT-BB OI=138 at $8.25 SL= 6.25
BUY CALL FEB-115 GDT-BC OI=  5 at $6.13 SL= 4.25, caution-low OI
BUY CALL APR-115 GDT-DC OI= 13 at $9.13 SL= 6.75

Picked on Jan. 3rd at $110.00          PE = 44
Change since picked  +$  0.00          52 week low  =$ 51.00
Analysts Ratings  15-13-7-0-0          52 week high =$113.00
Last earnings on  9/98 est=.53  actual=.54   surprise=2%
Next earnings on  2-02 est=.55  versus=.51
Chart = http://quote.yahoo.com/q?s=gdt&d=3m
*******************************************
AGPH - Agouron Pharmaceuticals, Inc. $58.75 (+4.75)(P3W +8.50)

Agouron Pharmaceuticals sells medicines in 30 countries and
develops treatments for cancer, viral disease, and immuno-
inflammatory disease (including HIV, the common cold, 
cytomegalovirus infection, herpes, and hepatitis C.) The company 
utilizes genetic technology to engineer synthetic drugs for 
specifically targeted conditions. Viracept, its first commercial 
product (a protease inhibitor), treats the AIDS virus.  Other 
products under development include VEGF receptors and GART and MMP
inhibitors for treating solid tumors and metastases associated 
with cancer. Agouron spun off its oncology business as a new 
company.

Murphy's law still in effect - we drop it, it rebounds 10%.  AGPH 
has been a steady climber since early October's market recovery 
(except the week we dropped it).  AGPH set a new all-time closing 
high on average volume – no sellers.  Its only resistance is last 
Thursday's intraday high of $59.75.  AGPH definitely benefited 
from the strength of the NASDAQ last week and should continue as 
long as the market cooperates.  It tends to climb, rest and repeat 
in 2 week cycles. Technicals MACD, momentum, stochastic and RSI 
are maxed out positive.  Chart looks awesome and should give us a 
few strong days of price appreciation.  Of course, confirm 
direction and consider any dip a buying opportunity. Morgan 
Stanley had a target price of $54, now handily taken out

AGPH said December 3rd it would begin a Phase I trial (clinical 
trials) in England this month to fight the common cold virus using 
a protease inhibitor that it has developed.  The trial should last 
about a year.  December 16th, shareholders approved Agouron's Board 
of Directors to create divisional securities separately tracking 
the performance of its oncology operations and its non-oncology 
operations.  No other news since then, just momentum.

**January plays only have 2 weeks left**
BUY CALL JAN-55 GQA-AK OI= 670 at $5.00 SL $3.25
BUY CALL JAN-60 GQA-AL OI= 246 at $2.06 SL $1.00
BUY CALL FEB-55 GQA-BK OI= 467 at $7.25 SL $5.25 
BUY CALL FEB 60*GQA-BL OI= 156 at $4.75 SL $2.75 

Picked on January 3rd at   $ 58.75     PE=124
Change Since Picked       +$  0.00     52 Week High= 59.75
Analysts Ratings         3-6-4-0-0     52 Week Low = 19.25
Last Earnings 09/98 est. 0.20 actual 0.21  surprise 5.0% 
Next Earnings 01-18 est. 0.43 versus 0.15
Chart = http://quote.yahoo.com/q?s=AGPH&d=3m
*******************************************
TWX - Time Warner $62.06 (-.32)(+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. Time Warner is also 
involved in broadband data transmission, a wave of the future.
Subscriptions are mushrooming for its new "Roadrunner" service.

Cable companies represent a defensive investment choice because
their growth continues even in times of economic slowdown. TWX
produces about 15% cash flow driven by robust advertising demand 
for cable network programming. (About 40% of its cash flow comes
from its cable systems.) Viewer market share for the major
networks continues to slip and cable companies are the
beneficiaries. TWX may also soon enter into a joint venture with
AT&T to provide long distance service over its cable wires,
squeezing even more revenue from that system. In other
operations, TWX will benefit from this season's record Hollywood
box office and from a resurgence in the music industry. In
addition, DVD players and DVD disks are expected to come down
in price in the near future and that will help companies like
Time Warner, which has substantial music libraries from the LP
and CD days that will need to be re-issued. Analysts project
earnings growth of 13-15% next year. While Fred Moran at Furman
Selz sees stock price gains of 30% next year, Larry Petrella, at
Lehman Brothers, questions how far it can go. 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. If
it can clear the 63.13 high it set on Wednesday, Dec.30th; there
is no resistance above.

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.

**January plays only have 2 weeks left**
BUY CALL JAN-60.00 TWX-AL OI=3222 at $3.13 SL=1.50 
BUT CALL JAN-62.50 TWX-AT OI= 554 at $1.56 SL= .75
BUY CALL FEB-60.00*TWX-BL OI= 758 at $4.63 SL=2.75
BUY CALL FEB-65.00 TWX-BM OI=  47 at $2.19 SL=1.00 
BUT CALL MAR-65.00 TWX-CM OI=  93 at $3.25 SL=1.50 

Picked on Dec 22nd at  $59.50           P/E = n/a
Change since picked  + $ 2.56           52 week low = $29.06
Analysts' Ratings  6-13-1-0-0           52 week high= $62.94
Last earnings   9/98 est=-.04  actual= -.03  surprise:  25%
Next earnings 12/98 (expected 2/10)est=.07 versus=.03 
Chart = http://quote.yahoo.com/q?s=TWX&d=3m
*************************************************************
PUTS, PUTS, PUTS
*************************************************************
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.
*************************************************************

This marks the beginning of OptionInvestor.comıs expanded Put
advisory service. This section, updated by Pinnacle Capital
Advisors, is designed to provide subscribers a balanced
attacked by highlighting the best hedge or short candidates
to enable to profit from market corrections and breakdowns.

Investors who believe the market or individual sector will go
down are BEARISH and can benefit from our short option
strategies and PUT recommendations.

Each week, our team of experienced hedge analysts and traders
will be reviewing a broad range of short opportunities from
several perspectives - Fundament and Technical and Sentiment.

Fundamental:
Underperforming Sectors
Earnings Warnings 
Downgrades

Technical: 
Breakdowns
Failed Rallies

Sentiment:
Overextended Sectors
Great Expectations 


Beginning from a Fundamental perspective, we provide
subscribers a top-down look at under-performing industry
sectors to isolate and identify the best opportunities. 
A separate, dedicated section will be maintained to summarize
all optionable stocks that have issued earnings warnings or
have been downgraded by analysts.

Finally, we will provide a unique section that scans
optionable securities based upon over-extended securities and
that could be subject to a precipitous sell-off if
expectations are not met. These typically occur during
earnings season.


Types of Industry Sectors

In response to subscriber demand, the focus of our
recommendations will center around the most frequently traded
industry sector including, technology, financials,
pharmaceutical, and biotech, among others. 

Earnings Warnings

The following are the recent Earnings Warnings that have been
issued by corporations as well as our recommended put
recommendations.

*************************************************************
Company/Symbol Warning
*************************************************************

12/29 Halliburton Company (HAL) - $29.63 
Q4 (12/98) will be $0.14-0.16 vs estimate of $0.37 
PUT FEB-30 HAL-NF OI=339 at $2.50 SL=1.25

12/28 Network Equipment (NWK) ­ $10.25 
Q3 (12/98) will be "significantly" below estimate of $0.20 
PUT FEB-12.5 NWK-NV OI=20 at $2.00 SL=1.00

12/28 Premisys Comms (PRMS) ­ $9.19
Q2 (12/98) will be $0.08-0.10 vs estimate of $0.15 
PUT FEB-10 RQS-NB OI=10 at $1.50 SL=.75


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



Downgrades

The following are the recent Downgrades issued by brokerage
firms as well as our recommended put recommendations.

*************************************************************
Company/Symbol
Brokerage Firm Downgrade From: Downgrade To:
*************************************************************


12/31 Ruby Tuesday (RI) - $21.25
Wheat First Union Outperform Hold 
PUT APR-20 RI-PD OI=644 at $.94 SL=.50


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



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
Pinnacleıs 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. 

Failed Rallies
*************************************************************
Company/Symbol/Last Trade Entry / Stop Loss 
Entry/Exit Date Gain/Loss(+/-)
*************************************************************
Semiconductors:
*************************************************************

Texas Inst (TXN) - $85.63 

BUY PUT FEB-85 TXN-NQ OI=16 at $5.00 SL= 3.50
BUY PUT FEB-80 TXN-NP OI=517 at $3.25 SL= 1.75

Micron Tech (MU) - $50.56 

BUY PUT FEB-50 MU-NJ OI=220 at $4.50 SL= 2.75
BUY PUT FEB-45 MU-NI OI=953 at $2.38 SL= 1.25


Software:
*************************************************************
BMC Software (BMCS) - $44.56 

BUY PUT FEB-45 BCQ-NI OI=1290 at $4.50 SL= 3.00
BUY PUT FEB-40 BCQ-NH OI=458 at $2.38 SL= 1.25


Drug:
*************************************************************
Eli Lilly (LLY) - $88.88 

BUY PUT FEB-85 LLY-NQ OI=832 at $2.88 SL= 1.25
BUY PUT FEB-80 LLY-NP OI=122 at $1.25 SL= .50

Merck (MRK) - $147.50 

BUY PUT FEB-145 MRK-NI OI=105 at $4.63 SL= 2.75
BUY PUT FEB-140 MRK-NH OI=78 at $3.50 SL= 2.25


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




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






The Option Investor Newsletter            1-3-98
Sunday                5  of  6
© 1998 The Option Investor Newsletter. - All Rights Reserved
******************************************************************
COVERED CALL SECTION FOR JANUARY 3, 1999
******************************************************************
Will the DOW confirm the NASDAQ and the S&P 500 record highs?

Wall Street finished a year dominated by mixed signals with the
DJIA falling 93 points to close at 9181.43 while the Nasdaq Index
advanced 25.74 to set a new all-time closing high at 2192.69. The
Russell 2000 index of small-cap stocks vaulted 10 points to finish
at 421.96. This closing performance by the RUTX was its best since
October (though not a new high) and may signal that the small-caps
are ready to move while the 'leaders' correct.

January is usually a strong market month and most investors have
come to expect a surge of buying often termed the "January effect".
However, we enter the New Year in a very narrow market led by the 
Internet and High-tech stocks while the Dow (lagging the S&P 500)
has twice failed to set a new high. Some analysts are warning
that the current stock market pace is just not sustainable given
the upcoming 4th QTR earnings. The profit outlook is bleak and 40%
of the world's economies are still in a recession. Slower growth,
slimmer corporate profits and the impact of the recent financial
crisis will plague the market for months to come. Most experts
just don't believe that investors can continue to overcome the
fundamentals with "irrational exuberance" and they all say a big
correction for the Internet sector is inevitable.

We plan to avoid the stampede and remain well clear when everyone
starts rushing for the doors. More than ever, we value downside
protection (expecting some profit taking) and will concentrate on
the small-caps to take advantage of any seasonal effects. This
week's recommendations are slightly more defensive, balancing our
risk-reward tolerance while striving for favorable returns and
still retaining the ultimate goals: 1. Increasing portfolio value;
and 2. Preservation of capital. Good Luck!
******************************************************************
SUMMARY OF PREVIOUS PICKS (2 weeks to the January strike date)
******************************************************************
Stock  Price  Currnt Mon-Strike Opt    Profit   ROI  Annual
Sym    Picked Price      Price  Bid    /Loss         ROI 

DOSE    4.06   6.00  Jan- 5.00  0.50  *$ 1.44   40%  352%
MCHM    8.25   8.44  Jan- 7.50  1.63  *$ 0.88   13%  139%
FILE   10.38  11.47  Jan-10.00  1.44  *$ 1.06   12%  124%
NTKI   15.75  13.06  Jan-12.50  4.00  *$ 0.75    6%  111%
NOVT   24.06  28.38  Jan-22.50  2.88  *$ 1.32    6%  108%
WAVO    9.38   8.03  Jan- 7.50  2.31  *$ 0.43    6%  106%
SPYG   20.88  22.00  Jan-17.50  4.38  *$ 1.00    6%  105%
BMP    24.56  24.31  Jan-20.00  6.00  *$ 1.44    8%  101%
ITVU   13.25  12.75  Jan-10.00  4.13  *$ 0.88   10%  101%
VRTY   22.50  26.50  Jan-20.00  4.13  *$ 1.63    9%   93%
HDL    12.94  13.88  Jan-12.50  1.44  *$ 1.00    9%   91%
SYBS    7.81   7.41  Jan- 7.50  0.94   $ 0.54    8%   82%
PPRT   13.88  13.13  Jan-12.50  2.25  *$ 0.87    7%   78%
EOG    16.94  17.25  Jan-15.00  2.75  *$ 0.81    6%   74%
PPOD    6.75   6.81  Jan- 5.00  2.13  *$ 0.38    8%   71%
MANU   13.75  12.50  Jan-10.00  4.25  *$ 0.50    5%   69%
VIRS   12.75  13.63  Jan-10.00  3.25  *$ 0.50    5%   69%
VOLVY  23.75  23.31  Jan-20.00  4.75  *$ 1.00    5%   69%
MICA   17.13  15.38  Jan-12.50  5.25  *$ 0.62    5%   68%
MWHS   28.38  33.81  Jan-25.00  5.13  *$ 1.75    8%   65%
VSVR   16.75  18.38  Jan-15.00  2.44  *$ 0.69    5%   63%
SDTI   18.31  23.00  Jan-15.00  4.13  *$ 0.82    6%   60%
PTVL   14.69  18.44  Jan-10.00  5.13  *$ 0.44    5%   60%
ABTX   12.69  12.94  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   9.50  Jan-10.00  2.19   $ 0.38    4%   36%
IMNR   13.13  10.88  Jan-12.50  2.00   $-0.25   -2%    0%
CYLKE   4.31   3.63  Jan- 5.00  0.50   $-0.18   -5%    0%
TERA    7.88   6.25  Jan- 7.50  1.19   $-0.44   -7%    0%
TDFX   16.44  12.63  Jan-15.00  2.44   $-1.37  -10%    0%
APLX    4.94   3.88  Jan- 5.00  0.63   $-0.43  -10%    0%
---------------------------------------------------------
SDTI   22.00  23.00  Feb-20.00  4.38  *$ 2.38   14%   88%
NSTA   26.25  26.63  Feb-25.00  4.13  *$ 2.88   13%   85%
GALTF  25.50  27.00  Feb-22.50  5.38  *$ 2.38   12%   77%
PTVL   18.38  18.44  Feb-12.50  6.88  *$ 1.00    9%   57%

-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).
				*** LOSING PLAYS ***
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.
******************************************************************
NEW PICKS   
******************************************************************
Definitions:
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   
CYCH   15.00  Jan-12.50  KBQ AV 3.00 363    12.00   4.17%   4.17%
DBCC   17.81  Jan-12.50  BQD AV 5.63 1572   12.19   2.56%   2.56%
DBCC   17.81  Jan-15.00  BQD AC 3.63 2324   14.19   5.73%   5.73%
EGGS   20.88  Jan-17.50  EGQ AW 4.00 344    16.88   3.70%   3.70%
MCHM    8.44  Jan- 7.50   QQ AU 1.38 213     7.06   6.19%   6.19%
-----------------------------------------------------------------
ARTT    7.38  Feb- 5.00  AOQ BA 2.75 449     4.63   8.11%   8.11%
ARTT    7.38  Feb- 7.50  AOQ BU 1.13 92      6.25  20.00%  18.00%
BID    32.25  Feb-30.00  BID BF 5.88 70     26.38  13.74%  13.74%
CHRX   21.38  Feb-20.00  RHQ BD 3.13 333    18.25   9.59%   9.59%
MCRE    5.38  Feb- 5.00  MQZ BA 1.25 874     4.13  21.21%  21.21%
NEWZ   11.63  Feb-10.00  QBE BB 2.44 179     9.19   8.84%   8.84%
PPOD    6.81  Feb- 5.00  QPP BA 2.31 156     4.50  11.11%  11.11%
TOK     9.75  Feb-10.00  TOK BB 1.63 40      8.13  23.08%  20.00%
******************************************************************
Sequenced by Return Called 
******************************************************************
Stock  Price  Mon-Strike Option Opt  Open   Cost   RC      RNC
Sym               Price  Symbol Bid  Intr   Basis   
MCHM    8.44  Jan- 7.50   QQ AU 1.38 213     7.06   6.19%   6.19%
DBCC   17.81  Jan-15.00  BQD AC 3.63 2324   14.19   5.73%   5.73%
CYCH   15.00  Jan-12.50  KBQ AV 3.00 363    12.00   4.17%   4.17%
EGGS   20.88  Jan-17.50  EGQ AW 4.00 344    16.88   3.70%   3.70%
DBCC   17.81  Jan-12.50  BQD AV 5.63 1572   12.19   2.56%   2.56%
-----------------------------------------------------------------
TOK     9.75  Feb-10.00  TOK BB 1.63 40      8.13  23.08%  20.00%
MCRE    5.38  Feb- 5.00  MQZ BA 1.25 874     4.13  21.21%  21.21%
ARTT    7.38  Feb- 7.50  AOQ BU 1.13 92      6.25  20.00%  18.00%
BID    32.25  Feb-30.00  BID BF 5.88 70     26.38  13.74%  13.74%
PPOD    6.81  Feb- 5.00  QPP BA 2.31 156     4.50  11.11%  11.11%
CHRX   21.38  Feb-20.00  RHQ BD 3.13 333    18.25   9.59%   9.59%
NEWZ   11.63  Feb-10.00  QBE BB 2.44 179     9.19   8.84%   8.84%
ARTT    7.38  Feb- 5.00  AOQ BA 2.75 449     4.63   8.11%   8.11%
******************************************************************
Sequenced by Return Not Called
******************************************************************
Stock  Price  Mon-Strike Option Opt  Open   Cost   RC      RNC
Sym               Price  Symbol Bid  Intr   Basis   
MCHM    8.44  Jan- 7.50   QQ AU 1.38 213     7.06   6.19%   6.19%
DBCC   17.81  Jan-15.00  BQD AC 3.63 2324   14.19   5.73%   5.73%
CYCH   15.00  Jan-12.50  KBQ AV 3.00 363    12.00   4.17%   4.17%
EGGS   20.88  Jan-17.50  EGQ AW 4.00 344    16.88   3.70%   3.70%
DBCC   17.81  Jan-12.50  BQD AV 5.63 1572   12.19   2.56%   2.56%
-----------------------------------------------------------------
MCRE    5.38  Feb- 5.00  MQZ BA 1.25 874     4.13  21.21%  21.21%
TOK     9.75  Feb-10.00  TOK BB 1.63 40      8.13  23.08%  20.00%
ARTT    7.38  Feb- 7.50  AOQ BU 1.13 92      6.25  20.00%  18.00%
BID    32.25  Feb-30.00  BID BF 5.88 70     26.38  13.74%  13.74%
PPOD    6.81  Feb- 5.00  QPP BA 2.31 156     4.50  11.11%  11.11%
CHRX   21.38  Feb-20.00  RHQ BD 3.13 333    18.25   9.59%   9.59%
NEWZ   11.63  Feb-10.00  QBE BB 2.44 179     9.19   8.84%   8.84%
ARTT    7.38  Feb- 5.00  AOQ BA 2.75 449     4.63   8.11%   8.11%
******************************************************************
Company Descriptions
******************************************************************
      SHORT TERM PLAYS WITH JANUARY STRIKES - TWO WEEKS
******************************************************************
CYCH - CyberCash, Inc. $15.00  *** Internet Momentum ***
CYCH is a provider of technology and services to enable secure 
electronic payments via cash, payment cards and checks.  Recently
combined with Oracle's Internet payment services and on 12/21 was
selected by Barclays Merchant Services as the foundation of 
Britain's first bank-owned Internet payment system.  Stock is 
showing increased buying pressure after recently testing it's
200 dma with increased volume.
JAN 12.50 KBQ-AV BID=3.00 OI=363 CB=12.00 RC=4.17% RNC=4.17%
(9.1% return - monthly basis)
Chart = http://quote.yahoo.com/q?s=CYCH&d=3m
******************************************************************
DBCC - Data Broadcasting Corp.  $17.81   *** Internet IPO ***
DBCC distributes financial data and business information on a
subscription basis to investors and businesses. DBCC jumped $3 in
response to a BW news article, bolstering the highly anticipated
IPO of Marketwatch.com, a joint venture of DBCC and CBS Corp. The
IPO is expected to "blast-off" like other recent Internet IPOs. A
very bullish chart with heavy volume/buying pressure propelling
the stock price upward.
Conservative (5.6% return - monthly basis)
JAN 12.50 BQD-AV BID=5.63 OI=1572 CB=12.19 RC=2.56% RNC=2.56%
Aggressive (12.4% return - monthly basis)
JAN 15.00 BQD-AC BID=3.63 OI=2324 CB=14.19 RC=5.73% RNC=5.73%
Chart = http://quote.yahoo.com/q?s=dbcc&d=3m
******************************************************************
EGGS - Egghead.Com, Inc.  $20.88  *** Internet Momentum ***
EGGS is a reseller of PC software, hardware and related products 
through its subsidiaries (DJ&J Software, Surplus Direct, Surplus 
Software, and EH Direct). Egghead closed all it's retail outlets
and is now a strictly Internet site, which was recently revamped.
On a strong up trend since Oct with recent correction providing
a good entry point. Play with positive market movement.
JAN 17.50 EGQ-AW BID=4.00 OI=344 CB=16.88 RC=3.70% RNC=3.70%
(8.1% return - monthly basis)
Chart = http://quote.yahoo.com/q?s=eggs&d=3m
******************************************************************
MCHM - MachroChem Corp.  $8.44  *** Pharmaceuticals ***
MacroChem Corp. engages in the development and commercialization
of transdermal drug delivery compounds and systems designed to
promote the delivery of drugs from the surface of the skin into
the skin and bloodstream. The most recent development is the new
preliminary review of a Phase IIB study of Topiglan. This topical
gel formulation of alprostadil for the treatment of male erectile
dysfunction indicates the application is effective in increasing
penile rigidity in patients with significant erectile dysfunction.
Solid technical support at $7.50.
JAN 7.50 QQ-AU BID=1.38 OI=213 CB=7.06 RC=6.19% RNC=6.19%
(13.5% return - monthly basis)
Chart = http://quote.yahoo.com/q?s=mchm&d=3m
******************************************************************
        FEBRUARY PLAYS - 7 WEEKS TO STRIKE DATE
******************************************************************
ARTT - Advanced Radio Telecom $7.38  *** HOT SECTOR ***
ARTT provides wireless broadband telecommunications services 
using microwave transmissions (38GHz band) throughout the U.S.
Just announced that it is offering high-speed Internet services
to businesses in the Phoenix and Portland metropolitan areas.
Buying pressure increasing as the current up trend has moved 
above the recent stage I base.
Conservative:
FEB 5.00 AOQ-BA BID=2.75 OI=449 CB=4.63 RC=8.11% RNC=8.11%
Aggressive:
FEB 7.50 AOQ-BU BID=1.13 OI=92  CB=6.25 RC=20.0% RNC=18.0%
Chart = http://quote.yahoo.com/q?s=ARTT&d=3m
******************************************************************
BID - Sotheby's Holdings, Inc. $32.25  *** Rumors ***
BID is an auctioneer of fine arts, antiques and collectibles and
is also engaged in art-related financing, marketing and brokering
of luxury real estate and art education and restoration. The
company continues to deny comment on the stock's recent volatility.
Rumors of "Internet" auction site abound with recent downgrades
and then upgrades? The exchange thinks something is brewing...
Stock is above all resistance with a recent gap-up move on strong
volume...hmmmm
FEB 30.00 BID-BF BID=5.88 OI=70 CB=26.38 RC=13.74% RNC=13.74%
Chart = http://quote.yahoo.com/q?s=BID&d=3m
******************************************************************
CHRX - ChiRex Inc. $21.38  *** Pharmaceuticals ***  
ChiRex Inc. is a contract manufacturing organization serving the 
outsourcing needs of the pharmaceutical industry through its fine 
chemical manufacturing and process development capabilities and 
proprietary technologies. In a strong up trend since Oct low with
recent up-grade, new VP, and filing for $100 mil shelf. Closed 
with a new 6 month high on good volume and strong buying pressure.
FEB 20.00 RHQ-BD BID=3.13 OI=333 CB=18.25 RC=9.59% RNC=9.59%
Chart = http://quote.yahoo.com/q?s=CHRX&d=3m
******************************************************************
MCRE - MetaCreations Corporation $5.38
MCRE designs, develops, publishes, markets and supports visual 
computing software tools for the creation/editing/manipulation of 
computer graphic images and digital art. Gapped up end of Nov with
news of inclusion in MS Windows 98.  New trading range seems to 
be $4.50 to $5.50 with indications of a possible move up and out
of current stage I base with two short term buy signals evident.
FEB 5.00 MQZ-BA BID=1.25 OI=874 CB=4.13 RC=21.21% RNC=21.21%
Chart = http://quote.yahoo.com/q?s=MCRE&d=3m
******************************************************************
NEWZ - NewsEDGE Corporation  $11.63  ***Internet News ***
NEWZ provides customized, real-time news/information to workers 
over their organizations' local area network. Revenues are up and
3Q EPS improve to $0.05 loss as NEWZ moves to real time streaming 
headlines and access to the Dow Jones Interactive's Publication 
Library. A short term Head-and-Shoulders bottoms is apparent and
Newz is breaking out of with strong short term buy signals.
FEB 10.00 QBE-BB BID=2.44 OI=179 CB=9.19 RC=8.84% RNC=8.84%
Chart = http://quote.yahoo.com/q?s=NEWZ&d=3m
******************************************************************
PPOD - Peapod, Inc. $6.81  *** Internet Groceries ***
Peapod is an interactive, online grocery shopping and delivery 
company and a provider of targeted media and research services.
Now that the groceries are moving let the advertising begin...
We will take advantage of the strong support above $5 and sell
another ITM call.  Recent short term buy signals have triggered
after recovery from Eiffel tower formation.
FEB 5.00 QPP-BA BID=2.31 OI=156 CB=4.50 RC=11.11% RNC=11.11%
Chart = http://quote.yahoo.com/q?s=ppod&d=3m
******************************************************************
TOK - Tokheim Corporation  $9.75 *** Stage I base ***
Tokheim Corp. manufactures & services electronic and mechanical 
petroleum dispensing systems, including point-of sale systems and 
pay-at-the-pump terminals. Technical play on a gradual up trend 
out of a stage I base. Stock is slowly moving into an old trading
range from $9 to $10.50 as the technicals strengthen.
FEB 10.00 TOK-BB BID=1.63 OI=40 CB=8.13 RC=23.08% RNC=20.00%
Chart = http://quote.yahoo.com/q?s=TOK&d=3m


************************************************************
CALLS STRICTLY PERCENTAGE LIST
************************************************************
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 
start.

Stock     Price  Month  Strike   Symbol    Price  PctRtn   Vol   OpnInt
ZITL      4.25  Jan    5.00   ZQIAA    0.56  13.24   608   2268
ESST      5.00  Jan    5.00   SEQAA    0.63  12.50    40    748
SMTK      2.66  Jan    5.00   QMMAA    0.31  11.76   449   2276
UWW       7.25  Jan    7.50   UWWAU    0.81  11.21     3    205
BTIM     17.38  Jan   17.50   QBOAW    1.88  10.79     8    392
TMAR      4.88  Jan    5.00   MUQAA    0.50  10.26    90    180
ZILA      9.88  Jan   10.00   QWCAB    1.00  10.13   288   1818
SPLH      7.44  Jan    7.50   QRXAU    0.75  10.08    30    131
CYCH     15.00  Jan   15.00   KBQAC    1.50  10.00   150   4011
XTO       7.50  Jan    7.50   XTOAU    0.75  10.00    15     20
MANU     12.50  Jan   12.50   ZUQAV    1.25  10.00    64   1398
BTIM     17.38  Feb   17.50   QBOBW    3.88  22.30   149     44
CNDS      5.00  Feb    5.00   KQNBA    1.06  21.25     2     24
ZITL      4.25  Feb    5.00   ZQIBA    0.88  20.59   501    895
UWW       7.25  Feb    7.50   UWWBU    1.44  19.83    50    591
OMKT     11.69  Feb   12.50   OQMBV    2.31  19.79   100    836
SMTK      2.66  Feb    5.00   QMMBA    0.50  18.82   135   1643
ESST      5.00  Feb    5.00   SEQBA    0.94  18.75    12     27
TOK       9.50  Feb   10.00   TOKBB    1.69  17.76   149     40
NTKI     13.06  Feb   15.00   QNKBC    2.25  17.22    56     72
MANU     12.50  Feb   12.50   ZUQBV    2.13  17.00     9    128
ARTT      7.50  Feb    7.50   AOQBU    1.25  16.67    51     92
PPOD      6.81  Feb    7.50   QPPBU    1.13  16.51    58    327
ZAP      12.25  Feb   12.50   ZAPBV    2.00  16.33    56    503
TERA      6.25  Feb    7.50   QIPBU    1.00  16.00    40    257
SIR       4.88  Feb    5.00   SIRBA    0.75  15.38     4   1346
SPLN     15.56  Feb   17.50   QSPBW    2.38  15.26     5     40
EGGS     20.81  Feb   22.50   EGQBX    3.13  15.02    62    123
DANKY     4.19  Feb    5.00   DNQBA    0.63  14.93    37   1111
BNYN      8.88  Feb   10.00   QYNBB    1.31  14.79    54    145
OMPT      9.31  Feb   10.00   QTTBB    1.38  14.77    63    743
ZD       15.81  Feb   17.50    ZDBW    2.31  14.62   126   1303
HYSL     18.00  Feb   20.00   WQEBD    2.63  14.58    81    339
STRX     12.19  Feb   12.50   TQQBV    1.75  14.36    10    275
RAYS      7.00  Feb    7.50   RQYBU    1.00  14.29    14    264
PTVL     18.44  Feb   20.00   QUTBD    2.63  14.24    11    260
TMAR      4.88  Feb    5.00   MUQBA    0.69  14.10    10    163
CBTSY    14.88  Feb   15.00   QAGBC    2.06  13.87    17    863
TALK     16.75  Feb   17.50   QQKBW    2.31  13.81   585    232
ESTI      7.31  Feb    7.50   ELQBU    1.00  13.68   205     15
CIEN     14.63  Feb   15.00   EUQBC    2.00  13.68   129   1030
IOM       7.31  Feb    7.50   IOMBU    1.00  13.68   356  12590
PRMS      9.19  Feb   10.00   RQSBB    1.25  13.61    15     53
PTEK      7.38  Feb    7.50   TQOBU    1.00  13.56    36   1377
EGGS     20.81  Feb   25.00   EGQBE    2.81  13.51   146    607
ACAI     25.00  Feb   25.00   QKABE    3.38  13.50     5     58
SCUR     19.06  Feb   20.00   UQUBD    2.56  13.44     5     74
VIAS      7.00  Feb    7.50   QVVBU    0.94  13.39   102    542
NBTY      7.13  Feb    7.50   NBQBU    0.94  13.16   176    139
CLCX      6.69  Feb    7.50   QXTBU    0.88  13.08    23   1013
DSTM     11.50  Feb   12.50   DQKBV    1.50  13.04    13    305
SPGLA     5.75  Feb    7.50   SQEBU    0.75  13.04    56    561
OXHP     14.88  Feb   15.00   OQXBC    1.94  13.03   111   3317
HQ       22.25  Feb   22.50    HQBX    2.88  12.92    30    135
WSTL      4.88  Feb    5.00   QLWBA    0.63  12.82    20    231
TWA       4.88  Feb    5.00   TWABA    0.63  12.82    80    105
DIMD      6.38  Feb    7.50   DAQBU    0.81  12.75    69     79
SIII      7.36  Feb    7.50   SQIBU    0.94  12.74    31     65
SCTC     13.75  Feb   15.00   YQSBC    1.75  12.73     5    107
GEMS      4.44  Feb    5.00   GQMBA    0.56  12.68    30     56
IFMX      9.88  Feb   10.00   IFQBB    1.25  12.66   754   2137
MCHM      8.44  Feb   10.00    QQBB    1.06  12.59    27    158
CEPH      9.00  Feb   10.00   CQEBB    1.13  12.50   182   2309
PAH       6.00  Feb    7.50   PAHBU    0.75  12.50    34    799
SDTI     23.00  Feb   25.00   QSDBE    2.88  12.50    38     75
DOSE      6.00  Feb    7.50   XUQBU    0.75  12.50    27     84
WAVO      8.03  Feb   10.00   WKQBB    1.00  12.45    36    970
NTKI     13.06  Feb   17.50   QNKBW    1.63  12.44    30    238
IDC       4.56  Feb    5.00   IDCBA    0.56  12.33   228    735
BEAS     12.25  Feb   12.50   BRQBV    1.50  12.24     7     53
CDE       4.63  Feb    5.00   CDEBA    0.56  12.16    10    825
ABTE      5.75  Feb    7.50   QZBBU    0.69  11.96   136     10
ADAC     19.97  Feb   20.00   QABBD    2.38  11.89     2     11
SAVLY    19.00  Feb   20.00   QVYBD    2.25  11.84     2    356
SYBS      7.41  Feb    7.50   SBQBU    0.88  11.81   487    101
ZITL      4.25  Feb    7.50   ZQIBU    0.50  11.76    72   1100
CREAF    15.00  Feb   15.00   RFQBC    1.75  11.67    17     88
PTI      18.88  Feb   20.00   PTIBD    2.19  11.59    20    136
BFT      24.88  Feb   25.00   BFTBE    2.88  11.56   123    250
MANU     12.50  Feb   15.00   ZUQBC    1.44  11.50     5    186
PHMX      2.19  Feb    5.00   YQXBA    0.25  11.43    35    568
RDC       9.88  Feb   10.00   RDCBB    1.13  11.39   102     63
SPYG     22.00  Feb   25.00   YQGBE    2.50  11.36    14     80
MMCN     13.25  Feb   15.00   CMQBC    1.50  11.32     6     58
PLC       3.88  Feb    5.00   PLCBA    0.44  11.29   120     71
NEWZ     11.63  Feb   12.50   QBEBV    1.31  11.29     6     10
BGP      24.94  Feb   25.00   BGPBE    2.81  11.28    34   1096
TLXN     13.88  Feb   15.00   TNQBC    1.56  11.26   140     66
AKLM     12.25  Feb   12.50   KKQBV    1.38  11.22    70    276
REGI      6.13  Feb    7.50   QRGBU    0.69  11.22    87    124
SEV       6.69  Feb    7.50   SEVBU    0.75  11.21    10     61
FEET     17.38  Feb   17.50   JQFBW    1.94  11.15    14     21
NFLD     12.38  Feb   12.50   DHQBV    1.38  11.11    40    378
VC        4.50  Feb    5.00    VCBA    0.50  11.11    85    162
HS       16.94  Feb   17.50    HSBW    1.88  11.07     7    129
DGN      16.44  Feb   17.50   DGNBW    1.81  11.03     3    223
IMCL      9.06  Feb   10.00   QCIBB    1.00  11.03    35    315
PRST      6.81  Feb    7.50   PQKBU    0.75  11.01    10    138
SFAM     17.13  Feb   17.50   FQFBW    1.88  10.95   139      5
DDIM      8.56  Feb   10.00    QMBB    0.94  10.95   160    392
CELL     13.75  Feb   15.00   QEFBC    1.50  10.91    65    178
CCC       7.50  Feb    7.50   CCCBU    0.81  10.83    38    336
CYCH     15.00  Feb   17.50   KBQBW    1.63  10.83    25    544
BTGC      6.94  Feb    7.50   QTGBU    0.75  10.81    50     84
DMRK      8.13  Feb   10.00   DQNBB    0.88  10.77    40     30
IFSIA     9.28  Feb   10.00   IQGBB    1.00  10.77    10     33
PTEN      4.06  Feb    5.00   NZQBA    0.44  10.77   125    457
OMKT     11.69  Feb   15.00   OQMBC    1.25  10.70    70    820
PSUN     16.38  Feb   17.50   PVQBW    1.75  10.69   133     35
KEG       4.69  Feb    5.00   KEGBA    0.50  10.67    10     65
PAGE      4.69  Feb    5.00   PGQBA    0.50  10.67    60    224
ABTX     12.94  Feb   15.00   QXQBC    1.38  10.63   289    492
BRKT     17.13  Feb   17.50   BUQBW    1.81  10.58     7     90
FORE     18.31  Feb   20.00   FQOBD    1.94  10.58   465    122
PSFT     18.94  Feb   20.00   PQOBD    2.00  10.56   310   1181
COPI      4.75  Feb    5.00   QADBA    0.50  10.53    20     10
TSEMF     9.50  Feb   10.00   TWQBB    1.00  10.53    29     57
WAXS     21.38  Feb   22.50   WXQBX    2.25  10.53   136     22
TWMC     19.06  Feb   20.00   TQTBD    2.00  10.49     2     20
SHG       6.56  Feb    7.50   SHGBU    0.69  10.48    15     64
MUEI     17.31  Feb   17.50   MQUBW    1.81  10.47    20     45
MTZ      21.00  Feb   22.50   MTZBX    2.19  10.42    10    130
SQNT     12.06  Feb   12.50   SQQBV    1.25  10.36     3     35
FILE     11.47  Feb   12.50   ILQBV    1.19  10.35     9     82
AMD      29.00  Feb   30.00   AMDBF    3.00  10.34   261    579
TRMB      7.25  Feb    7.50   TRQBU    0.75  10.34    10      3
OTEXF    24.31  Feb   25.00   QFTBE    2.50  10.28     3     22
PDLI     23.25  Feb   25.00   PQIBE    2.38  10.22    50    101
ZOLT      9.19  Feb   10.00   QOTBB    0.94  10.20    65     30
RON      24.50  Feb   25.00   RONBE    2.50  10.20    70    101
AND       9.81  Feb   12.50   ANDBV    1.00  10.19    10   1810
TKLC     16.56  Feb   17.50    KQBW    1.69  10.19     5     84
IHS      14.13  Feb   15.00   IHSBC    1.44  10.18     8     28
WIRE      9.25  Feb   10.00   QWRBB    0.94  10.14    21    219
PZX      11.13  Feb   12.50   PZXBV    1.13  10.11    10     80
CLST      6.81  Feb    7.50   EQLBU    0.69  10.09   606   1224
IVX      12.44  Feb   12.50   IVXBV    1.25  10.05   530    166
MIR      14.94  Feb   15.00   MIRBC    1.50  10.04   200   1450
DRMD      3.75  Feb    5.00   DUQBA    0.38  10.00    30     22
SOC       6.88  Feb    7.50   SOCBU    0.69  10.00   559    150
LDRY      7.50  Feb    7.50   YQRBU    0.75  10.00    10     10
BTIM     17.38  Mar   17.50   QBOCW    5.00  28.78    45    664
ZITL      4.25  Mar    5.00   ZQICA    1.19  27.94   178   3551
MCDE      3.88  Mar    5.00   UCQCA    1.06  27.42     5     55
CNDS      5.00  Mar    5.00   KQNCA    1.31  26.25     5    227
TERA      6.25  Mar    7.50   QIPCU    1.56  25.00     4   1944
EGGS     20.81  Mar   22.50   EGQCX    4.38  21.02   112    513
CYCH     15.00  Mar   15.00   KBQCC    3.13  20.83    30    419
ENER      7.25  Mar    7.50   EQICU    1.50  20.69    16   1180
VLNC      7.25  Mar    7.50   VHQCU    1.50  20.69    30    631
HLX       4.88  Mar    5.00   HLXCA    1.00  20.51    30     53
VIRS     13.63  Mar   15.00   VQPCC    2.75  20.18    20    103
DRMD      3.75  Mar    5.00   DUQCA    0.75  20.00     4   1103
PAGE      4.69  Mar    5.00   PGQCA    0.94  20.00   250    639
OSIP      3.19  Mar    5.00   QONCA    0.63  19.61    20    370
MCHM      8.44  Mar   10.00    QQCB    1.63  19.26    10    722
RAYS      7.00  Mar    7.50   RQYCU    1.31  18.75    20    886
TLXN     13.88  Mar   15.00   TNQCC    2.56  18.47   149    276
RCNC     17.69  Mar   20.00   RBQCD    3.25  18.37    17    306
CWC       9.13  Mar   10.00   CWCCB    1.63  17.81    10     44
AAM       3.19  Mar    5.00   AAMCA    0.56  17.65    71   1987
EGGS     20.81  Mar   25.00   EGQCE    3.50  16.82    40    741
IDC       4.56  Mar    5.00   IDCCA    0.75  16.44    10   4553
ZITL      4.25  Mar    7.50   ZQICU    0.69  16.18    51   1308
CELL     13.75  Mar   15.00   QEFCC    2.19  15.91   128    802
CATP     22.13  Mar   22.50   TQPCX    3.50  15.82    11    168
NBTY      7.13  Mar    7.50   NBQCU    1.13  15.79    65   1709
BEAM      4.38  Mar    5.00   BAQCA    0.69  15.71    50   1487
CYGN      4.88  Mar    5.00   YNQCA    0.75  15.38     5    492
IHS      14.13  Mar   15.00   IHSCC    2.13  15.04    25   1691
PPOD      6.81  Mar   10.00   QPPCB    1.00  14.68     5    352
DOSE      6.00  Mar    7.50   XUQCU    0.88  14.58   215    872
MRVT     12.88  Mar   15.00   SQDCC    1.88  14.56    25    185
VVUS      2.59  Mar    5.00   VVQCA    0.38  14.46   101   1589
FEN       2.63  Mar    5.00   FENCA    0.38  14.29    20     60
ABTE      5.75  Mar    7.50   QZBCU    0.81  14.13    60   2448
GEMS      4.44  Mar    5.00   GQMCA    0.63  14.08     8    192
PCTY     14.44  Mar   15.00   TYQCC    2.00  13.85    50    112
PSUN     16.38  Mar   17.50   PVQCW    2.25  13.74    33    293
AFCI     10.94  Mar   12.50   AQFCV    1.50  13.71   157   1162
FEET     17.38  Mar   17.50   JQFCW    2.38  13.67    40    232
OPTI      4.63  Mar    5.00   OQPCA    0.63  13.51    80    215
SYBS      7.41  Mar    7.50   SBQCU    1.00  13.50    53    505
RCNC     17.69  Mar   22.50   RBQCX    2.38  13.43     7     64
TLXN     13.88  Mar   17.50   TNQCW    1.81  13.06    70    105
VLNC      7.25  Mar   10.00   VHQCB    0.94  12.93    12   1342
AVID     23.38  Mar   25.00   AQICE    3.00  12.83    23     87
ICIX     17.25  Mar   20.00   QIXCD    2.19  12.68    60    326
MTLM      3.50  Mar    5.00   JQLCA    0.44  12.50    55    398
VNTV      8.00  Mar   10.00   QTZCB    1.00  12.50    60    667
GSTRF    20.13  Mar   22.50   YVQCX    2.50  12.42    35    508
GSTX      6.56  Mar    7.50   QGSCU    0.81  12.38     4    208
PTI      18.88  Mar   20.00   PTICD    2.31  12.25    10     34
TERA      6.25  Mar   10.00   QIPCB    0.75  12.00    30    293
ICII      8.38  Mar   10.00   BQJCB    1.00  11.94     5     64
FEN       2.63  Mar    7.50   FENCU    0.31  11.90    10    130
HBI       6.38  Mar    7.50   HBICU    0.75  11.76   180    900
THQI     28.00  Mar   30.00   QHICF    3.25  11.61     8    423
IVX      12.44  Mar   12.50   IVXCV    1.44  11.56    29    888
PRXL     25.00  Mar   25.00   VBQCE    2.88  11.50    10    211
CRUS      9.81  Mar   10.00   CUQCB    1.13  11.46    40    412
EGGS     20.81  Mar   30.00   EGQCF    2.38  11.41     7    614
GADZ      7.75  Mar   10.00   EQKCB    0.88  11.29    30    221
DMIC      6.84  Mar    7.50   DMQCU    0.75  10.96    70    176
NEM      18.25  Mar   20.00   NEMCD    2.00  10.96    25   1996
MAM      29.75  Mar   30.00   MAMCF    3.25  10.92    13     81
CYCH     15.00  Mar   20.00   KBQCD    1.63  10.83     4    278
KOPN     21.00  Mar   22.50   KQOCX    2.25  10.71     6     30
AHG       8.94  Mar   10.00   AHGCB    0.94  10.49     5    126
APEX     28.88  Mar   30.00   PXQCF    3.00  10.39    16     47
PIR       9.69  Mar   10.00   PIRCB    1.00  10.32    12   1090
GLBL      6.13  Mar    7.50   GQOCU    0.63  10.20    10    175
OMX      12.25  Mar   12.50   OMXCV    1.25  10.20   104   1018
HRBC      8.00  Mar   10.00    BQCB    0.81  10.16    10    113
DJT       3.75  Mar    5.00   DJTCA    0.38  10.00    10    692
CNDS      5.00  Mar    7.50   KQNCU    0.50  10.00    10    203
CELL     13.75  Mar   17.50   QEFCW    1.38  10.00     9    695
TERA      6.25  Mar   12.50   QIPCV    0.63  10.00    13    728




******************************************************************
NAKED PUT SECTION FOR JANUARY 3, 1999
******************************************************************
Where do we go from here?

The U.S. economic forecast for 1999 sounds a lot like last year.
Most experts are forecasting slower growth, higher inflation and
unemployment along with a somewhat dismal stock-market. Of course,
that scenario has a strong resemblance to many analysts opinions
for last year but contrary to those expectations, the economy's
growth remained nearly as robust in 1998 as it was in 1997. Our
inflation rate was tame and unemployment actually moved lower as
consumers reaped the benefits of the global economic crisis. 

In the coming months, many parts of the economy are going to feel
like we are in a recession but once again the giant U.S. machine
will probably churn-out better numbers than most expect. The stock
market is at record levels even after the sell-off last summer and
investors continue to pour their money into retirement accounts
and mutual funds. Mortgage rates are low, new homes sales are at
record levels and homeowners are putting more money in their own
pockets by refinancing existing loans. Slumping world oil prices
are giving consumers  a break on heating and transportation costs.
On top of that, American shoppers felt confident enough to spend
nearly all of their after-tax income.

Even with of that optimism, next year will be the toughest for the
economy in a long time. Most economists insist the recent trends
just can't continue because consumers will eventually start saving
more and spending less. Lets just hope there is a enough momentum
to carry the expansion into the new millennium.
------------------------------------------------------------------
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.
******************************************************************
SUMMARY OF PREVIOUS PICKS 
******************************************************************
Stock  Price  Currnt Mon-Strike Opt    Profit   ROI  Annual
Sym    Picked Price      Price  Bid    /Loss         ROI 

ITVU   13.25  12.75  Jan-10.00  0.75  *$ 0.75   22%  230%
CELG   16.69  15.38  Jan-12.50  0.50  *$ 0.50   13%  226%
SPLN   17.19  15.56  Jan-12.50  0.44  *$ 0.44   11%  197%
PTVL   14.69  18.44  Jan-10.00  0.50  *$ 0.50   15%  189%
CDNW   17.25  18.00  Jan-10.00  0.69  *$ 0.69   17%  174%
ITVU   14.00  12.75  Jan-10.00  0.69  *$ 0.69   20%  172%
ZILA   10.25   9.88  Jan- 7.50  0.38  *$ 0.38   16%  163%
CDNW   17.63  18.00  Jan-10.00  0.50  *$ 0.50   12%  162%
ZAP    12.38  12.25  Jan- 7.50  0.25  *$ 0.25    9%  159%
NOVT   24.06  28.38  Jan-20.00  0.56  *$ 0.56    9%  159%
VRTY   22.50  26.50  Jan-17.50  0.75  *$ 0.75   14%  149%
PDQ    10.38  10.56  Jan- 7.50  0.25  *$ 0.25   11%  140%
APM     8.69   6.19  Jan- 5.00  0.25  *$ 0.25   13%  131%
ABTX   11.19  12.94  Jan- 7.50  0.25  *$ 0.25   10%  131%
VIRS   13.13  13.63  Jan-10.00  0.19  *$ 0.19    7%  117%
NXTR   10.13   9.25  Jan- 7.50  0.25  *$ 0.25   11%  114%
BMP    24.56  24.31  Jan-17.50  0.44  *$ 0.44    8%  107%
CELG   15.00  15.38  Jan-10.00  0.25  *$ 0.25    8%  100%
SDTI   18.31  23.00  Jan-12.50  0.38  *$ 0.38    9%   98%
TALK   10.13  16.75  Jan- 5.00  0.25  *$ 0.25   11%   95%
SDTI   22.00  23.00  Jan-15.00  0.25  *$ 0.25    5%   93%
TDFX   16.44  12.63  Jan-12.50  0.31  *$ 0.31    9%   90%
SRCM   17.19  18.06  Jan-10.00  0.25  *$ 0.25    7%   88%
CELG   11.38  15.38  Jan- 7.50  0.25  *$ 0.25   10%   86%
GALTF  22.69  27.00  Jan-15.00  0.38  *$ 0.38    8%   81%
ABTX   12.69  12.94  Jan- 7.50  0.25  *$ 0.25    9%   78%
SPYG   20.50  22.00  Jan-12.50  0.31  *$ 0.31    7%   73%
TERA    7.88   6.25  Jan- 7.50  1.00   $-0.25   -7%    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)
******************************************************************
NEW PICKS
******************************************************************
Definitions:
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 
BTIM   17.38  Jan-12.50  QBO MV  0.31  87     12.19   8.25%
DBCC   17.81  Jan-12.50  BQD MV  0.38  88     12.13   9.52%
IGEN   30.63  Jan-25.00   GQ ME  0.44  21     24.56   6.19%
MCHM    8.44  Jan- 7.50   QQ MU  0.38  240     7.13  13.33%
NITE   24.00  Jan-15.00  QTN MC  0.25  471    14.75   4.95%
SPYG   22.00  Jan-17.50  YQG MW  0.50  558    17.00  10.20%
******************************************************************
Sequenced by Return on Investment  
******************************************************************
Stock  Price  Mon-Strike Option  Opt   Open   Cost   ROI Opt
Sym               Price  Symbol  Bid   Intr   Basis  Expired 
MCHM    8.44  Jan- 7.50   QQ MU  0.38  240     7.13  13.33%
SPYG   22.00  Jan-17.50  YQG MW  0.50  558    17.00  10.20%
DBCC   17.81  Jan-12.50  BQD MV  0.38  88     12.13   9.52%
BTIM   17.38  Jan-12.50  QBO MV  0.31  87     12.19   8.25%
IGEN   30.63  Jan-25.00   GQ ME  0.44  21     24.56   6.19%
NITE   24.00  Jan-15.00  QTN MC  0.25  471    14.75   4.95%
******************************************************************
Company Descriptions - TWO WEEK PLAYS
******************************************************************
BTIM - BioTime  $17.38     *** New Medical Discoveries ***
BioTime, Inc. is a development stage company which is engaged in
the research and development of aqueous based synthetic solutions
which can be used as blood substitutes. Working on Hextend(r) for
replacing blood volume lost during surgery and trauma without the
risk of contamination by blood borne pathogens. Recently filed to
offer shares through a rights offering to its shareholders and
set 1/5/99 as tentative record date. The offering raises capital
without diluting the existing ownership interests. Short-term
technical support around $15.
JAN  12.50  QBO-MV  BID=0.31  OI=87  CB=12.19  ROI=8.25%
Chart = http://quote.yahoo.com/q?s=BTIM&d=3m
******************************************************************
DBCC - Data Broadcasting Corp.  $17.81     *** Internet IPO ***
DBCC distributes financial data and business information on a
subscription basis to investors and businesses. DBCC jumped $3 in
response to a BW news article, bolstering the highly anticipated
IPO of Marketwatch.com, a joint venture of DBCC and CBS Corp. The
IPO is expected to "blast-off" like other recent Internet IPOs. A
very bullish chart with heavy volume/buying pressure propelling
the stock price upward.
JAN  12.50  BQD-MV  BID=0.38  OI=88  CB=12.13  ROI=9.52%
Chart = http://quote.yahoo.com/q?s=DBCC&d=3
******************************************************************
IGEN - Igen Intl.  $30.63
IGEN International develops, manufactures and markets diagnostic
systems utilizing its patented Origen technology, which is based
on electrochemiluminescence. Coverage was initiated with a "BUY"
rating on 12/10 by ING Brng Frmn Selz and institutional buying is
increasing with Bankers Trust, Putnam & Caxton and Goldman Sachs
rumored to be purchasing. Speculation that Everen securities and
SG Cowen will also issue recommendations soon. Excellent support
level above $25.
JAN  25.00  GQ-ME  BID=0.44  OI=21  CB=24.56  ROI=6.19%  
Chart = http://quote.yahoo.com/q?s=IGEN&d=3m
******************************************************************
MCHM - MachroChem Corp.  $8.44     *** Pharmaceuticals ***
MacroChem Corp. engages in the development and commercialization
of transdermal drug delivery compounds and systems designed to
promote the delivery of drugs from the surface of the skin into
the skin and bloodstream. The most recent development is the new
preliminary review of a Phase IIB study of Topiglan. This topical
gel formulation of alprostadil for the treatment of male erectile
dysfunction indicates the application is effective in increasing
penile rigidity in patients with significant erectile dysfunction.
Solid technical support at $7.50.
JAN  7.50  QQ-MU  BID=0.38  OI=240  CB=7.13  ROI=13.33%
Chart = http://quote.yahoo.com/q?s=MCHM&d=3m
******************************************************************
NITE - Knight/Trimark Group  $24.00
Knight/Trimark Group Inc. is a market maker in NASDAQ securities,
other over-the-counter (OTC) equity securities, equity securities
listed on the NYSE and the AMEX in the Third Market. Late November,
BancBoston Robertson Stephens reiterated "Buy" rating based on 30%
revenue growth and better pricing resulting from increasing market
volumes, market share gains and a shift to higher revenue business.
A fairly low-risk disparity play at the support level near $15.
JAN  15.00  QTN-MC  BID=0.25  OI=471  CB=14.75  ROI=4.95%
Chart = http://quote.yahoo.com/q?s=NITE&d=3m
******************************************************************
SPYG - Spyglass, Inc. $22.00  *** More 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 are
still positive and some support may exist at the recent low near
the cost basis at $17.
JAN  17.50  YQG-MW  BID=0.50  OI=558  CB=17.00  ROI=10.20%
Chart = http://quote.yahoo.com/q?s=SPYG&d=3m
******************************************************************

See Disclaimer in Section One.

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

The Option Investor Newsletter            1-3-98
Sunday                6  of  6
© 1998 The Option Investor Newsletter. - All Rights Reserved
******************************************************************
SPREADS/COMBOS
******************************************************************
Stocks closed the year mixed as small companies posted broad gains,
pushing the Nasdaq index to another record close, but blue chips
fell sharply. The DJIA ended down 93.21 at 9,181.43 but the NASDAQ,
relying upon its huge constituency of smaller stocks rather than
the usual handful of big technology names, rose 25.74 to a record
finish at 2192.69. Long-lagging small stocks were indeed the stars
of the year's final trading session as the group's main gauge, the
Russell 2000 Index, outpaced the rest of the market to end up over
10 points higher at 421.97, its biggest gain in more than 3 months.
Traders described most of the trading as "last minute" portfolio
adjustments (window dressing) and small investor profit taking.

Our new mid-week plays fared quite well on Wednesday. LIPO was
again a big mover and the call-debit price; JAN12C/15C of $1.50
was achieved near the market open. The spread could have been
closed later in the day for a $0.43 profit but the momentum is
still intact so we will hold the position until it stalls. A
new target exit of $2.12 is our goal. PCS was a calendar/time
spread and we chose the conservative play; MAY22C/JAN22C with
an initial debit of $2.00. AOL was quite active with most of
the internet group moving lower. The stock price fell $15 at
midday and that presented a great entry opportunity for the
put-credit spread; JAN125P/JAN120P. The opening price was not
the day's best but still favorable at $1.25. WCOM was a long-
term play (covered-calls on LEAPS); the LJAN75C/JAN75C opened
for a debit of $10.75. We will track the play for the first few
months to ensure that it is going to be profitable. Some of the
other LEAP positions that we have recommended are just flying!
Be sure to close those short positions on/before the expiration
date in January.

In other portfolio activities:

AAS started to move immediately after the Justice Dept. said it
had joined a lawsuit alleging that Columbia/HCA Healthcare (COL)
defrauded Medicare and other federal health insurance programs.
The complaint charged that Columbia/HCA submitted false claims
to boost payments to its hospitals. The lawsuit news appears to
be having a positive effect on the AAS stock price and while the
play may still be profitable, we didn't like the abrupt change
in character. The position was closed at $0.62 debit.

In the continuing RSLN saga:

Savings and loan company Roslyn Bancorp reaffirmed Wednesday it
will not increase the exchange ratio for its acquisition of T R
Financial Corp (ROSE).The exchange ratio remains at 2.05 shares
of Roslyn stock for each share of T R Financial stock. Roslyn
could have opted to increase the exchange ratio but it chose not
to, and T R has the right to walk away from the merger. Joseph L.
Mancino, Roslyn president and Ceo, said his company had received
a notice of termination of the merger agreement from T R on 12/29
based on its stock underperformance. In a statement, Mancino said
the T R board can withdraw its notice of termination at any point
until Jan. 24, at which time Roslyn's board will proceed with the
transaction. T R Financial is assessing whether to complete its
agreement to be purchased after Roslyn rejected the request to
raise its bid. This is getting more interesting every day...
******************************************************************
			- CREDIT SPREAD SUMMARY -
******************************************************************
Stock   Pick     Last    Position    Credit   Cost   G/L    Status

AAS    $59.53   $65.00  JAN70C/65C   $0.68   $0.62  $0.06   Closed
AAPL   $38.00   $40.94  JAN47C/45C   $0.50   $0.50  $0.00   Open
AGPH   $48.93   $58.75  JAN40P/35P   $0.43   $0.19  $0.25   Open
ALA    $23.19   $24.44  JAN15P/17P   $0.31   $0.19  $0.12   Open
AOL    $154.62  $154.25 JAN120P/125P $1.25   $0.50  $0.75   Open
CMGI   $119.87  $106.50 JAN80P/85P   $0.62   $1.00  ($0.38) Open
GT     $52.12   $50.44  JAN65C/60C   $0.43   $0.12  $0.31   Open
VNWK   $35.25   $37.50  JAN25P/30P   $0.50   $0.31  $0.19   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.
******************************************************************
			- CALENDAR SPREAD SUMMARY -
******************************************************************
Stock   Pick    Last     Position      Debit  Value    G/L  Status

ATI    $64.93  $72.44  LJAN70/JAN70C   $8.75  $6.50  ($2.25) Open
BGP    $23.19  $24.94  FEB25C/JAN25C   $1.38  $1.00  ($0.38) Open
CPQ    $42.68  $42.00  APR45C/JAN45C   $2.50  $2.00  ($0.50) Open
GM     $71.50  $71.56  MAR70C/JAN70C   $2.00  $2.25   $0.25  Open
PCS    $21.81  $23.13  MAY22C/JAN22C   $2.00  $1.25  ($0.75) Open
WCOM   $74.25  $71.75  LJAN75/JAN75C   $10.75 $10.62 ($0.12) Open

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis) at the end of
the expiration period for the long position. However, because we
track the plays based on the current closing cost/value, the gains
for time spreads will rarely be reflected until the play closes.
Each month, as we sell a new call against the long position, the
net cost should decline or the position value should increase.
******************************************************************
				- DEBIT SPREADS -
******************************************************************
Stock   Pick    Last     Position     Debit   Value    G/L  Status

BGP    $23.19  $24.94  JAN22C/JAN25C  $1.38   $1.25  ($0.12) Open
LIPO   $14.12  $15.44  JAN12C/JAN15C  $1.50   $1.69   $0.19  Open
RSLN   $20.68  $21.50  JAN17C/JAN20C  $1.75   $2.12   $0.38  Open
MTRS   $45.88  $50.31  FEB40C/FEB45C  $3.25   $3.25   $0.00  Open

A debit-spread is profitable if the value of the position exceeds
the initial cost of the spread when the play is closed. However,
because we track plays based on the current cost/value, potential
gains may not be reflected until both positions are closed.
******************************************************************
			- STRADDLES/STRANGLES -
******************************************************************
Stock   Pick    Last    Position     Debit  Value   G/L  Status

JMED   $35.19  $36.50  MAR35C/35P    $5.62  $5.62  $0.00  Open

A straddle is profitable if the value of the position exceeds the
initial cost of the spread when the play is closed.
******************************************************************
				- NEW PLAYS -
******************************************************************
EGRP - Etrade Group  $46.81     Call-Debit Spread

E*TRADE Group, Inc. is a provider of online discount brokerage
services, which include automated order placement, portfolio
tracking and related market information and other information
services. The company finished 1998 with a series of licensing
and joint venture agreements covering 32 countries around the
world, representing approximately 95% of the world's retail
financial assets. The stock price spiked higher after E*trade
announced that half a million people have signed up for its
Destination E*Trade website since its launch in September. Also
recently forged a marketing deal with CNNfn.com to snare other
customers through partnerships with financial Web sites. The
stock exhibited two measured gaps on its recent rocket-like
climb and though profit-taking is certainly in effect, the
second gap has not been filled and with the heavy volume, the
first gap should be a new rally point for increased buying. It
should test $40 but the next few days of consolidation may be a
springboard for the next leg up. The option pricing disparity
really makes this a good speculation play.

PLAY (conservative/momentum):

BUY  CALL JAN-35 QGR-AG OI=1392 A=$12.87
SELL CALL JAN-40 QGR-AH OI=903  B=$11.00
NET DEBIT TARGET=$1.87 ROI TARGET=45%
INITIAL GTC CLOSING PRICE (both positions)=$2.75

Chart = http://quote.yahoo.com/q?s=EGRP&d=3m
******************************************************************
BMCS - BMC Software  $44.56     Put-Credit Spread

BMC Software provides systems management software solutions for
host mainframe and distributed information systems, and offers
maintenance, enhancement and support services. In November, BMCS
agreed to buy rival Boole and Babbage for about $900 million. Lots
of rumor and speculation concerning the upcoming merger and the
complaint filed by Platinum against Boole and BMCS. For Boole, the
waiting period under the Hart-Scott-Rodino Antitrust Act expired
on 12/24 with respect to the pending merger and that satisfies one
of the conditions to the consummation of the merger. But, Platinum
sought an order restraining Boole and BMC from enforcing some of
the provisions of the merger agreement that prohibit Boole from
negotiating with third parties, requiring Boole to engage in any
preliminary merger discussions with Platinum and allowing Platinum
to engage in due diligence in connection with such discussions. And
there is also a concern about merger costs and upcoming earnings.
If that isn't enough, BMCS was a top pick for 1999 by one of the
four panelists on Friday's Wall Street Week show. A good technical
probability of the stock price finishing above the sold strike in
two weeks.

PLAY (aggressive):

BUY  PUT JAN-35 BCQ-MG OI=22  A=$0.43
SELL PUT JAN-40 BCQ-MH OI=574 B=$1.50
NET CREDIT TARGET=$1.12 ROI=28% B/E=$38.87

Chart = http://quote.yahoo.com/q?s=BMCS&d=3m
******************************************************************
IGEN - Igen Intl.  $30.62     Put-Credit Spread

IGEN International develops, manufactures and markets diagnostic
systems utilizing its patented Origen technology, which is based
on electrochemiluminescence. Coverage was initiated with a "BUY"
rating on 12/10 by ING Brng Frmn Selz and institutional buying is
increasing with Bankers Trust, Putnam & Caxton and Goldman Sachs
rumored to be purchasing. Speculation that Everen securities and
SG Cowen will also issue recommendations soon. A two-week play to
remain above the excellent support level at the sold strike price.

PLAY (conservative):

BUY  PUT JAN-22.50 GQ-MX OI=30 A=$0.12
SELL PUT JAN-25.00 GQ-ME OI=21 B=$0.43
NET CREDIT TARGET=$0.31 ROI=14% (2 weeks)

Chart = http://quote.yahoo.com/q?s=IGEN&d=3m
******************************************************************
NOVL - Novell Inc  $18.19     Calendar Spread

Novell provides software for network solutions with distributed
network, Internet, intranet, and small-business market products.
Novell is now guided by a savvy new leader who's made decisive
strategic decisions about the company's future. The company has
an enormous installed base, (some analysts say 80 million) and
they have begun the process of reinvigorating sales; customers
in the latest period included Wal-Mart, J.P. Morgan, and First
Union. Revenues will benefit from a new product cycle driven by
the high-performance technology craved by its customers and, as
yet, unmatched by its formidable competition. Recently, they
invested more than $9 million in minority equity positions in
five network software companies. Novell took stakes in companies
that offer software applications, tools, and utilities that add
value to its directory services product and its NetWare server
platform. The chart reflects a new, steady uptrend with some
consolidation occuring near its current price around $18. This
would appear to be a long-term play but actually we could just
unload the May call in two weeks if the stock price finishes
anywhere near $17.50 on the strike date. Note: Be aware that we
are selling an ITM call for the short position.

PLAY (conservative):

BUY  CALL MAY-17.50 NKQ-AW OI=13429 A=$3.12
SELL CALL JAN-17.50 NKQ-EW OI=2666  B=$1.12
NET DEBIT TARGET=$1.87 TARGET ROI=50%

Chart = http://quote.yahoo.com/q?s=NOVL&d=3m
******************************************************************
ESCMF - ESC Medical Systems  $10.65     Net-Credit Straddle

ESCMF develops, manufactures and markets medical devices using
lasers and proprietary pulsed light technology for non-invasive
treatment of varicose veins and other benign vascular lesions,
as well as other clinical applications. One news item concerning
the VNX technology (for the minimally invasive treatment of large
varicose veins) that was recently acquired from Ballard Medical
Products and an incredible list of lawsuits. The most common of
the allegations is that the company, the Chief Financial Officer
and Salomon Smith Barney made a series a false and misleading
statements concerning revenues and income. In addition, ESC and
the CFO allegedly provided inside information concerning the
company's business prospects to defendant Smith Barney whereby
Smith Barney informed its clients to unload their positions in
ESC prior to disclosure of the downward forecast to the public.
The chart reflects a fairly stable trading range around $10 and
with the excellent option premiums, this may be a good play for
aggressive traders.

PLAY (very aggressive/speculative):

SELL CALL JAN-10 QFC-AB OI=1236 A=$1.31
SELL PUT  JAN-10 QFC-MB OI=115  B=$1.12
NET CREDIT TARGET=$2.50 ROI(max)=50%

Credit straddles are are very speculative. Be sure you understand
all of the risks involved before opening a position in this type
of play.

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



******************************************************************
Market Sentiment ­ By Pinnacle Capital Advisors
******************************************************************
Sunday, January 3, 1999


Several Sentiment Indicators Revealing Bearish Overtones

After a strong year-end rally, several market sentiment 
indicators are beginning to reveal bearish overtones including
the Pinnacle and Market Volatility Indexes and Investors
Intelligence sentiment surveys.

This week marks the beginning of OptionInvestor.comıs expanded
market sentiment advisory link. This section, updated by
Pinnacle Capital Advisor, is design to give subscribers a
complete snapshot of the indicators used by leading sentiment
analysts.

Any questions regarding market sentiment can be directed at:
pinnacle@OptionInvestor.com


Market Sentiment at a Glance
******************************************************************
Friday Friday 
Indicator (12/25 (12/31) Alert
******************************************************************

Pinnacle Index (OEX): 

Overhead Resistance (610-625) 5.1 *
Underlying Support (585-600) 1.6


Put/Call Ratio (OEX):

CBOE P/C Ratio 1.1 1.1


Peak Open Interest (OEX):

Puts 580 580 
Calls 580 580 
P/C Ratio .9 1.0


Market Volatility Index (VIX): 

CBOE VIX 21.0 25.3


Investors Intelligence:

Bullish 56.4% 56.4% * 
Bearish 32.5% 32.5%




The Power of Expectation Analysis

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

Most analysts focus on the two traditional approaches to
their market forecasts: FUNDAMENTAL analysis, which uses
factors such as earnings and economic projections to forecast
stock prices and TECHNICAL analysis, which focuses on
historical price patterns and volume characteristics to
presage future performance.

At Pinnacle, we also use EXPECTATIONAL analysis to evaluate
the opinions and sentiments of the investing community and
then use that assessment to help presage stock price movement.

Before we go on, itıs important to remember that the "price"
of a stock is the sum total of the investorsı EXPECTATION of
reality. 

If these expectations are too LOW, a stock will have the
tendency to rally. This is because the gap will eventually
narrow between the stock price that reflects these LOW
expectations and the stock price that reflects the real
world. Similarly, if expectations are too HIGH, there is a
tendency for a stock to decline in price, as these high
expectations are eventually adjusted downward to better
reflect the real world. 



Sentiment Indicators

Like technical analysis, there are several types of sentiment
indicators that can be used to give savvy options traders an
edge including Pinnacle Index, Put/Call ratios, Market 
Volatility Index, and investor sentiment surveys, among others.


Some of these indicators, such as the Pinnacle and Market
Volatility Index can be applied over the near-term while
others have longer-term implications. Investor sentiment 
surveys, for example, typically give broader signals since
they are tracked only on a weekly basis.

This section of the advisory service highlights the leading
sentiment indicators including the Pinnacle Index, Put/Call
Ratios, Market Volatility and Investors Intelligence.


Pinnacle Index

The first sentiment indicator, developed by Pinnacle Capital
Advisors, is one of the most powerful sentiment indicator
because it tracks the rapidly shifting sentiment of option
speculators at KEY Benchmarks in the market. As such, the
Pinnacle Index often times provides earlier turning signals. 

Pinnacle defines key benchmarks as meaningful pivot points
within the S&P 100 (OEX). These turning points occur at
technical breakouts, breakdowns outside a trading range and 
double/triple tops and bottoms and failed rallies within a
current trading range. 

Trading Range Lower End Upper End
**************************************************
S&P 100 (OEX) 540 - 560 600 - 615 
S&P 500 (SPX) 1,080 ­ 1,100 1,200 ­ 1,240 
Dow Jones 8,500 ­ 8,600 9,400 ­ 9,450





Pinnacle Index
******************************************************************
OEX Friday Tues Thurs
Benchmark (12/31) (1/5) (1/7)
******************************************************************

(620-625) 14.6
(610-615) 3.2
Overhead Resistance (610-625) 5.1

OEX Close 604.0

Underlying Support (585-600) 1.6
(595-600) 1.8
(585-590) 1.5



Average ratings: 
Resistance levels 2.0 / Support .5

What the Pinnacle Index is telling us:
Overhead sentiment resistance is moderate at the OEX 610/625
level while the underlying support is moderate.



Put/Call Ratio

Another leading sentiment indicator is the Put/Call ratio. 
Like implied volatility, put/call ratios can be intimidating
especially if you donıt know what to look for or donıt have
any benchmarks by which to compare.

The put/call ratio is simply the ratio of the trading volume
in PUTS to the trading volume in CALLS. It first glance,
many traders mistakenly assume that a stock with more call
open interest than put open interest is good or bullish. 
Generally this is true and in a trending bullish market you
should expect two calls for every put or an average ratio of
2.0. 

However, as a contrarian, when too many speculators are
bullish, the market is poised to fall, or at least
consolidate within a bull trend. This is what Pinnacle
Capital Advisorsı popular sentiment indicator tracts. 


Put/Call Ratio 
******************************************************************
Friday Friday
Strike/Contracts (12/25) (12/31) 
******************************************************************
CBOE Total P/C Ratio .58 .52 
CBOE Equity P/C Ratio .43 .40
OEX P/C Ratio 1.13 1.07



Peak Open Interest

Peak Open Interest identifies and compares the highest open
interest for the S&P 100 Index (OEX) front-month call and put
strikes. When peak PUT open interest exceeds CALL open
interest, it is generally BULLISH for stocks. Conversely,
periods when open CALL interest exceeds PUT open interest
typically market weakness coincide with market weakness.

Peak Open Interest (OEX)
******************************************************************
Friday Friday
Strike/Contracts (12/25) (12/31) 
******************************************************************
Puts 580 / 8,432 580 / 8,671 
Calls 580 / 9,043 580 / 8,668
Put/Call Ratio .93 1.00



Market Volatility Index

Another powerful sentiment indicator is the Market Volatility
Index (VIX) which measures the implied volatility for major
market indices.

To many investors, the term Implied Volatility (IV) is a
difficult concept to grasp because it sounds too technical
and complicated. Once the fog factor clears, the VIX is
perhaps one of the most powerful short-term sentiment
indicators that is available to option traders. The reason
is that this indicator often presages major turning points in
the market. Take a look at how this indicator signaled some
recent major turning points. 

Volatility Index (VIX)
******************************************************************
Major
Date Turning Point VIX
******************************************************************
October 97 Bottom 54.60 
July 20, 1998 Top 16.88 
October 8, 1998 Bottom 60.63


So what is Implied Volatility in laymenıs terms. Implied
volatility is nothing more than the option marketıs
assessment of the expected future volatility of the
underlying stock or index. Some people find it easier to
simply associate this indicator with the level of fear
present in the marketplace. The higher the index, the
greater the fear on the part of investors. 

The S&P 500 Index has historically tended to have an implied
volatility assumption between 12-20 percent, whereas some
technology stocks have implied volatilities of more than 50
percent. At-the-money technology stocks that are three times
more volatile than the market would tend to be priced
approximately three times the price of an option on the
index. The higher the volatility assumption, the higher the
premium of the option.

We look for spikes or sudden, sharp increases in the implied
volatility reading to anticipate large moves in a stock or
index. As shown above, this is what happened on October 8th,
the date of the major bottom reversal. On that date, the
Volatility Index (VIX) soared to one of the highest marks
(60.63) ever recorded before evaporating precipitously. 
Thatıs one reason why the market rallied so strongly over the
past couple of months. 

Similarly, we look for sudden, sharp decreases in the implied
volatility to anticipate a stock or market sell-off. This is
what occurred back on July 20th, just before the market began
its 20% correction. 






Sentiment Surveys

Many investors learn about sentiment surveys on CNBC in the
context of how many investors are currently bullish or
bearish at a given time. But professional traders use these
survey as a contrarian indicator because the actions of the
vast majority of investors is characteristic of crowd
behavior. And because a crowd acts on impulse, public
opinions are frequently WRONG.

Surveys of the bullishness or bearishness of traders,
investors and advisors as a whole make for excellent
contrarian readings at extremes. 

Excessive bullishness means that most of the BUYING has
already occurred, so the risk of a negative news event or
surprise is heightened. Conversely, if there is pervasive
bearishness reflected in these surveys, even bad news will
not have much negative impact because most of the SELLING has
already occurred in advance of the news.

One of the major sentiment polls published each week is from
Investorıs Intelligence. Pinnacle tracks this poll because
it measures the percentage of bullish and bearish investment
advisors.

As a rule of thumb, when the percentage of Bulls eclipses 50
percent it is typically a sign that the market is near a
short-term peak. When the percentage of Bulls drops below 25
percent, it suggests that expectations are unduly low, and
the market is a major bottom.


Investors Intelligence Survey
******************************************************************
Major Percent Percent
Date Turning Point Bullish Bearish
******************************************************************
October 97 Bottom 22.0 48.3 
July 20, 1998 Top 52.0 24.0 
October 8, 1998 Bottom 38.5 42.7
December 31, 1998 ? 56.4 32.5






Putting It All Together

Together, these sentiment indicators give savvy options
traders a closer look under the hood and assess what is really
happening in the market.

Pinnacleıs interpretation: MOST investors are assuming
that current rally will reach higher levels because of the
4Q98 favorable market events -- the Fedıs interest
rate cuts, Brazilıs bailout plan, Japanıs recent market
turnaround, and the strength of several industry sectors
including Semiconductors, Internet and Pharmaceuticals.

This could still happen, but if an UNEXPECTED event enters
into the picture, the market is more vulnerable than ever.
At the very least, we advise subscribers to tightly PROTECT
any new long positions because the risk of a failed rally is
very high until the DOW takes out and close ABOVE our summer 
highs and/or until market complacency is eradicated.

Pinnacle is advising subscribers to develop a
balance attack and build hedge positions. If have never used
puts, spreads, straddles or strangles before, we encourage
you to learn more about these advanced option strategies. 
They are excellent vehicles to maximize return on investment
as the market moves into a period of consolidation. 


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
profile.

*****************************************************
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                      DISCLAIMER
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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 
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.




DISCLAIMER

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

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

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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