From: mark.taylor@enron.com
To: yao.apasu@enron.com, sara.shackleton@enron.com
Date: 1999-01-27 16:03:00+00:00
Subject: Sunday - Option Investor Newsletter 5 of 6 (Puts/Combos)

---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on 
01/27/99 04:03 PM ---------------------------
   
	Enron Capital & Trade Resources Corp.
	
	From:  xtrials@optioninvestor.com (Option Investor Newsletter     Trials)     
                       01/24/99 06:32 AM
	

Please respond to xtrials@optioninvestor.com
To: Option Investor Newsletter Trials <xtrials@optioninvestor.com>
cc:  (bcc: Mark - ECT Legal Taylor/HOU/ECT)
Subject: Sunday - Option Investor Newsletter 5 of 6     (Puts/Combos)



The Option Investor Newsletter            1-24-98
Sunday                5  of  6

PUTS Continued
**************
Campbell Soup Company (CPB) - $44.31 .25 (-.81)

Campbell Soup Company is a global manufacturer and marketer of
branded convenience food products operating in three business
segments: Soup and Sauces, Biscuits and Confectionery, and
Foodservice. Campbell Soup Company is the world's largest
maker and marketer of soup with fiscal 1998 sales of $6.7
billion.

Warm weather, flat sales, inefficient supply chain, and
company's ability to achieve costs savings and capacity
utilization are being called into question by analysts.
Increased marketing and selling expenses, increased store
level inventory levels, encroachment from private label (store
brand) products, reduced consumption levels and a recent
announce of new cost-cutting initiatives will cause fiscal
1999 earnings to fall short of analysts' estimates by 18 to
23 cents per share.  Analysts surveyed by First Call Corp.,
which tracks such estimates, had expected the company to earn
$2.13 a share during the year, which ends July 31. Campbell
earned $1.90 a share in the prior year. Campbell Soup Co.
said it now expects U.S. soup consumption to rise by only 1
to 2 percent in the second quarter from the previous year,
not 4 to 5 percent.

Stock recently failed at $59 and then broke key support at
$54.00 on news of earnings shortfall. Excessive call buying
recently is bearish and may provide continued overhead
resistance.

Play: Earnings Warnings

Update:
Stock recovered some last week but still trading below gap
price of $45.  Could sell off more if broad market comes
under pressure.

BUY PUT FEB-50  CPB-NJ OI=135 @ $6.00 SL=4.25
BUY PUT FEB-45  CPB-NI OI=593 @ $1.94 SL=1.00

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

DuPont de Nemours (DD) - $54.31 .25 (-2.69)

E.I. DuPont de Nemours and Company operates in fiveprincipal
industry segments: Chemicals, Fibers, Polymers,Life
Sciences, and Diversified Businesses.  For the 9 monthsended
9/30/98, total revenues rose 1% to $19.29B.  Netincome from
continuing operations before extraordinary itemand
applicable to Common fell 37% to $859M.  Revenuesbenefited
from acquisitions. Earnings were offset by a$651M
increase in purchased in-process R&D charges.

Pricing pressures from overcapacity continue to weigh on the
chemical group.  Street has been busy cutting the group's
earnings estimates for the next couple of quarters, as
troubled economies in Asia and Latin America suggest that
demand/pricing conditions won't improve any time soon.
Commodity chemicals such as ethylene hardest hit, with prices
falling by as much as 50% over past year.  Stocks have seen
some buying interest in recent weeks on hopes that lower
interest rates will jumpstart sagging global economy.  But
gains appear more a function of underlying market strength and
light bargain hunting than any sea change in expectations for
a sustained earnings recovery.  Chemical companies are
cutting jobs and reducing production to adjust to challenging
conditions.  Comparison periods will also become more
attractive by mid-CY99. However, until that time there is no
reason to suspect the group to do anything but underperform
the market.  Given existing oversupply, declining earnings
growth, slowing worldwide economic growth and the market's
preference for momentum over turnaround situations, DD could
be under pressure over the near-term.  After advancing $7
over the past couple of weeks, DuPont signaled a failed rally
at its declining 200-day moving average.  Target - $53.

Play: Failed Rally

Stock moved up fractionally during Friday's (1/22) broad sell
off. Stock still below declining moving averages.  Tighten
protective sell stop to $58.25.


BUY PUT FEB-60  DD-NL OI=1907 @ $6.38 SL=4.75
BUY PUT FEB-55  DD-NK OI=1879 @ $2.69 SL=1.75

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

Hershey Foods (HSY) - $59.00 1.00 (-2.25)

ershey Foods (HSY) manufactures, distributes, and sells a
broad line of chocolate and non-chocolate confectionery,
pasta and grocery products.  For the nine months ended
10/4/98, net sales rose 4% to $3.2 billion.  Net income rose
5% to $230.9 million.  Revenues reflect higher sales of core
confectionery brands and incremental sales from the
introduction of new confectionery products.  Earnings also
reflect reduced marketing costs for existing brands and lower
selling costs in foreign markets.

Play Description:
Stock continues to struggle following analyst downgrades and
Q4 weakness. Margins are likely to be under pressure with
increased costs. Stock simply seems to be out of favor and
relative strength is declining. Likely to test lows at $48.

Play: Failed Rally

Update:
Stock moved higher during Friday's (1/22) broad market sell-off
but still trading below key benchmark of $60. Tighten protective
stop to $62.25.

BUY PUT FEB-65  HSY-NM OI=182  @ $6.38 SL=4.75
BUY PUT FEB-60  HSY-NL OI=425  @ $2.63 SL=1.75

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

Microchip Tech (MCHP) - $30.19 -1.00 (-4.94)
Semiconductor

Company Description:
MCHP develops, manufactures and markets programmable 8-bit
microcontrollers, application specific standard products and
related specialty memory products for consumer, automotive,
office automation, industrial and communications markets.

Play Description:
Microchip is struggling to restructure its operations to try
to eliminate the company's older, less-efficient manufacturing
capacity and to manage inventory levels. Analysts recently cut
estimates for fiscal '99 and '00. Microchip's December quarter
was characterized by continued low order visibility, along with
some weakness in end-of-quarter turns order shipments,
Stock recently gapped off of failed rally point of $40 and may
test prior lows in the $20's

Play: Analysts Downgrade

Update:
Stock still breaking down and nearing key 100 and 200-day
moving averages.  Could retest $20 if stock breaks under $30.

BUY PUT FEB-35  QMT-NG OI= 99 @ $5.88 SL=4.00
BUY PUT FEB-30  QMT-NF OI=257 @ $2.44 SL=1.25

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

Merck (MRK) - $139.00 -7.31 (-8.13)

Merck is a pharmaceutical company that discovers,develops,
produces and markets human/animal health productsand
services.  Merck also provides pharmaceutical benefit
services. For the 9 months ended 9/30/98, sales rose 11%
to$19.37B.  Net income rose 14% to $3.85B. Revenues
reflecthigher sales of established major products & newer
products,and growth from the Merck Medco Managed Care
business. Earnings also reflect gains on the sales of
businesses.

After climbing 38% over the past four months, this leading
pharmaceutical company is showing signs of potential
failed rally below its 52-week high of $161.75.  Retracement
target $136-$140. Pinnacle's sentiment indicator is reaching
extreme levels (4.7) setting this high tech company up for a
precipitous sell-off if expectations don't measure up within
the drug sector.

Play: Failed Rally

Big winner for OI subscribers last week after selling off
precipitously on Friday (1/22).  Drug sector now begging to
roll over.

BUY PUT FEB-145 MRK-NI OI=1686 at $6.25 SL= 4.25
BUY PUT FEB-140 MRK-NH OI=1720 at $3.63 SL= 1.75

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

Perkin-Elmer Corporation (PKN) - $91.31  -2.88 (-4.06)

Perkin-Elmer Corporation (PKN) develops, manufactures and
markets life science systems and analytical instruments for
the pharmaceutical, biotech, environmental, agricultural,
forensics and chemical industries. For the three months ended
9/98, revenues rose 16% to $375.8 billion. Net income fell
21% to $17 million. Revenues reflect higher sales of biotech
products in the U.S. and Europe. Earnings suffered from
higher R&D, merger charges, decreased interest income, a $3.1
million loss at Tecan and a higher tax rate.

PKN operates internationally, with manufacturing and
distribution facilities in various countries throughout the
world and derives approximately 53% of its revenues from
countries outside of the United States. Results continue to
be affected by market risk, including fluctuations in foreign
currency exchange rates and changes in economic conditions in
foreign markets. Company is in the process of reorganizing
the Company's capital structure to help move Perkin-Elmer
toward a market leader in biomedical and genomics
information. They are currently evaluating strategic
alternatives for our analytical instruments business.

Distribution among top institutional shareholders is taking
place as stock is likely to trade back into trading range of
$65-75. Stock moving up in anticipation of  Celera Genomics
spinoff but sale of the AI division may be dragging on.
Questions also remain about suitable valuation level after
spinoff.  Today's price action attributable to possible delays
in Celera Genomics spinoff.

Play: Failed Rally

Stock finally breaking down after consolidating between $95-$100.
Target is $80.

BUY PUT FEB-95  PKN-NS OI=174 @ $6.63 SL=4.00
BUY PUT FEB-90  PKN-NR OI=27  @ $3.75 SL=2.00

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

Warner Lambert (WLA) - $67.94 .94 (-1.88)

Warner Lambert is a manufacturer of ethical pharmaceuticals,
biologicals, capsules, consumer health care products and
confectionary products.

Shares of large U.S. drug companies are being hurt by profit
taking and concerns about proposed changes to the Medicare
payment system.  Recently, a Bipartisan Commission opened the
door for Medicare to cover prescription drugs for
beneficiaries, a recommendation that if adopted, could put
pressure on drug companies.  Recent inquiries regarding the
safety of Rezulin received nationally televised attention and
may give rise to  investor concern.   Also, it may be
difficult to sustain the growth rates for Lipitor, Rezulin
and Neurontin products that WLA has enjoyed this past year.

Top side consolidation since July may be difficult to overcome
in extended market conditions.  Given that the drug sector
has and will continue to be a strong performing sector, we
recommend a modest sell-off price targets of $55 to 60.

Play: Failed Rally

Update:
Top side consolidation since July may be difficult to overcome
in extended market conditions.  Still trading below key 100
and 200-day moving averages and benchmark of $70.  Tighten
protective sell stop to $71.25.

BUY PUT FEB-75  WLA-NO OI=1233 @ $8.00 SL=6.75
BUY PUT FEB-70  WLA-NN OI=2134 @ $4.75 SL=3.00

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

***********
COMBO PLAYS
***********
U.S. blue chips stocks fell sharply Friday as worries about the
Brazilian currency crisis and poor revenues at the world's biggest
computer maker drove traders to an aggressive sell-off. The DJIA
closed 143 points lower and has shed all of its gains for the year.
Concerns that Latin America's economic instability and Brazil's
currency devaluation could hurt other countries sent investors out
of stocks and into bonds, seeking safety in U.S. government assets.
To make matters worse, IBM's earnings were good, not spectacular,
and revenues were disappointing due to poor hardware sales. IBM
also failed to announce a generally expected stock split, making
investors even more unhappy. Analysts are saying the main problem
with our current market is that optimistic investors are expecting
earnings to come in better than what they're actually going to be
and this will probably cause a near-term market downturn. We shall
soon find out!

Our new spread positions were all available near the recommended
entry points. CTXS was the first candidate, and although the stock
price continued to slide, the play (MAR90C/FEB95C) was still
favorable at an initial debit of $4.87. RDRT was also lower at the
open and the debit for the MAR17C/FEB20C bullish diagonal spread
was $1.75. LVLT was a bull-call position with a conservative bias
and the price for the MAR37C/MAR45C spread was $4.62. SEPR is our
new long-term play and the volatile trading offered a couple of
opportunities to enter the position, (JAN00-100/FEB100C) at $19.25.

Other activities included a closing play on CIEN as the stock price
gapped-up $4 amid speculation it may again be a possible takeover
target and rumors it may land a large contract. PCS continues to
move higher in the "hot" telecom sector and we are monitoring the
positions closely. They are now both deeply ITM and there is always
the chance of early exercise. Good Luck!

CREDIT SPREAD SUMMARY
*********************
Stock   Pick     Last      Position   Credit  Cost    G/L   Status

AAPL   $41.38   $38.75   FEB35P/37P   $0.87  $1.00  ($0.12)  Open
COF    $130.43  $128.69  FEB105P/110P $0.62  $0.38   $0.25   Open
ELN    $68.93   $70.25   FEB80C/75C   $0.75  $1.00  ($0.25)  Open
GMSTF  $59.87   $59.00   FEB40P/45P   $0.50  $0.50   $0.00   Open
SDTI   $25.50   $25.81   FEB17P/20P   $0.50  $0.38   $0.12   Open
SRCM   $20.87   $20.88   FEB15P/17P   $0.75  $0.75   $0.00   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  $93.88 LJAN70/FEB75C  $8.50   $9.50   $1.00  Closed
BGP    $23.19  $18.69    FEB25C      $1.38   $0.25  ($1.12)  Open
CD     $19.93  $19.00 LJAN20/FEB20C  $3.50   $3.50   $0.00   Open
CPQ    $42.68  $46.19 APR45C/FEB45C  $0.00   $2.00   $2.00   Open
CTXS   $89.00  $87.25 MAR90C/FEB95C  $4.87   $5.00   $0.12   Open
DIS    $38.00  $34.13 LJAN40/FEB40C  $4.00   $3.50  ($0.50)  Open
GM     $71.50  $90.75 MAR70C/FEB75C  $4.50   $5.00   $0.50   Open
HUM    $19.50  $19.38 MAY20C/FEB20C  $1.25   $1.25   $0.00   Open
NOVL   $18.19  $19.19 MAY17C/FEB20C  $1.12   $2.50   $1.38   Open
OMPT   $14.06  $16.00 MAR15C/FEB15C  $1.50   $0.75  ($0.75)  Open
OXHP   $20.06  $18.81 MAY20C/FEB20C  $0.81   $1.50   $0.68   Open
PCS    $21.81  $30.88 MAY22C/FEB25C  $1.50   $3.50   $2.00   Open
PTEK   $11.38  $11.00 MAR12C/FEB12C  $0.50   $0.62   $0.12   Open
RDRT   $18.93  $18.31 MAR17C/FEB20C  $1.75   $1.56  ($0.19)  Open
SEPR   $99.62  $99.50 LJAN100/F100C  $19.25  $19.38  $0.12   Open
SUNW   $94.50  $98.00 LJAN100/F100C  $14.00  $17.50  $3.50   Open
WCOM   $74.25  $74.88 LJAN75/FEB75C  $5.62   $10.50  $4.87   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

ABI   $48.87   $48.31  FEB45C/FEB50C  $2.87   2.75   -0.12   Open
AOL   $146.50  $140.44 FEB155C/160C   $2.50  $1.25  ($1.25)  Open
AOL   $146.50  $140.44 FEB155C/160C   $1.50  $1.25  ($0.25)  Open
CIEN  $18.68   $22.56  FEB12C/FEB17C  $3.50  $4.50   $1.00  Closed
FTL   $18.50   $17.81  FEB15C/FEB20C  $1.50  $2.38   $0.87  Closed
LEVL  $38.00   $39.94  FEB30C/FEB35C  $3.25  $4.38   $1.12  Closed
LU    $107.87  $103.31 FEB105C/110C   $1.75  $3.25   $1.50  Closed
LUV   $26.06   $26.69  FEB22C/FEB25C  $1.25  $2.25   $1.00  Closed
LVLT  $44.19   $45.94  MER37C/MAR45C  $4.62  $5.00   $0.38   Open
OXHP  $20.06   $18.81  FEB17C/FEB20C  $1.38  $1.12  ($0.25)  Open
OXHP  $20.06   $18.81  FEB17C/FEB20C  $1.00  $1.12   $0.12   Open
QNTM  $24.87   $24.81  FEB22C/FEB25C  $1.25  $1.38   $0.12   Open
RHD   $17.68   $15.94  MAR15C/MAR17C  $1.12  $1.00  ($0.12)  Open
SCUR  $26.75   $26.50  FEB20C/FEB25C  $3.75  $3.38  ($0.38)  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.


DEBIT STRADDLES
***************
Stock   Pick     Last     Position   Debit  Value   G/L    Status

JMED   $35.19   $34.25   MAR35C/35P  $5.62  $4.62  ($1.00)  Open
NXTL   $29.68   $30.63     MAY30C    $0.00  $2.12   $2.12  Closed

A debit-straddle is profitable when the value of the position
exceeds the initial cost of the spread.


NEW PLAYS
*********
MRK - Merck Company Inc.  $139.00     *** Earnings Slam ***

Merck is the #1 drugmaker in the US and is tied for first in the
world with Glaxo Wellcome in prescription drugs. They develop
products for both humans and animals; almost two-fifths of its
sales come from treating ailments associated with American eating
habits, (high cholesterol, hypertension, and heart failure). In
addition, Merck has the top-selling US drugs for hypertension
as well as newer, promising drugs for AIDS treatment, male balding
and migraine headaches. Also under development is a new arthritis
drug.

The drug developer fell $7.31 on Friday after it said it will stop
testing its MK-869 drug for use as an antidepressant. The company
hoped to develop the drug, which it will still test as a treatment
for nausea in cancer patients, as a hedge against the impending
loss of 4 major patents in 2001. The split run (2/16/98, 2-1) may
have some effect but the SOR date is Monday (after the close) and
we see this one falling short of the sold strike in mid-February.

PLAY (conservative/credit spread):

BUY  CALL FEB-160 MRK-BL OI=3366 A=$1.25
SELL CALL FEB-155 MRK-BK OI=3539 B=$1.93
NET CREDIT TARGET=$0.81 ROI=19%

PLAY (bearish momentum only):

BUY  PUT FEB-150 MRK-NJ OI=885  A=$8.50
SELL PUT FEB-145 MRK-NI OI=1686 B=$6.00
NET DEBIT TARGET=$2.38 ROI(max)=110%

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

EMC - EMC Corp.  $98.50     *** Technical/Disparity Play ***

EMC Corp. and its subsidiaries design, manufacture, market and
support a wide range of storage-related hardware, software and
service products for the open systems, mainframe and network
attached information storage and retrieval system market. The
company is the #1 maker of many of these components. EMC markets
its memory products under the name Symmetrix. Other products let
users manage remote data and share information across networks of
different computers. EMC continues to broaden its product line,
strengthen alliances, and expand its global presence to create
more platform-independent systems.

We just like the chart and the small disparity for a (relatively)
free-money play.

PLAY (conservative/credit spread):

BUY  PUT FEB-75 EMC-NO OI=502  A=$1.12
SELL PUT FEB-80 EMC-NP OI=1157 B=$1.50
NET CREDIT TARGET=$0.50 ROI=11%

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

SKYT - Skytel  $26.38     *** Telecom ***

SkyTel Communications (formerly Mobile Telecom Tech.) is one of
the leading providers of worldwide wireless messaging services,
marketing primarily to business users. The company offers a wide
range of messaging services to its users. Subsidiary SkyTel Corp.
provides paging and messaging services including pagers, two-way
alphanumeric text messaging and two-way interactive messaging.
SkyTel also provides messaging services in in Central and South
America through its Mtel Latin America subsidiary. SKYT recently
added more specialized content to its information services with
the addition of Asian market updates, real-time stock quotes,
sports scores, company news, ski reports and horoscopes. Coverage
was initiated early this month by ABN AMRO with an "Outperform"
rating and we like the long-term outlook for the chart.

PLAY (conservative/long-term play):

BUY  CALL JUN-25 MMQ-FE OI=249  A=$4.75
SELL CALL FEB-25 MMQ-BE OI=3012 B=$2.38
NET DEBIT TARGET=$2.25 TARGET ROI=60%

PLAY (very conservative/debit spread):

BUY  CALL FEB-22.50 MMQ-BY OI=50   A=$4.38
SELL CALL FEB-25.00 MMQ-BE OI=3012 B=$2.38
NET DEBIT TARGET=$1.87 ROI(max)=33%

Note: In the long-term calendar spread, we are reducing the net
cost of the long option by the amount of credit from the sale of
the nearer-term option. If the near-term call expires worthless,
we will sell the MAR call to further reduce our debit. If your
short-term position is ITM on the last day of the strike, you
need to buy it back so that you DON'T have to exercise the long
term position. In that case, your long position is going up in
value also and on the last day of the strike period, the short
call will shrink down to intrinsic value so you should be ahead
in the play even after you buy it back.

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

PLCM - Polycom  $26.75     *** Telecom ***

Polycom makes long-distance teleconferencing products for use on
regular telephone networks. The ShowStation data-conferencing
system enables people in different locations to view and edit
documents on a simultaneous, interactive basis. Its SoundStation
audio-conferencing system, provides two-way voice communication
without typical speakerphone distortion. Subsidiary ViaVideo
Communications offers ViewStation, a Web-based videoconferencing
system that features a voice-tracking camera. Reported awesome
earnings last week, net revenues grew 140% for the year to over
$100 million. Technically, an outstanding chart with some recent
support around $21 but it may need to consolidate before moving
higher. That will be just the thing we need to benefit from this
time spread.

PLAY (conservative/calendar spread):

BUY  CALL MAR-25 QHD-CE OI=0   A=$4.38
SELL CALL FEB-25 QHD-BE OI=163 B=$3.15
NET DEBIT TARGET=$1.00 TARGET ROI=40%

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

NRC - NAC RE Corp  $48.56     *** Technical Time Spread ***

NAC Re is a holding company whose subsidiaries offer property and
casualty reinsurance. Subsidiaries NAC Reinsurance, Greenwich
Insurance Company, Indian Harbor Company, and NAC Re International
Holdings provide both treaty reinsurance for categories of risk
and facultative individual risk reinsurance to primary insurers of
casualty risk. Most U.S. commercial property-casualty insurers,
battered by an unrelenting price war and increases in catastrophe
losses, were expected to post flat to lower earnings in the fourth
quarter. This may also be the case for NRC but we think the stock
price will hold near the current range for the next few weeks.
Technically, NRC is making feeble attempts to break-out of it's
stage III top but with little volume support. Its 150 dma is the
current resistance (around $49) with support around $45. It will
take some work to exit the current sideways trend and that's just
what we need to make this play profitable.

PLAY (conservative):

BUY  CALL MAR-50 NRC-CJ OI=160 A=$4.87
SELL CALL FEB-50 NRC-BJ OI=289 B=$3.62
NET DEBIT TARGET=$1.00 TARGET ROI=50%

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

CNTO - Centocor  $39.93     *** Butterfly Spread ***

Centocor makes therapeutic, diagnostic drugs for cardiovascular
problems, cancer and other diseases. Three of their products are
approved for sale in the US: ReoPro prevents blood clots during
angioplasty, Remicade treats the bowel disorder Crohn's disease
(and is being tested for efficacy against rheumatoid arthritis),
and Panorex treats cancer. ReoPro is sold in the US and Europe by
Eli Lilly. Centocor's drug Avakine is in the final US testing
stages for treatment of Crohn's disease. The company owns the US
and Canadian marketing rights for Retavase, a cardiovascular drug
developed by Roche Holding. Centocor is also selling its oncology
diagnostics business to focus on therapeutics.

Recently, Morgan Stanley Dean Witter cut its rating on the firm
to "outperform" from "strong buy" and adjusted its 12-month price
target to $51 per share from $62 per share. We think that's a bit
optimistic as CNTO has been trading around $35 to $45 for almost
two years and has a very long term base with no immediate signs of
a significant character or trend change. The volatility of the
holiday bull-run seems to have dissipated and the sideways trend
is now resuming. We are going to start this play as a "butterfly"
but plan to roll-out of each spread as the stock price moves about
the $40 range.

PLAY (conservative/long-term):

BUY  CALL  APRIL-35 COQ-DG OI=364  A=$7.50
SELL CALLS APRIL-40 COQ-DH OI=507  B=$4.38
BUY  CALL  APRIL-45 COQ-DI OI=1227 A=$2.68
NET DEBIT TARGET=$1.00 TARGET ROI=50%

The butterfly spread is generally a neutral position that is
a combination of both a BULL spread and a BEAR spread. This
spread is designed primarily for the stock that will not
experience much of a net rise or decline by expiration. It
generally requires only a small investment and has a limited
risk but profits are limited as well. It can also be costly
in terms of commissions so you should consider playing these
combination strategies with a low cost (discount) broker.

There are three strike prices involved in a butterfly spread.
With calls, (and it can also be done with puts) the butterfly
spread consists of buying one call at the lowest strike price,
selling two calls at the middle strike price and buying one
call at the highest strike price. Next week, we will run the
complete strategy narrative again to help the beginning traders
with the technique.

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


INDEX OPTION SPREADS
********************
As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time. The buyer has the rights and the seller
the obligations. With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
market industry or on the market as a whole. Spread strategies can
be made with index options similar to those made with individual
stock options. Many professional traders employ index spreads as a
hedge strategy. We favor debit positions on the SPX for momentum
and longer-term plays and OTM credit spreads on the OEX when the
risk/reward is favorable. Low ROI disparity spreads will be listed
(when available) for the conservative index trader.
*****

OEX - S&P 100 Index  $610.38     OTM Credit-Spreads

The Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries. The component
stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding.

OBSERVATIONS:

For OTM credit spread trades, we like to use the actively-traded
S&P 100 Index options because they contain much more premium than
options on individual stocks and provide an underlying instrument
less prone to huge, gapping moves. Remember however, that you can
always be exercised early so monitor your positions daily.

TECHNICALS:

While the overall market seems likely to remain in a wide trading
range over the next few weeks, the probabilities are quite strong
that we have reached a short-term top and the current outlook is
somewhat unfavorable. The DOW has found some support just above a
key level around 9085 and a close below that number confirmed by
a S&P 500 close below 1205 would signal a more serious correction.
The long-term pattern is in a neutral but weakening condition with
the NYSE survey starting to slip and the NYSE momentum index at
its worst level in years. Review the Pinnacle Hedge-Section for
more specific technical information on the S&P 100 Index.

PLAY (very conservative/disparity-low ROI):

BUY  PUT FEB-550 OEW-NJ OI=3944 A=$4.50
SELL PUT FEB-555 OEW-NK OI=1265 B=$4.87
NET CREDIT TARGET=$0.38 ROI=8%

PLAY (conservative/bearish):

BUY  CALL FEB-670 OEY-BN OI=6374 A=$1.19
SELL CALL FEB-660 OEY-BL OI=6738 B=$2.12
NET CREDIT TARGET=$0.93 ROI=10%

PLAY (aggressive/bullish):

BUY  PUT FEB-565 OEW-NM OI=2357 A=$6.38
SELL PUT FEB-570 OEW-NN OI=3851 B=$7.25
NET CREDIT TARGET=$0.87 ROI=21%

CHART= http://quote.yahoo.com/q?s=oex&d=b????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 $20 off the monthly rate.??To subscribe you may go to our website at??www.optioninvestor.com??and click on "subscribe" to use our secure credit?card server or you may simply send an email to?"subscribe@optioninvestor.com" with your?credit card information,(number, exp date, name)?or you may call us at 303-797-0200 and give us the?information over the phone.??You may also fax the information to: 303-797-1333??*****??PLEASE SEE DISCLAIMER IN SECTION ONE??*****???