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                                                                   EXHIBIT 10.33


                                 GREY WOLF, INC.

                      NON-QUALIFIED STOCK OPTION AGREEMENT


     THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement") made as of
January 16, 1999, by and between GREY WOLF, INC., a corporation organized under
the laws of the State of Texas (the "Corporation"), and Edward S. Jacob, III, an
individual (the "Optionee");

                              W I T N E S S E T H:

         WHEREAS, the Corporation is desirous of providing incentive to the
Optionee to further the business of the Corporation and the Corporation has
agreed to grant the Optionee options to purchase shares of common stock, $0.10
par value ("Common Stock"), of the Corporation; and

         WHEREAS, by granting the Optionee options to purchase shares of Common
Stock pursuant to the terms of this Agreement, the Corporation intends to carry
out the purposes set forth in the 1996 Employee Stock Option Plan of the
Corporation (the "Plan") adopted by the Board of Directors of the Corporation
(the "Board of Directors") effective July 29, 1996 and the shareholders of the
Corporation effective as of August 27, 1996; and

         WHEREAS, the Corporation and the Optionee desire to set forth the terms
and conditions of such options to purchase Common Stock;

         NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:

         1. Grant of Option. Subject to the terms and conditions hereinafter set
forth, the Corporation hereby grants to the Optionee a non-qualified option (the
"Option") to purchase all or any part of an aggregate number of 100,000 shares
of Common Stock (such shares, as increased or decreased in accordance with
Section 9 hereof, being referred to hereinafter as the "Option Shares") at an
exercise price of $.8750 per share (hereinafter the "Exercise Price").

         2. Exercise Period. The Option shall be exercisable by Optionee as to
twenty (20%) of the Option Shares one (1) year after the date of this Agreement,
as to an additional twenty percent (20%) of the Option Shares two (2) years
after the date of this Agreement, as to an additional twenty percent (20%) of
the Option Shares three (3) years after the date of this Agreement, as to an
additional twenty percent (20%) of the Option Shares four (4) years after the
date of this Agreement, until the fifth anniversary of the date of this
Agreement, after which time the Option shall be exercisable in full. The Option
shall expire and terminate as to any Option Shares not purchased by the Optionee
on or before the tenth anniversary of the date of this Agreement (the
"Expiration Date"), subject to earlier termination as set forth herein.
Notwithstanding any other provision of this Agreement to the contrary, the
Option shall be


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immediately exercisable by Optionee as to one hundred percent (100%) of the
Option Shares as provided in Section 11(d) of this Agreement.

         3. Method of Exercising the Option. The Option shall be exercised by
the Optionee delivering to the Corporation (i) written notice from the Optionee
stating that the Optionee is exercising the Option and specifying the number of
Option Shares that the Optionee is entitled to purchase (the "Notice"), which
shall be in form and content identical to Annex I hereto and (ii) the aggregate
Exercise Price (the "Payment") for the number of Option Shares that the Optionee
is entitled to purchase, which Exercise Price must be in the form of (a) cash or
a cashier's or certified check payable to the order of the Corporation, or (b)
the tender to the Corporation of such number of shares of Common Stock owned by
the Optionee having an aggregate fair market value as of the date of exercise
that is not greater than the total Exercise Price for the shares of Common Stock
with respect to which the Option is being exercised and by paying in cash or
cashiers check payable to the Corporation the remaining amount of the Exercise
Price.

         4. Transferability of Option. The Option shall not be transferable or
assignable, in whole or in part, and except as otherwise provided in Section 11
of this Agreement or by will or the laws of descent or distribution. The Option
shall be exercisable (i) only by the Optionee during his lifetime, or (ii) in
the event of his death, by his heirs, representatives, distributees, or legatees
in accordance with his will or the laws of descent and distribution (but only to
the extent that the Option would be exercisable by the Optionee under this
Agreement).

         5. Payment of Taxes Upon Exercise. The Optionee understands and
acknowledges that under currently applicable law, the Optionee may be required
to include in the Optionee's taxable income, at the time of exercise of the
Option, the amount by which the value of the Option Shares purchased (the
"Exercise Shares") exceeds the Exercise Price paid. The Optionee hereby
authorizes the Corporation to withhold Exercise Shares of a value equivalent to
the amount of tax required to be withheld by the Corporation out of any taxable
income derived by the Optionee upon exercise of the Option; provided, however,
that the Optionee may, in the alternative, in order to satisfy such withholding
requirement, deliver to the Corporation cash or other shares of Common Stock
owned by the Optionee.


         6. Investment Representation. The Optionee represents that the Option
Shares available for purchase by the Optionee under this Agreement will be
acquired only for investment and not with a view toward resale or distribution.

         7. Securities Law Requirements; Legends. The Optionee agrees and
understands that the Option Shares may be restricted securities as defined in
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold, assigned or transferred, unless the
sale, assignment or transfer of such shares is registered under the Securities
Act and applicable blue sky laws, as now in effect or hereafter amended, or
there is furnished an opinion of counsel in form and substance satisfactory to
the Corporation from counsel acceptable to the Corporation that such
registrations are not required. The Optionee further understands and agrees
that, unless issued pursuant to an effective registration statement under the
Securities Act, the following legend shall be set forth on each certificate
representing Option Shares:


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         "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY
         STATE, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT UPON SUCH
         REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
         COUNSEL FOR THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED FOR
         SUCH SALE, ASSIGNMENT OR TRANSFER."

         In addition, the following legend shall be placed on each certificate
representing Option Shares:

         "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS
         OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY
         29, 1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION
         AND A COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN
         REQUEST."

         8. No Rights as Shareholder. The Optionee shall not have any rights as
a shareholder with respect to any of the Option Shares until the date of
issuance by the Corporation to the Optionee of a stock certificate representing
such Option Shares. Except as otherwise provided in Section 9 hereof, the
Optionee shall not be entitled to any dividends, cash or otherwise, or any
adjustment of the Option Shares for such dividends, if the record date therefor
is prior to the date of issuance of such stock certificate. Upon valid exercise
of the Option by the Optionee, the Corporation agrees to cause a valid stock
certificate for the number of Option Shares then purchased to be issued and
delivered to the Optionee within seven (7) business days thereafter.

         9. Corporate Proceedings of the Corporation.

                  (a) The existence of the Option shall not affect in any way
         the right or power of the Corporation or its officers, directors and
         shareholders, as the case may be, to (i) make or authorize any
         adjustments, recapitalizations, reorganizations or other changes in the
         capital structure or business of the Corporation, (ii) participate in
         any merger or consolidation of the Corporation, (iii) issue any Common
         Stock, bonds, debentures, preferred or prior preference stock or any
         other securities affecting the Common Stock or the rights of holders
         thereof, (iv) dissolve or liquidate the Corporation, (v) sell or
         transfer all or any part of the assets or business of the Corporation,
         or (vi) perform any other corporate act or proceedings, whether of a
         similar character or otherwise.

                  (b) If the Corporation merges into or with or consolidates
         with (such events collectively referred herein as a "Merger") any
         corporation or corporations and is not the surviving corporation, then
         the surviving corporation may assume the Option or substitute a new
         option of the surviving corporation for the Option; provided, however,
         that the excess of the aggregate fair market value of the securities
         subject to the Option immediately after such assumption, or the new
         option immediately after such substitution, over the aggregate Exercise
         Price of such shares must be, based upon a good faith

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         determination by the Board of Directors of the Corporation,
         not less than the excess of the aggregate fair market value of the
         Common Stock subject to the Option immediately before such substitution
         or assumption over the aggregate Exercise Price of such Common Stock.

                  (c) In the event that the surviving corporation does not
         utilize the provisions of (b) above, or in the event of a dissolution
         or liquidation of the Corporation, the Corporation shall cause written
         notice of such Merger or dissolution or liquidation (and the material
         terms and conditions thereof) to be delivered to the Optionee at least
         ten (10) days prior to the proposed effective date (the "Effective
         Date") of such event. The Optionee shall be entitled to exercise the
         Option (as to all Option Shares, whether or not the Option is then
         otherwise exercisable under Section 2) until the Effective Date, or
         until the Expiration Date if earlier. To the extent that the Merger or
         liquidation is consummated after the Effective Date, the Option shall
         terminate and the Corporation shall have no further obligations of any
         type hereunder. The provisions of this paragraph shall not apply to any
         merger or reorganization, the principal purpose of which is to change
         the jurisdiction of the domicile of the Corporation.

                  (d) If, while the Option is outstanding, the Corporation shall
         effect a subdivision or consolidation of the shares of Common Stock or
         other capital readjustment, the payment of a common stock dividend, or
         other increase or reduction of the number of shares of Common Stock
         outstanding, without receiving compensation therefor in money, services
         or property, then (i) in the event of an increase in the number of
         shares of Common Stock outstanding, the number of Option Shares shall
         be proportionately increased, and the per share Exercise Price shall be
         proportionately reduced, and (ii) in the event of a reduction in the
         number of shares of Common Stock outstanding, the number of Option
         Shares shall be proportionately reduced, and the per share Exercise
         Price shall be proportionately increased. No fractional share of Common
         Stock shall be issued upon any such exercise and the Exercise Price
         shall be appropriately reduced on account of any fractional share not
         issued.

                  (e) The issuance by the Corporation of shares of stock of any
         class of securities convertible into shares of stock of any class,
         including Common Stock, for cash, property, labor or services rendered,
         either upon direct sale or upon the exercise of rights, options, or
         warrants to subscribe therefor, or upon conversion of shares or
         obligations of the Corporation convertible into such shares or other
         securities, shall not affect, and no adjustment by reason thereof shall
         be made with respect to, the number of Option Shares or the Exercise
         Price.

         10. Registration Rights. The Optionee shall have no registration rights
with respect to the Option Shares.

         11. Termination.

                  (a) Except as otherwise provided in this Section 11, if the
         Optionee for any

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         reason whatsoever, other than death or permanent and total disability,
         as defined in (b) below, ceases to be employed by the Corporation, or a
         parent or subsidiary corporation of the Corporation, and prior to such
         cessation, the Optionee was employed at all times from the date of the
         granting of the Option until the date of such cessation, the Option
         must be exercised by the Optionee (to the extent that the Optionee is
         entitled to do so at the date of cessation) within three (3) months
         following the date of cessation of employment, subject to the
         Expiration Date; provided, however, that if the Optionee is terminated
         for cause, the Option will immediately terminate. Notwithstanding the
         foregoing, the Corporation may, in its sole discretion, extend for a
         reasonable period the time in which the Optionee may exercise the
         Option after the date of cessation of employment, subject to the
         Expiration Date.

                  (b) If the Optionee becomes permanently and totally disabled,
         as hereinafter defined, while employed by the Corporation or a parent
         or subsidiary corporation of the Corporation, and prior to such
         disability the Optionee was employed at all times from the date of the
         granting of the Option until the date of disability, the Option must be
         exercised by the Optionee (to the extent that the Optionee is entitled
         to do so at the date of disability) at any time within one (1) year
         after the date of disability or the Expiration Date, whichever is
         earlier, and if not so exercised, the option shall thereupon terminate.

                  "Permanently and totally disabled" means being unable to
         engage in any substantial gainful activity by reason of any medically
         determinable physical or mental impairment which can be expected to
         result in death or which has lasted or can be expected to last for a
         continuous period of not less than twelve (12) months. In the absence
         of any specific requirements for this determination, the decision of
         the Corporation, as aided by any physicians designated by the
         Corporation shall be conclusive and the Corporation shall send written
         notice to the Optionee of the determination that the Optionee has
         become permanently and totally disabled.

                  (c) In the event that the Optionee dies while employed by the
         Corporation or a parent or subsidiary corporation of the Corporation,
         and prior to death the Optionee was employed at all times from the date
         of the granting of the Option until the date of death, the Option must
         be exercised (to the extent that the Optionee is entitled to do so at
         the date of death) by a legatee or legatees of the Optionee under the
         Optionee's will, or by the Optionee's personal representatives or
         distributes, at any time within one (1) year after the date of death or
         the Expiration Date, whichever is earlier, and if not so exercised, the
         Option shall thereupon terminate.

                  (d) Notwithstanding the foregoing, the Optionee may exercise
         the Option as to all of the Option Shares (whether previously
         exercisable or not) on or before one (1) year after the termination of
         Optionee's employment if (i) a Change of Control of the Corporation
         shall be deemed to have occurred and (ii) within one (1) year of the
         date a Change of Control of the Corporation shall be deemed to have
         occurred, Optionee's employment with the Corporation is terminated for
         any reason other than (a) voluntary resignation or retirement, (b)
         death or permanent and total disability, or (c) Cause.


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                  For the purposes of this Agreement, a "Change of Control of
         the Corporation" shall be deemed to have occurred if after the
         effective date of this Agreement (i) any "person" (as such term is used
         in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
         owner" (as defined in Rule 13d-3 under the Securities Exchange Act of
         1934 [the "Act"]), directly or indirectly, or securities of the
         Corporation representing 50% or more of the combined voting power of
         the Corporation's then outstanding securities; (ii) there occurs a
         proxy contest or a consent solicitation, or the Corporation is a party
         to a merger, consolidation, sale of assets, plan of liquidation or
         other reorganization as a consequence of which members of the Board of
         Directors in office immediately prior to such transaction or event
         constitute less than a majority of the Board of Directors thereafter;
         or (iii) during any period of two consecutive years, other than as a
         result of an event described in clause (ii) of this paragraph,
         individuals who at the beginning of such period constituted the Board
         of Directors (including for this purpose any new director whose
         election or nomination for election by the Corporation's stockholders
         was approved by a vote of at least a majority of the directors then
         still in office who were directors at the beginning of such period)
         cease for any reason to constitute at least a majority of the Board of
         Directors.

                  For purposes of this Agreement, the term "Cause" shall mean
         and include (i) chronic alcoholism or controlled substance abuse as
         determined by a doctor mutually acceptable to the Corporation and the
         Optionee, (ii) an act of proven fraud or dishonesty on the part of the
         Optionee with respect to the Corporation or its subsidiaries; (iii)
         knowing and material failure by the Optionee to comply with material
         applicable laws and regulations relating to the business of the Company
         or its subsidiaries; (iv) the Optionee's material and continuing
         failure to perform (as opposed to unsatisfactory performance) his
         duties to the Corporation except, in each case, where such failure or
         breach is caused by the illness or other similar incapacity or
         disability of the Optionee; or (v) conviction of a misdemeanor
         involving moral turpitude or a felony. Prior to the effectiveness of
         termination for Cause under subclause (i), (ii), (iii) or (iv) above,
         the Optionee shall be given 30 days' prior notice from the Board
         specifically identifying the reasons which are alleged to constitute
         Cause hereunder and an opportunity to be heard by the Board in the
         event Optionee disputes such allegations.

                  Nothing in (a), (b), (c) or (d) shall extend the time for
exercising the Option granted pursuant to this Agreement beyond the Expiration
Date.

         12. Disposition of Stock After Exercise of Option. Notwithstanding any
other provision of this Agreement to the contrary, in consideration of the
granting of the Option, the Optionee agrees not to dispose of any Option Shares
without the prior approval of the Corporation unless such shares have been
registered under the Securities Act.

         13. Notices. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be deemed to be
delivered when actually received through U.S. Express Mail or any private
express service (as evidenced by a written receipt), or, if earlier, and
regardless of whether actually received (except where receipt is specified in
this

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Agreement), four (4) days following deposit in a regularly maintained receptacle
for the United States mail, registered or certified, return receipt requested,
postage fully prepaid, addressed to the addressee at its address set forth below
or at such other address as such party may have specified theretofore by notice
delivered in accordance with this Section:

              If to the Corporation:             GREY WOLF, Inc.
                                                 10370 Richmond Ave., Suite 600
                                                 Houston, Texas  77042
                                                 Attn:  President

              If to Optionee:                    Edward S. Jacob, III
                                                 11500 Red Rock Road
                                                 Oklahoma City, Oklahoma 73120

         14. Transferability; Binding Effect. The Option shall be transferable
only as set forth in Section 4. Subject to the foregoing, all covenants, terms,
agreements and conditions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the Corporation and the Optionee and their
respective successors and assigns.

         15. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Corporation and the Optionee relating to the subject
matter hereof.

         16. Governing Law. This Agreement shall be governed by the laws of the
State of Texas.

         17. Captions. The section and paragraph headings in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

         19. Counterparts. This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.


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         IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first written above.

                                    CORPORATION:

                                    GREY WOLF, INC.


                                    By: /s/ DAVID W. WEHLMANN
                                       -----------------------------------------
                                       David W. Wehlmann
                                       Senior Vice President and
                                       Chief Financial Officer


                                    OPTIONEE:


                                    /s/ EDWARD S. JACOB, III
                                    --------------------------------------------
                                    Edward S. Jacob, III






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                           ACKNOWLEDGMENT OF SPOUSE TO
                  TERMS OF NON-QUALIFIED STOCK OPTION AGREEMENT

         I, Ruth E. Jacob, am the spouse of Edward S. Jacob, III ("Optionee"),
and I am fully aware of, understand, and fully consent and agree to the
provisions of the Non-Qualified Stock Option Agreement, dated January 16, 1999
(the "Agreement") executed by Optionee and GREY WOLF, INC. (the "Corporation").
I understand the binding effect of this Agreement and its binding effect upon
any interest, community or otherwise, I may now or hereafter own with respect to
any option or stock of the Corporation which is the subject of the Agreement,
and I agree that the termination for any reason of my marital relationship with
Optionee shall not have the effect of removing any such option or stock of the
Corporation from the coverage of the Agreement.

         Signed this day of_______________, 1998.





                                   ---------------------------------------------
                                   Ruth E. Jacob, Spouse of Edward S. Jacob, III



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                                     ANNEX I

                                 GREY WOLF, INC.

                                 EXERCISE NOTICE

                                                                         ,
                                                       ------------------ -----


GREY WOLF, Inc.
10370 Richmond Ave., Suite 600
Houston, Texas 77042

Gentlemen:

         I hereby acknowledge that I am acquiring _____________ shares
("Shares") of common stock, $0.10 par value, of GREY WOLF, Inc. ("Corporation")
pursuant to that certain Non-Qualified Stock Option Agreement dated _________,
1998 (the "Agreement").

         I understand that the Shares have not been registered under the
Securities Act of 1933 (the "Act") on the grounds that the transfer to me is
exempt from registration pursuant to Section 4(2) of the Act.

         By executing this letter, I represent that I am acquiring the Shares
for investment for my own account and not as a nominee or agent or with a view
to, or for resale in connection with, any distribution of such Shares within the
meaning of the Act. I further represent that I do not have any contract,
undertaking, agreement, or arrangement with any person to sell, transfer or
grant participations in any of the Shares to any third persons.

         I understand that, unless the Shares are then registered under the Act,
I may only dispose of the Shares with the prior written consent of the
Corporation.

         I also understand that, unless the Shares are issued pursuant to an
effective registration statement under the Act, a legend substantially in the
form set below shall be placed on each certificate representing the Shares and
on any substitutes thereof:

         "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933 OR UNDER THE BLUE SKY LAWS OF ANY
         STATE, AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED EXCEPT UPON SUCH
         REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF
         COUNSEL FOR THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED FOR
         SUCH SALE, ASSIGNMENT OR TRANSFER."

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         I also understand that the Corporation may issue stop transfer
instructions to the Corporation's transfer agent, if any, with respect to the
Shares or, if the Corporation transfers its own securities, it may make a
notation in the appropriate records that the Shares cannot be transferred
without an opinion of counsel in the form required by this paragraph.

         I also understand that a legend as set forth below will be placed on
each certificate representing the Shares or any substitutes thereof:

         "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY THE TERMS
         OF THE 1996 EMPLOYEE STOCK OPTION PLAN OF THE CORPORATION, DATED JULY
         29, 1996, WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION
         AND A COPY OF WHICH WILL BE PROVIDED FOR INSPECTION UPON WRITTEN
         REQUEST."

         I understand that I may be required to include in my taxable income the
amount by which the value of the Shares exceeds the exercise price paid and I
hereby authorizes the Corporation to withhold Shares of a value equivalent to
the amount of tax required to be withheld by the Corporation out of any taxable
income derived by me; provided, however, that I may, in the alternative, in
order to satisfy such withholding requirement, deliver to the Corporation cash
or other shares of the Corporation's common stock owned by me.

         I understand the nature of the Shares and the financial risks thereof.
I do not desire any further information or data concerning the Corporation.

                                     Very truly yours,


                                     -------------------------------------------
                                     Optionee Name

                                     Date:
                                          --------------------------------------