Sponsored By:

Options Insider

IN THIS WEEK'S ISSUE:

1. DOC'S THOUGHTS: A Hard Sell for Microsoft
2. TRADE OF THE WEEK: An Overnight Success
3. WEEKLY TECHNICAL FORECAST: Waiting for a Test
4. TRADING TIP OF THE WEEK: 'Striking' Out
5. ON THE LOOKOUT FOR MORE OPTIONS?


~~~~~~~~~~~~~~~SPONSORSHIP~~~~~~~~~~~~~~~~~~

Profit as the Market Keeps Dropping?

ChangeWave Shorts subscribers are. In fact, they had 20 money-doublers in 2007 and have already had 13 so far this year! With plenty more to come.

Using findings from the ChangeWave Alliance and Michael Shulman's 25-plus years of experience, you'll receive simple, easy-to-execute plays that use put options to dramatically reduce your risk.

If you're ready to start making triple-digit gains, click here.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

1. DOC'S THOUGHTS: A Hard Sell for Microsoft

Dear Fellow Options Insider,

This Sunday's showdown between the New England Patriots and the victorious New York Giants may have been the most-watched Super Bowl ever with 97.5 million viewers, but I'm willing to bet that more people are eagerly watching how Microsoft's (MSFT) hostile $44.6 billion bid for Yahoo! (YHOO) plays out.

The announcement on Friday took many on Wall Street by surprise, but not me. Our HeatSeeker system showed an interesting buy and hold pattern in the company's options.

Yahoo! announced quarterly results on Tuesday, Jan. 29, just a few days before the takeover bid was released, and its trading activity understandably increased just prior to, and right after, its earnings release. But what I found especially compelling was, not that we saw unusual buying of the YHOO calls ahead of the earnings announcement but, rather, that a significant number of traders held those positions, even as YHOO toppled nearly 12% in the wake of earnings.

It makes me wonder who knew to hold onto them in anticipation of the takeover announcement. By Friday, YHOO options were trading more than eight times their normal levels.

What is clear, though, is Google's (GOOG) criticism of the deal. The company has launched a PR campaign to highlight what it calls "troubling questions" about Microsoft's actions. Google's Senior Vice President blogged about it over the weekend, asking, "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?"

Google then made a "friendly" offer to help Yahoo! thwart Microsoft's hostile bid.

As of now, the only deal on the table is Microsoft's offer to pay $31 a share in cash and stock for Yahoo! in what would be the biggest Internet deal since the Time Warner-AOL merger in 2000.

While this proposed takeover raises a lot of questions, it actually signals an answer of sorts to me: When Microsoft makes its biggest purchase ever -- especially if Wilbur Ross and Warren Buffett are getting involved -- the market may be closer to a bottom than people realized.


Jon "Doctor J" Najarian
Editor
ChangeWave Options Insider


~~~~~~~~~~~~~~~SPONSORSHIP~~~~~~~~~~~~~~~~~~

It's Time To Recession Proof Your Portfolio

As much as I hate to say it, the United States has entered an economic recession and a bear market for stocks. Today, it's more important that ever for investors to face up to reality.

I can't stress enough how serious this is. In order to protect your money you need to take defensive measures now. Click here to find out what you need to safeguard your money.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


2. TRADE OF THE WEEK: An Overnight Success -- By Bryan Perry

Long investors must typically wait months or even years before nabbing 40% gains, but in the options universe, a win like that can come overnight.

I've seen a lot of attractive plays in the healthcare and pharmaceutical realm right lately, and on Jan. 16, I was especially drawn to Medco Health Solutions (MHS).

On the day before, the market popped nicely and took many of the usual suspects up with it (agriculture, banks, gold, energy and solar), but good drug stocks were held back by the negative press surrounding Vytorin that hammered shares of Merck (MRK) and other drugmakers -- except for one, Medco Health.

In the midst of a pharma pounding, shares of Medco Health traded higher by a dollar against a tidal wave of selling pressure. The stock broke out of a multi-month base in December, rallying up to the $109 range before coming back down to key support at the $101-$102 level (prior to its two-for-one split on Jan. 25). Obviously, fund managers were finding MHS a good place to hide.

I'm not one to argue with a good idea, but the fund managers aside, Medco Health posted strong numbers in Q3, beating estimates by 11%, and provided higher guidance for Q4.

Considering the company's upward guidance and the fact that the stock was performing so well in the wounded sector, MHS was in huge demand -- with shares going for around $106 (pre-split) -- but with an options play, we could catch the upside with a lot less capital.

I recommended my Tactical Trader subscribers buy the MHS Feb 95 Calls, and we got in for $10.50.

The very next day, the calls were up 40% from our cost basis. In this market, we take what the market gives, so we sold the MHS Feb 95 Calls for $11.90, yielding a 40% gain in just two days.

While a solid portfolio always contains some longs, options trades like our recent Medco Health play are definitely good medicine for your portfolio.


Bryan Perry
Editor
ChangeWave Tactical Trader


~~~~~~~~~~~~~~~SPONSORSHIP~~~~~~~~~~~~~~~~~~

Extreme Options Trading -- Experience the Profit Rush!

Ken Trester's Maximum Options trading service offers up to 10 options trades per week. Complete with trading instructions, sell stops, target prices and alerts when it's time to cash out and move on to the next opportunity, he positions you for options profits all week long.

And to sweeten the deal, he's offering his Option Master software -- which helps you to identify and evaluate options for trading on your own -- absolutely FREE!

Click here to get in on this week's trades!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


3. WEEKLY TECHNICAL FORECAST: Waiting for a Test-- by Sam Collins

With euphoria over the rate cut early last week and the Microsoft/Yahoo deal capping things off on Friday, it's no wonder that the bulls are talking of a renewed bull market. Who could blame them after the best week for stocks in over four years?

Some are pointing to The Chicago Board Options Exchange volatility index, the VIX, as confirmation that the correction is over, since the index fell almost 8% on Friday and is down 36% since the emergency rate cut several weeks ago.

The VIX is generally considered to be a good measure of fear in the market and a reading like this is thought to be bullish. However, on Aug. 16, the VIX hit 37 and by Aug. 24, it was at 21 for a 43% decline. Even though a rally ensued, that upward movement led to a failed breakout, then to a double-top and finally a triple-bottom breakdown.

As a cumulative indicator, along with other factors, the VIX has longer-term merit. Alone, it is an extremely short-term indicator that is somewhat unreliable in confirming major market trends.

With almost all of the other indicators now overbought and bullish feelings rampant, stocks are heading into a very high concentration of overhead that took almost nine months to establish. The market has yet to test the Jan. 22 breakdown low and until it does, it is best to remain cautious.

But cheer up: The 80% accurate Super Bowl indicator says that if an old NFL team wins the Super Bowl, then the stock market will be up that year, and few NFL teams are older than the New York Giants.


Sam Collins
Editor
Daily Trader's Alert

Sam Collins is ChangeWave's Chief Technical Analyst and is a Registered Investment Advisor who manages portfolios for a fee. He can be reached at samailc@cox.net.

Get Sam's market outlook e-mailed to you each trading day before the opening bell -- PLUS his Chart of the Day of a stock that's gearing up break out. Sign up FREE today -- click here!

4. TRADING TIP OF THE WEEK: 'Striking' Out

Even though there are a variety of available strike prices for each optionable stock, you can't always get the exact exercise price you might want.

But like the Rolling Stones sang, "You can't always get what you want … but if you try sometimes, you just might find you get what you need."

Let's look at Research In Motion (RIMM) shares trading around $93. What if you wanted to buy in-the-money calls at the $92.50 strike? Well, you can't.

Why? Because stocks that are trading between $25 and $200 per share typically only have options with strike prices issued in $5 increments. So with shares at $70, you can choose an option at the $90, $95, or $100 strike (and so on).

For all stocks trading between $5 and $25 per share, the strike prices are available in $2.50 increments as follows ($5, $7.50, $10, $12.50, etc.).

Now, these are general guidelines, but when a stock splits, becomes heavily traded or gets stuck in a trading range, there are exceptions to the rules, and Pepsico (PEP), which is trading around $69, is one such example.

As it turns out, there is a $67.50 strike for all of PEP's 2008 options. While this doesn't guarantee that this strike will pop up again in 2009, it does illustrate that the market makers do their best to accommodate demand to keep the playing field level.

5. ON THE LOOKOUT FOR MORE OPTIONS?

There's still time to get your free tickets for the Orlando World Money Show Feb. 6-9, 2008, at the Gaylord Palms Resort in Orlando, Fla.

Join your favorite ChangeWave Options Investors, including Toby Smith, Michael Shulman and Bryan Perry, and get their secrets to building wealth.

With the recent stock market turmoil, this is the perfect time to give your investments an "annual checkup." ChangeWave advisers will be on hand to answer questions, give you advice you can use immediately and to explore this year's hottest theme -- global investing.

Click here to get your free tickets today.