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12/21/05
ALL I WANT FOR CHRISTMAS IS A RIDE HOME!

December 21, 2005

EDITOR'S NOTE: ChangeWave Options Investor will not be published next week as we take a break for the holidays. We will return to our regular schedule on Wednesday, Jan. 4. We wish you an enjoyable holiday season!

Whenever something disrupts your routine, it's annoying. The transit strike in New York this week, though, has been more than just a disruption -- it's been a disaster! Beginning at 5 a.m. on Tuesday, police began barring vehicles south of 96th Street if they had fewer than four riders.

Friends in the Big Apple told me Broadway was backed up to at least 125th Street, and the side streets were jammed. Taxis became mini-buses, crammed with four and five passengers apiece. Car services allegedly boosted rates for trips from Manhattan to JFK to $300 from the usual $55. But, as New Yorkers have done in the face of much worse, they bucked up and got through it.

Mayor Michael Bloomberg declared that the union leaders in the Transport Workers Union are "thugs" for calling the strike, and he estimated it would cost the city nearly a half-billion dollars per day.

The union claimed the Metropolitan Transportation Authority (MTA) had a $1 billion surplus, but they conveniently forgot to mention that the MTA also services a debt load of $22 billion!

As usual, the devil is in the details, but the issue at the root of the transit strike is the same one that's hammering General Motors and every other company in the U.S. -- healthcare costs.

The cost of healthcare for transit workers is expected to jump nearly 50% this year, and the MTA's pension obligations have more than tripled since 2002 to $453 million this year. Bloomberg wants the workers to shoulder some of these spiraling costs, and the workers wonder why they are among the few not reaping the benefits of the massive turnaround in New York tourism.

Any way you slice it, the solution isn't going to be easy for either side to swallow, but New Yorkers weathered 9/11, and they'll make it through this as well.

CATCHING THE CHANGEWAVE -- TURNING BLUE INTO GREEN

Last week, my brother and trading partner Pete and I repeatedly noticed unusual buying patterns in American Airlines (AMR), which rallied nearly 16% in four sessions. The abnormal buying was picked up by our proprietary Heat Seeker and Distant Thunder programs, which track option-trading activity, and some quick profits resulted.

Fast-forward to this week, where on Monday, Dec. 19, we began picking up unusual buying in the JetBlue (JBLU) March 22.50 Calls. Those calls have climbed with shares of JetBlue, going from $1.25 to $1.35 to today's high of $1.95. Meanwhile, JBLU rallied from $20.36 on Monday to $22.24 today! Thus, JetBlue is our pick of the week.




To fly high along with JetBlue, I recommend giving your broker instructions to buy the JBLU March 22.50 Calls (JGQCX) and sell a like number of JBLU March 25 Calls (JGQCE) for a net debit of 75 cents. Prices that work for do-it-yourselfers are paying $1.80 for the March 22.50 Calls and selling the March 25 Calls for $1.05.

Our profit potential is $1.75 on that 75-cent investment, and as always, our risk is limited to just what we pay for the spread!

To make a limited-risk investment in JetBlue, I recommend buying the JBLU March 22.50-25 bull-call spread for a net debit of 75 cents.

TRADE DETAILS
All information is based on prices as of 4 p.m. Eastern on Wednesday, Dec. 21, 2005.

* NOTE: This example follows the most current prices available to us at the time of publication. You can still enter the trade for up to 90 cents for the JBLU March 22.50-25 bull-call spread through Wednesday, Dec. 28, as long as JBLU shares trade for $21.50 or higher.

Here is the information you need to know to buy our JBLU bull-call spread for profits:

Underlying Stock: JetBlue Airways (JBLU)

Current Stock Price: $22.16

Trade Type: Bull-call spread

Options to Trade: The specific trades to make are in the table below...

Action	Quantity	Option	Strike Price	Ticker	Investment
Buy	1	JBLU March 22.50 Call	$22.50	JGQCX	-$1.80
Sell	1	JBLU March 25 Call	$25	JGQCE	+$1.05
		Net Cost			-$0.75

*A minus sign (-) indicates an amount you pay; a plus sign (+) indicates an amount you receive.

Making The Trade:

If you give this trade to your broker at a net debit of 75 cents, then it doesn't matter which prices your broker pays for the individual parts of the bull-call spread. Thus, our net debit would be 75 cents, or $75 for each spread.

For those of you who are do-it-yourselfers and are making the trade online, an order to buy the JBLU March 22.50 Calls (JGQCX) for $1.80 while simultaneously selling the JBLU March 25 Calls (JGQCE) for $1.05 puts you in the trade with a net debit of 75 cents.

Our loss is limited to the 75 cents that we are paying for the spread. If, on the other hand, JBLU rises above $25 on or before March expiration, then we make $1.75 on our 75-cent investment!

SUMMARY

With JBLU trading for $22.16, a 1,000-share position would tie up $22,160. However, with our trade you'll be able to put just $750 at risk and have a potential gain of $1,750 if JBLU rises to $25 or higher.

Here's why:

* Our net investment on that bull-call spread is the difference between what we paid for the JBLU March 22.50 Calls ($1.80) and our credit on the JBLU March 25 Calls ($1.05), or a net debit of $75 per contract.

* With JBLU trading at $22.16, a 1,000-share position would cost us $22,160.

* Instead, if we buy 10 of the JBLU March 22.50 Calls (JGQCX) for $1.80 ($1.80 each times 100 shares = $180 per contract), or $1,800 and ...

* Against that purchase, we sell 10 of the JBLU March 25 Calls (JGQCE) for $1.05 ($1.05 each times 100 shares = $105 per contract), or $1,050.

* Thus, on a 10-contract spread we have only $750 invested, so that's all we can lose!

* If you follow these guidelines, this means your broker can pay no more than 75 cents and you avoid the risk of "legging the spread" -- that is, buying one side and waiting to sell the other.

* NOTE: Keep in mind that nobody knows your risk tolerance or financial situation better than you. A single bull-call spread in this example will cost you $75 plus commissions. As long as you maintain the ratio of one contract purchased against one contract sold, you can ramp up this strategy as big, or make it as small, as you'd like.

* Remember, you can pay up to 90 cents for this spread trade through Wednesday, Dec. 28 as long as JBLU shares trade for $21.50 or higher.

TRADE PROFITABILITY ANALYSIS

To illustrate how and where you will make money on this trade, I have included a payoff diagram at the start of this section. You can use this chart to follow along with my explanation below:



If you look at the shaded areas as they compare to the horizontal axis that tracks the price of JBLU shares, you can see that the trade becomes profitable (green area) when the underlying stock crosses the $23.25 level. Likewise, while the stock is under $23.25, we are below the axis (red area) where the bull-call spread registers a profit.

As with any 1-to-1 bull-call spread, our risk is limited to what we pay for the spread -- in this case, 75 cents.

Breakeven: $23.25

The breakeven is $23.25 because, as in any bull-call spread, the breakeven is determined by adding the net cost of the spread (75 cents in this case) to the strike price of the call you are buying. Again, because we paid $1.80 for the JBLU March 22.50 Calls and took in $1.05 for the sale of the JBLU March 25 Calls, our net out-of-pocket is 75 cents. You add that net to the strike price we've purchased ($22.50) and you get your breakeven of $23.25.

Max Profit: $175 per spread ($1.75 x 100 shares)

The max profit is determined by taking the difference between the two strikes of the bull-call spread, which in this case is $2.50 ($25 - $22.50 = $2.50) and subtracting the amount we paid for the spread (75 cents) and is therefore $1.75. Thus, if JBLU is $25 or higher on expiration, then the spread will achieve that $2.50 max and, because we paid 75 cents for the spread, that would leave us with a $1.75 profit, or 233.3%. On a 10-contract spread, that would translate to a profit of $1,750!

*This analysis does NOT include the cost of commissions while executing your trades.

If you'd like to know more about how I routinely turn the odds in my favor when trading options by using simple, easy-to-learn techniques, I will be hosting a FREE 60-minute teleseminar in early January.

Not only will I show you how to take advantage of the enormous profit potential with options, but I'll also show you how to limit your risk and avoid the three common mistakes I see most option investors make.

Finally, I'll give you an opportunity to instantly put into practice what you learned by issuing an option trade that you can make immediately after the FREE teleseminar is done.

I don't know what this trade is yet, but I can promise you that something fresh will catch my eye that day and I'll pass it directly along to you.

Sign up right now to secure your slot by clicking on the link below.

https://iplaceadvice.com/index.asp?sid=seminar3