Sponsored By:

Investing in Mother Nature?

February 16, 2006


Dear Fellow Options Investor,

"Getting an inch of snow is like winning 10 cents in the lottery!" -- Bill Watterson

I might be wrong, but I don't think too many New Yorkers, other than schoolchildren, found anything lottery-like in New York's record-breaking 26.9-inch snowfall last weekend!

Back to the quote, I'll bet a number of you are wondering more about its author than the quote itself. Bill Watterson is the genius who created the "Calvin and Hobbes" comic strip, who in my opinion is perhaps the funniest cartoonist of the latter 20th century.

I could go on and on about all three characters -- Calvin, Hobbes and Mr. Watterson -- but instead I encourage you to surf over to Amazon.com and buy a couple of his books. I guarantee you will spend hours laughing until your side is sore, which is both more fun and a more effective ab workout than any contraption you'll find on QVC!

Just west of Philadelphia, 21 inches of snow were recorded in West Caln Township; the average snowfall for an entire winter in Philadelphia is about 21 inches, so you get a pretty good idea of how ill-equipped they must be to deal with the after-effects of such a massive storm.

The nor'easter that dumped the record snowfall on the East Coast came with a one-two punch of snow and 50 mph winds that knocked down power lines and stranded tens of thousands of travelers. About the only bright spot was that the storm hit on the weekend, as you can only imagine what would have occurred had this hit on a weekday!

I guess the storm shows that the weather gods have a sense of humor as well, as the Chicago Mercantile Exchange, the biggest U.S. futures market, had picked last week to announce it is creating futures and options contracts that pay out based on amount of snow that falls in New York's Central Park and Boston's Logan International Airport!

The CME is the only exchange to offer weather derivatives, the volume of which jumped sevenfold last year to 889,000 contracts on demand from companies whose fortunes change with the weather and this launch.

And like the timing of their initial public offering in late 2002, their timing could not have been better! Shares are up more than tenfold to $411.50, so before you bet against snow futures being a hit, you might want to think twice!

CATCHING THE CHANGEWAVE -- IT'S A GAS, GAS GAS

Our Heat Seeker program, which tracks unusual activity in stocks, options and futures has picked up very, very active buyers taking on big positions in El Paso Corp. (EP).

Why is the smart money making a big bet on EP with natural gas trading at $7.08 per million BTU? Our intuition is that these buyers may think natural gas is due for a rebound, and/or that EP's earnings (coming at the end of February or early March) will beat consensus estimates, or both!

Heat Seeker tracks 120,000 quotes per second, and it shows us that buyers jumped all over the EP March 12 and 13 calls, buying double the open interest at both the March 12 and 13 call strikes. The March 12 calls are trading up 50 cents to $1.20 and the March 13 calls are up 30 cents to 60 cents.

So today I'm going to recommend a single El Paso option instead of a spread trade.

I recommend paying $1.20 for the EP March 12 Calls (EPCN), as that price represents just 25 cents of out-the-money premium. A rebound in natural gas or a great earnings report could easily drive EP back to $14, which would be a handsome return on our investment.

Nothing fancy here, nor is a payout chart necessary. Tell your broker to buy the EP March 12 Calls (EPCN) for $1.20 with EP trading $12.80 or higher.

* Remember, you can pay up to $1.20 for this option through Wednesday, Feb. 22, 2006, as long as EP shares trade for $12.80 or higher.

Good luck trading and remember -- pigs get fat, but hogs get slaughtered, so don't be a hog!

Jon "Dr. J." Najarian
Editor
ChangeWave Options Investor

P.S. Sign up today to get your free Options Mini-Course on how to perform "Portfolio CPR." I know you guys are dying to learn more about different option strategies. I keep getting e-mails, the response to my teleseminar was tremendous and it's usually standing-room only at my Money Show seminars.

So, I went right to work and developed my new options mini-course that will show you how to:

Save a trade that you’ve been crushed on

Take control of a bad trade instead of letting it control you

Handle a trade you thought was a "sure thing" when it goes south

And that's only for starters. This options mini-course is jam-packed with information. And as a special bonus, I'm giving out a trade.

So don't delay -- the deadline to sign up is Sunday, Feb. 19, 2006.

Click below to get your free options mini-course today!

http://investorplace.com/order/?pc=6CX118