Sponsored By:

Above The Law

March 29, 2006

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Dear Fellow Options Trader,

"Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote!" -- Benjamin Franklin

I'm sure you were as surprised as I was to learn that current securities law and congressional ethics rules don't prohibit lawmakers or their staff members from buying and selling securities based on information learned in the halls of Congress!

It's true, our wonderful, dedicated, elected officials and their staff can learn of an investigation on a given stock and without risk of incarceration, act on that material, nonpublic information, selling shares short or buying puts on said security, and waiting until the news of the investigation breaks and the stock gets hammered. Then, sly like a fox, they can buy back shares they sold at considerably lower prices!

While it is bizarre that the same laws that were used to put that menace-to-society Martha Stewart behind bars do not apply to our congressmen, congresswomen and their staffs, it is even more troubling that a bevy of firms pay our members of Congress and/or their staffs for access to information on potential actions that the legislative body is considering.

Now I'm no lawyer, but I am married to a former lawyer and a circuit court judge, so I'm pretty clear on the definition of insider trading. Most sources would agree that insider trading is the buying or selling of securities on the basis of material, nonpublic information.

Call me crazy, but when a congressman learns that his committee is about to do something that would affect a specific company, that meets my definition of material nonpublic information. I don't know which fact I am more shocked about, that Congress could trade on insider information, or that they are at least paying lip service to ending the practice!

CATCHING THE CHANGEWAVE -- APPLIED MATERIALS GENERATING HEAT

This semiconductor equipment supplier is lighting up our Heat Seeker program, which ferrets out unusual buying or selling patterns in stocks, options and futures.

Heat Seeker shows nearly 3,200 of the Applied Materials (AMAT) May 18 Call (ANQES) options being actively traded and only 341 of those calls were sold on the bid. By our metrics, this leaves us with a bull ranking in the 90th percentile, a very bullish indicator of institutional interest.

As trading went into the final hour, the volume at this strike was nearly double the open interest (previous obligations taken on by option sellers). The AMAT May 18 Calls are up 15 cents to 65 cents, and these calls are now just 41 cents out-the-money as AMAT is trading for $17.59.

Our computer models suggest resistance at the $19 level, but after that it's pretty wide open until nearly $21. If we hit that $19 level, we could expect a 100% return on our investment, and obviously a trade over $20 only makes this recommendation look better!

Tell your broker to buy the AMAT May 18 Calls (ANQES) for up to 65 cents through Wednesday, April 5, with AMAT trading $17.50 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 Trader