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'This Heat Has Got Right Out of Hand'

June 15, 2006

Dear Fellow Options Trader,

"He who puts up with insult invites injury." -- Yiddish proverb

You might thank your lucky stars that you aren't me. Now, I'm grateful to say that I have a great life, but to be at the top of my trading game, I've got to know what's going on at all times in the nation and in the world's markets. And while I love the challenge and can't imagine doing anything else with my life, there are some days when I'd love to tune out the nonsense and go straight to the important news that helps me to be more effective in my vocation.

I get up every business day at 4 a.m. looking forward to doing battle in the markets. I delve into what happened in the overseas markets, pore through our pre-market HeatSeeker activity and get ready for my CBS radio show, "Taking Care of Business with Doctor J."

While you might not like my hours, I suspect you would hate the fact that I must have four separate televisions blaring out what the networks think passes for vital information throughout the trading day. The distraction is massive, and the real information that's broadcast is anorexic-thin. But just on the slim chance that some important news does break, I have to keep the televisions on.

As much as you might dislike that, you can imagine how I hate the talking heads on the tube who feel compelled to insult their viewers throughout the day. Now, this isn't to say that every network is horrible, but business news channels -- which rarely show up on Nielsen ratings due to the small audience size they draw -- somehow feel that insulting their audience will increase the amount of people they reach.

How else could you justify these media outlets rubbing salt into the wounds suffered by investors throughout the past six weeks? To wit, one network thought it was a good idea to run a song by the British girl band Bananarama, a precious little ditty called "Cruel Summer." Just by the title of it alone, it seems the network thought its audience would like to hear this pop song as a reminder of how bad things are in the markets as we officially enter into summer 2006.

The song, recorded in 1983, was apparently deemed significant by the network because the last time the Nasdaq had such a long losing streak was 1984. The network folks must have thought, heck, our demographic would probably get a kick out of hearing a song they can relate to, one that reminds them of another painful time in their investing career!

For those of you who don't remember Bananarama, and I suspect that's most of you, here is a short take on the lyrics:

"It's a cruel, cruel summer
Leaving me here on my own.
It's a cruel, cruel summer
Now you're gone!"

All right, hopefully you don't have that song stuck in your head (like I do!), but let me tell you, I could go as long without another market correction as I can without hearing that song again.

Kinda makes you want to slit your wrists, doesn't it? They must have thought their audience would be out there thinking, “Boy, this is why I watch this station!” But I think the audience said to heck with that, turned off the TV and headed onto the Internet to gather news without a soundtrack!

Now if they didn't want to insult their audience and wanted to offer an artist they could identify with, might I suggest the "Chairman of the Board" -- Francis Albert Sinatra. Possible songs by the Chairman would be, "High Hopes," "Luck be a Lady," "That's Life" -- or, if they wanted to go out on the edge, "You're Driving Me Crazy"!

TRADE OF THE WEEK UPDATE

My brother and trading partner Pete and I have a little saying lately, that the market is volatile and, in turn, volatility is volatile. The markets are busier now that volatility has been bouncing up and down, although right it looks like investors have gone from very fearful to having a little more certainty, as the volatility indexes have pulled back a bit.

That said, there are trades to be made, but it seems like if we blink, we'll miss them -- because what's moving is moving very quickly. I'm working to zero in on something that will give us a nice entry window, because this market owes us a few great wins to compensate for the damage it's done. I will definitely keep you posted when it's time to reach out and grab a trade with great potential, so stay tuned!

BUY LIST UPDATE

Although we're bidding farewell to several expiring option trades tomorrow, it also means that we are practically starting with a clean slate as we muddle through the rest of this bull-market correction.

Our bull-call spread in Expedia (EXPE) and our single-call trades in Cisco (CSCO), AGCO Corp. (AG) and D.R. Horton (DHI) were all initiated in advance, or just at the beginning, of the correction that began in May. Each of these trades was made based on extremely bullish trading activity in the calls by large institutional buyers, but when the markets started struggling, so did these companies' shares. Thus, when the stock didn't reach the respective strike prices of the calls we held, the options didn't flourish the way they would have, had the stocks gone up in value.

We'll get through this, gang. There's still a lot of fear in the markets, even on the part of the "smart money," but when they get back in the swing of things, we'll be ready to follow them into the profits they're just as hungry as we are to make!

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