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October 12, 2006

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They're Called "Options" for a Reason!

Name: Jon ‘Doctor J’ Najarian

Company: Changewave

Learn More About Today's Author
Years Trading: 25

They're Called "Options" for a Reason!

There are a variety of ways to invest your money in the markets—and it seems like there's a strategy for almost any goal you want to achieve. Options trading gives you the ability to do two things at once—invest in your favorite names for a very short time and wield amazing leverage that can turn average returns into spectacular ones.

For example, if you want to buy IBM stock, you simply buy the stock. Sometimes, though, it makes sense to buy options instead of the shares. That's because, true to their name, options GIVE you exactly that—other opportunities, other choices.

This is why I continue to emphasize that we can expect to remain in the high-inflation, low-yield market that characterizes the current landscape facing income investors.

What's attractive about an option on a piece of real estate? Take a corner lot that's for sale for $500,000. You have an idea for a future business there, and in your gut you know that area of town is soon going to become attractive to a number of other potential companies and residents.

The only problem is, you don't have the $500,000. However, after talking to the owner, he agrees that for a sum of $10,000 (paid to him), he will give you the "right" to buy that property for $500,000 for up to one year.

If you can come up with the $10,000, then you can go ahead and buy the option on the property. Now, you don't actually own this land, but you do control it, as you have a "right" to it for a specified time (one year).

But on the other hand, you're also NOT obligated whatsoever to buy that property. This means that you're not on the hook for anything more than the $10,000 deposit.

Now what would happen if your hunch was right? Suppose that months down the road, ChevronTexaco becomes very interested in that property.

And what if they decided to offer you $750,000 for it? Well you can probably see a nice $250,000 profit sitting there on the table!

But here's the real power of an option. In this example, you only had to put up $10,000 of your own money. Had you bought the property for $500,000, and then been offered $750,000, you would have realized a profit of 50%, which isn't bad.

But, by only tying up $10,000 (your total investment), what's the percentage return on your money NOW when you profit the $250,000? Try 2,400%!

Options give you leverage, plain and simple—BIG leverage! In the stock market, it gives the individual investor a huge leg up, letting you control your risk (which is always LIMITED when buying an option) and affording you UNLIMITED, leveraged upside!

Now YOU Can Rack Up Fast 100%—350% Gains

Simply “follow the money.”

You see, it is undeniably true that Wall Street “insiders” have a big advantage over most investors. You know it. I know it. Everyone knows it.

You only have to watch how stocks mysteriously pop in advance of a good earnings report, broker upgrade or merger to understand how the game is played.

The investing world runs on whispers. Little winks and nods that the average guy is never privy to—until now.

Now you can do the same thing the insiders do – make big money in a hurry.  Not by trading on "inside information," but by watching what the "smart money" does.

I call it HeatSeeker.

That’s my name for my proprietary technology that tracks "unusual trading activity" on the options exchange.

“Exchanges," actually.  Unlike the old days when all the trades went through one location, options trade today on 6 different exchanges – totaling some 120,000 different quotes every second.

You see, unlike the old days when all the trades went through one location, options trade today on 6 different exchanges—totaling some 120,000 different quotes every second.

And my HeatSeeker technology captures and searches every one of them for that nugget of intelligence that tells me the “smart-money” players are making one of their patented “in-the-know” moves.

A few other trading gurus have cobbled together programs to track volume. But volume alone only tells a small part of the story—like a sailor knowing how hard the wind is blowing, but not what direction it’s blowing from.

HeatSeeker tracks an average 4.5 million options contracts a day—spotting not just unusual volume, but also identifying two key characteristics that the volume aggregators miss.

HeatSeeker sorts the volume data by options bought on the “bid” and the “ask.” And it separates those instances where traders are just limping in, looking for bargains from the red-hot frenzy that occurs when traders are buying big blocks of options and are willing to pay almost any price.

HeatSeeker sorts through a Mount Everest of data every second and sounds a blaring Red Alert when it zeros in on our next big winner.

Here’s One Example of How (and How Well) HeatSeeker Works

Back on March 23rd, HeatSeeker nearly went ballistic over the options trading activity in Maverick Tube Corp.

Just like it sounds—the company makes steel tubes. Boring, right? Well who cares whether they make doughnuts or wing nuts? Not me.

All I care about is following the money. And the money was pouring into the April 55 Calls on March 23rd.

Here are my exact trading instructions that day:

"Maverick Tube Corp (MVX). The HeatSeeker lit up as buyers look to be expecting for MVK to finally break through $50. We will piggyback on the trade and buy the MVK April 55 Calls for 30 cents and pay up to 35 cents."

What’s neat about the trade is that the stock just kind of sat there for a couple of days—you would have had plenty of time to tee this one up. And then…

BANG. The thing exploded for 266% gains in just seven days.

Discover everything you need to know about how HeatSeeker works in an online seminar I just taped called “How to Follow the Smart Money and Trade Options Like a Pro.”

Whether you’re a seasoned day options occasionally...or simply would like to learn how to trade options right, this FREE online seminar can help give you a priceless advantage over other investors in the options market.

This advantage has made me millions, and it can do the same for you. Sign up for “How to Follow the Smart Money and Trade Options Like a Pro.” Your attendance is absolutely free!

Jon ‘Doctor J’ Najarian

About Today's Author

Whether pounding running backs for the Chicago Bears or trading on the floor of the Chicago Board Options Exchange (CBOE) or Chicago Board of Trade (CBOT), Jon ‘Doctor J’ Najarian plays to win. Jon's market making firms are some of the top option floor-trading firms in the country, placing Najarian at the top of the options game.

But Jon has paid his dues to get to the top. He got to the CBOE after a brief career as a linebacker with the Chicago Bears. Then in October 1981, he started as a clerk on the CBOE floor, where he worked six months for free just to get his foot in the door! During his unpaid apprenticeship, Jon found that his discipline, quick reflexes and competitive nature were well-suited to the demands of floor trading.

Soon Najarian bought a CBOE seat and began trading in the IBM pit. Within a few years, ‘DRJ’— the letters on his pit badge—became his well-known nickname, and he established himself as one of the exchange's biggest players.

Doctor J first began publishing his market observations in the mid-'90s. He is regularly quoted in The Wall Street Journal, Reuters, CBS, CNN, Bloomberg and other financial periodicals. Doctor J also provides stock market updates and is the host of "Stocks & Jocks, Taking Care of Business with Doctor J," which is carried on CBS Radio's Infinity Broadcasting Network (WSCR-AM 670 in his hometown, Chicago). He is also editor of ChangeWave Options Trader, a weekly advisory newsletter service for option traders.

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