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Author: Mike Celeste Editor: Tony Ponzo October Circulation: 6295


Highlight of this past week: The aggressive plays on the Momentum Strategy had another winning week and now sit on a 296% profit year to date. Check it out --Aggressive Results

2 for 1 Special - Plus: This month we are offering to new members the first two month's membership for the price of one. Plus, did you know you can auto trade the aggressive Momentum Strategy?? If you have been thinking you would like to trade the aggressive plays but just can't find the time, you can have our auto trading broker do it for you. Send us an email and we'll tell you how. Click on this link and send us an email - Contact Us Simply write in the subject line "Special" and we'll get back to you with information quickly. Send us any questions you may have as well.

In this Issue---
SplitMaster Basic System---
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The splitters seem to have picked up. We now have 3 working and 2 more to come next week. This tells us that some companies are loosening up and going for the splits, now that they are doing so well.

Options---
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Story/Lesson: We had an unusual occurrence this week, and it just goes to show that after 15 plus years of trading options, we are still learning. We were testing out a straddle/strangle on earnings plays, with us actually making the play. In this play you put in a combined price and buy a Call/Put combo at the same time. It is a Straddle if the strikes are the same or a Strangle if the strikes are different. OK, in went the order. When we make these plays we usually put the order in half way between the bids and the asks. For example, let's say the bid on the Call option is 3.60 and the ask is 3.90. Then the bid on the Put is 2.80 and ask is 3.10. Adding those prices between the Call and the Put would get a combined 6.40 on the bid and 7.00 on the ask.

-------------BID-------ASK
Call-------- 3.60-------3.90
Put--------- 2.80-------3.10
Totals ----- 6.40-------7.00

The middle would be 6.70 so that is where we start with our order. Most brokers have an order system that allows you to make this order as one trade so you put in the combined debit of 6.70. If we can't get that number we start moving the price up. So our debit might become 6.85 or whatever is closer to the combined ask prices at the time. Different market makers respond differently. Some will take the lower price for whatever their reason and others will be stingy and will not take the lower orders. We never know so we just work with it.

Once we have the order executed, we look to sell the straddle/strangle at a set goal. (Note: As in all plays they do not all work out so we always have a loss exit set as well). We enter the sell order in the same way as the buy order - as one trade. In the sell order we are looking for an overall credit. So if we got into the play for a combined 6.90 we may go for a combined 7.50 for the exit for an overall profit of .60. When selling, we look closer to the then combined bid price - the opposite of buying. Normally, the bid is what you would get if you put in a market order, as it means there is someone out there that is offering to buy at that price, for the options.

Continuing on with what actually happened to us on this play, it was the end of the day, and we did not have time to try to get a higher price so we put the order in at bid. We thought it would surely execute. Well --- the order did not get executed and since it was the end of the day, the order expired unfilled, even though the combined bid prices matched our order. A call was placed to the broker and the response made us slap our foreheads and say of course. The answer is something we knew but since we have not tried to sell a straddle/strangle in the last minutes of the market in a long time, we failed to remember the possible consequences. This is why we always test for a long time before we ever present a play to our members.

The answer was that on a combined options order, it goes to a special place and that person/market maker decides whether to take it or not, with no consideration of the posted bid price. Now, if you had entered separate orders, one to sell the Call and another to sell the Put, it would have been executed, assuming the price stayed the same (which it did). This just made another case that the game is set up against the normal trader. Also, if you had placed a market order for the combo, it would have been executed, but with a limit order for the combo, no, it would not be done.

Moral of the story---watch out for the unexpected, and do expect that the unexpected will not work in your favor. Also, do not put in an order to sell for a limit price in the last minutes of the market if you really want to sell. Either, put the order in as a market order or do it much earlier in the day. End note--the next day, since we still had the position open we broke up the play and sold the Call and Put separately. Since the underlying stock was heading up the next day (earnings announcement day) we were able to sell the Call side for a nice profit. We are still holding the Put side and are expecting a down move in the underlying stock after it appears to have hit resistance. We think the stock will drop this coming week and will look to get out at break even or better on that Put.

Momentum Plays---
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The aggressive plays continue to gain in the profit column this week and now the profit year to date sits at 296.29%. Check it out --Aggressive Results The conservative plays were lackluster this week. Our aggressive approach also paid off on a Support/Resistance play. Where we normally would put in a stop loss order at a certain point, we let it go beyond that point, even carried the option thru until the next day, and saw the SPY go back in our direction and that ended up giving us a nice profit. We continue to lean more toward the Aggressive approach.

Indicator Play---
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It was a pretty quiet week with the Indicator signal. We did have a down play for Tuesday, but the market momentum didn't allow us an entry point. Strange, it may seem, since the market had a big drop that day, but it was back and forth and really ended with an up move. The signal was correct, but the tight swings in the market prevented the play. On this coming Monday, team members take notice that we have a signal for a play. We will advise around the open as to which option we are looking at.

The Economy, The Markets & Commentary---
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Boy, the political ads are coming fast and furious. The exaggerations of the truth are being stretched further and further. It appears that desperation is setting in with all parties. Add in the fact that more and more examples of extreme pay to company executives and also to our government executives is infuriating people. Locally, here in CA, we were just told of a city person leaving and getting $474,000 in back sick pay and vacation time. Of course, our lead case of Bell, CA officials that were getting themselves paid $800,000 per year, with pensions of over $1 million is still going on, with more revelations each week. Also, on the local scene, we found out that 1 sick day per WEEK was being added to the benefit program. That's 52 sick days a year, and that is ADDED on to what is already given. This is done in an economy where many local governments are laying off teachers, firefighters, police, and general administrative workers. Most of this was done in hidden and unpublicized ways. The average private worker continues to take it on the chin.

Oh, for the old days, when you worked for the government to get experience to get a job in industry. Now, you take a job in industry (if you can get one there, even) to get some experience to find a job in government. Unasked for advice: Get a job at the federal government level. They talk all they want about making government smaller, but the federal level keeps getting bigger--and look at all the new agencies that have been created and the jobs that were needed to get the new work done.

Many people are talking about voting against any incumbent. That is gaining in popularity. Others are saying they are going to vote against the party that is in power, be it on the federal, state or local level. We see the wisdom in both outlooks. We are tired of what is going on and we don't see positive results that point to anything other than a very slow, painful recovery. However, the markets are in an up trend and there is no doubt about it. Bad news is taken as good news because it could mean that the Fed will borrow more, with little to no consideration for the debt that is being created and will have to be paid back. Fix the problem now and at a later time worry about paying for it. That is much like the credit problems facing so many people. They use/used the credit card to solve a financial need or want and paying it back is some time in the future, so let's use the credit card. The rubber band does snap back at some time, (or breaks) once it is stretched and stretched. The pendulum does stop going in one direction and reverses to go the other way----but when do these things happen? That is the question. And all this affects the stock market.

We don't want to say all is doom and gloom. There are always companies doing well because some particular thing is bad. We noticed that our latest 2-1 split announcement, RVBD, gained 19% on Friday, after announcing earnings and the stock split. We point out that most splits come because the company is doing well. This company announced that their earnings more than doubled. Great! Where does their business come from? A good share comes from government contracts. With the country in a mess, a sophisticated program that RVBD offers is an aid to the problem.

On a personal level, one of our real estate team members, Colleen, reports that she is doing very well in residential real estate lately. Why? Three negative reasons, she tells us. Death, divorce and foreclosures. These are sad times for many when it comes to any one of those three. However, when there is a death, the heirs often put up the house for sale, and at an attractive price that will sell quickly. The same sad story for divorce situations. Many times one side will give in and just want to get parted from the other, so again, an attractive selling price. Then, we all know what foreclosure sales mean--sold at attractive prices. And these are sold quickly, because they are at attractive prices. Therefore, Colleen is busy and doing well because someone else didn't. She also provides a good service to those that want to move property. All in all, in view of the circumstances, it is a win/win situation, as there could be lower price results if a good capable realtor is not available to help in those times where good help is definitely needed. Remember, tho, that you need a good real estate agent, like Colleen, that can do the job best for you.

Another winning week for the market----let's see how high the pendulum can swing. Stay tuned..........These are very interesting times................

Today's Chuckle---
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In a democracy, it's your vote that counts. In feudalism, it's your count that votes..............anonymous.

Mike

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