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Author: Mike Celeste Editor: Tony Ponzo October Circulation:


In this Issue---
Options---
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A reminder that this coming week is options expiration week. That means that time value will erode quickly and the options will be trading a lot closer to the moves in the stock especially for in-the-money options which will be mostly made up of intrinsic value. Remember, the intrinsic value portion of the stock is that part that matches and changes with the difference from the strike to the actual stock price. An example is, if the strike on a certain call is 45 and the stock is trading at $46 the difference is $1. So if the call is trading for $1.75 you would have $1 of intrinsic value and .75 of time premium. If the stock moves to $46.50 the intrinsic value would move to $1.50 and so on. During this week of expiration, the time value portion really dwindles so that, using the same example, the option would have $1 of intrinsic value and only .20 of time premium meaning the option would be trading for $1.20 now. By Friday, the time value is just about gone. So this is the best time to have the best value for your buy of the option. It is like buying the stock because the option pretty much moves penny for penny with the stock. Only you are buying it for $1 instead of $45. The only problem is, the option expires on Friday at the close so you have to close it out before the end of the trading session or lose it.

This can work for us or against us, but we usually look forward to this week, because our percent of wins says that we are more often on the gain side than the loss side. Or, it is possible that we can be in and out of a stock quicker than normal. Be careful, tho--as a whipsaw market can play havoc with these trades.

Momentum Plays---
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We had a very rough week this week. The number of plays increased though as we made 8 trades this week. It has been awhile since we have been able to make that many trades in a week. Problem is 5 of the trades lost - not big losses but losses none the less. Every now and then, we have a slump and this is one of those slumps. But, it has been a very long time since we have had a slump like this and so far, they have never lasted very long. So we are confident we will be back in the winning column this coming week. For the year however, we are still sitting on a 393% profit.

Here again, the good news is, we have a growing number of members who take our input then put their own spin on the plays based on their knowledge of trading and are coming out with wins on plays that otherwise lost. For example, member Brian took a number of our plays this week that lost and he turned them into wins. How did he do that? By waiting to go into the play. When the play dropped in price and SplitMaster was getting out at a loss, he went into the play. He did this a number of times to his success. He made use of technicals on his chart system to make these decisions. Other members such as Brandon, Barney, and others made similar successful trades. Keep up the great work folks!!! This really pleases us --- needless to say.

Indicators---
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The month of October has seen 3 plays and we have won on 2 of them, which isn't bad--however, we want to do better and we were disappointed with the loss on Friday. For Monday we have another Indicator play, but we are being very cautious about entering it due to the strength of the market.

Feedback---
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Back to Team member, Brian B., he wrote in with some excellent suggestions on our earnings and W plays, which involve individual stocks. He pointed out that checking the charts closely and combining that with some other factors, we might be able to improve our winning percentage. The suggestions made very good sense and we are going to incorporate them into our analysis. Thanks, Brian. We fully mean it when we say that we expect that our service works both ways---we want suggestions, and we give suggestions.

The Economy, The Markets & Commentary---
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The previous 2 weeks were down weeks for the market, but we didn't get fooled into thinking it was the end of the bull rally that we have seen. We pointed this out before and as all the "experts" were saying that we had run the course to the upside, we were waiting for the rally, and there is was. The market is still very powerful to the upside, and playing the downside can be very dangerous. We had 2 down plays this past week on our Indicator play and won on 1 and lost on the other. We also had an up play, and that was a winner. We still believe that the Dow is going to try to hit 10,000 soon.

The economic news wasn't too bad and there were some rays of light, such as in retail sales. However, the key to all of this is jobs. We have to have jobs in order for the consumer to buy---from houses, to autos, to food and energy. Finally--FINALLY---on Friday we saw Rick Santellli talk about plain old Midwestern sense. He brought up the fact that the people he talks to, working people, are definitely facing inflation in their cost of living. The government "experts" may not want to talk about taxes, fees, etc. going up, but the working people are aware that the municipal and state governments are increasing taxes, sales taxes, fees and special assessments to a point where it hurts the average consumer. Not to mention rising energy costs. We have been saying that for a long, long time. We have inflation no matter how many "experts" say that we don't. Good for you, Rick.

President Obama received the Nobel Peace Prize, announced on Friday. He said he was humbled and felt that he didn't deserve it when compared to the names of the other winners in past years. The interesting point about it was the final list of potential winners had a deadline of 2 weeks after President Obama was elected. I guess his campaign speeches on reaching out to our enemies and allies around the world had even a stronger affect than we thought. After the words comes the action (or doesn't)---Let's see how he does.

Stay tuned and see if this rally can really bring us to a Dow of 10,000. As one person on TV said, it doesn't matter if there is value to the rise in stock prices, all that matters is that the prices rise. Earnings reports will start coming in and they are bound to affect the market--It is going to be interesting.

Today's Thought---
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The early bird may get the worm, but the second mouse gets the cheese.


Mike

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