Heat Seeker Option Trading

Those trading options or interested in trading options may wish to check out OptionMonster, a service that I feel has a lot of potential for option traders. Yes, I stand to profit if you sign up and stay signed up, but I would not mention this service if I did not think it was worth a look.

OptionMONSTER was founded by Jon "Dr. J" Najarian and his brother Pete Najarian. Dr. J and Pete Najarian traded in the pits of Chicago for 25+ years and were also market makers. During their time in the pits, they developed their Heat Seeker® system for trading profitably and are making it available to retail investors. OptionMONSTER is now 3 years old.

In addition to OptionMONSTER, Jon and Pete co-founded TradeMONSTER, the latest online brokerage firm with tools and analysis for options and stock traders alike.

Someone Always Knows

OptionMonster publishes research based on the idea that unusual trading activity (puts, calls, etc.) predicts future price movements.

Here are two recent examples.

Entry: US Steel PUTs
February 23, 2009 Mon 9:56 AM CT
US Steel bending and bending

The shares of US Steel have been in a channel for a while and struggled to break out of this 3 month teetering near the 50-day moving average, until this recent leg down in the last 10 trading days. The 52-week low is just under $21, the stock is trading above $23 and the Depth Charge has been actively lighting up with buyers of the X Mar 22.5 puts trading in large blocks since just after the opening bell. In the first hour of trade these puts have now traded over 10,000 contracts in an aggressive nature, that has pushed the volatility up well over 100%. Plenty of pressure on X, but it is near those lows, if the volatility looks a bit high, to defense some of the volatility exposure the X Mar 22.5-20 put spread is trading for a buck, or the X Mar 20-17.5 put spread is trading $.70... US Steel looks really cheap at these levels, but those put buyer’s expectations may be for further pressure.

Follow up: US Steel PUTs
February 24, 2009 Tue 8:42 AM CT
US Steel(X)

Jon updated X late in the day yesterday. Yesterday's downward move and X opening lower this morning might be an opportunity to lighten up on those Mar spreads. The X Mar 22.5-20 put spread trading around $1.35-$1.40. The X Mar 20-17.5 put spread trading around $.90-$.95

Entry: International Paper CALLs
March 9, 2009 Mon 12:18 PM CT
International Paper is seeing active call action

IP hit a low yesterday, and I am wary of trying to pick bottoms, but the stock is up more than 4 percent today to 4.26. And someone does appear to be calling a bottom, with the call buying in full swing. It started with the March 5 calls, as big blocks went off and now more than 14,000 of those have been purchased for .15 and .10. Then the April 5 calls became active, and more than 5500 of those have been bought as well, for .35 and .30. Open interest at both strikes is less than 12oo.

The implied volatility is on the rise, at 136 for the March 5 calls and 112 for the Aprils. While that is high, the historical volatility has outpaced the average IV since last August. Given the levels, those April 5 calls at .35 with extra time to expiration make an interesting cheap shot on the upside for IP.

Follow up: International Paper CALLs
March 10, 2009 Tue 9:14 AM CT
IP rolling up!

I told you I was wary of trying to pick bottoms, but those International Paper calls we saw yesterday were awfully good timing. They were buying up the March and April 5 calls in big blocks yesterday and the stock has been on a run since.

The March 5's were trading for .15-.20 and are now .45. The April calls were going for .35-.40 and are now .75. If you followed along and have doubled your money then it is definitely time to consider lightening up. This thing has a long way to run, but in this market a double overnight is nothing to sneeze at!

Discipline

Trading options requires discipline. Please, if you subscribe to this service and have a few winners, do not bet half the farm or even 1/10th the farm on the next two trades. I know from experience that strings of wins and losses are possible. Make sure you are well capitalized for a string of losses.

The last time I mentioned an option service, it was related to commodities. The service had an incredible string of something like 15 winners in a row, followed by 4 losers in a row the moment I mentioned it. So do not think of this as a get rich quick scheme, because it most assuredly is not.

I cannot personally vouch for OptionMONSTER because I have not tried it. However, I can vouch for the founder's reputation. I have high respect for "Dr. J".

Inquiring minds may wish to check out Jon Doctor J Najarian's Profile.
Please Email: Dr.J. @ OptionMONSTER if you have any questions.

Remember, as stated above, strings of wins and losses can occur at any time. The key is simply to have more winners than losers and to manage your money well at all times. So if you are trading options and could use an edge, you may wish to give OptionMonster a try. I have arranged for a two week free trial period for interested parties.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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