 the  Nevada  deserts.  If  you’ve  ever  driven  in  thedesert,  you  know  you  can  drive  really  fast  out  there.  After  all,  there’snothing there but hard-packed sand. I won’t tell you how fast I was going;but  I  was  beyond  merely  being  impressed  with  this  car.  At  that  time,  Iowned  some  other  sports  cars  (Porsche  and  Ferrari)  but  I  found  theDodge Viper to be much more exciting and fun to drive. Thereafter, I soldthe Ferrari and bought the Viper, remaining to this day one of the Viper’sbiggest fans. Years later, I still get a thrill out of driving this car and sodoes anyone I know who drives one. It is by far the best sports car I haveever owned.
This very positive impression of the car—a Chrysler product—led me
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to change my opinion of Chrysler products and American automobiles ingeneral.  Since  then,  I  have  bought  two  other  Chrysler  products  (JeepCherokees), and I love them just as much. Such a positive experience onmy part and the number of Dodge Ram pickups I saw on the road led meto believe that Chrysler had nowhere to go but up. The company has sincereported record earnings. Indications are that this trend will continue andthe stock will be a good long-term investment.
Critique That Which You Already Own
If you like a certain product, others probably do also. You can then look atthis product as a potential investment. In addition, if you have a problemwith a product and you feel dissatisﬁed, then others will likely have thesame opinion. This may be a good selling opportunity for the stock (usinga strategy that makes money when the price drops). Most of us have had alot of both good and bad experiences. It is up to you to ﬁgure out how totranslate these experiences into proﬁt opportunities.
If you buy an item and then are dissatisﬁed, can’t get anyone to helpyou, or can’t exchange the product, you’re probably not the only one. Thishappened to me recently. I kept hearing about a certain computer productand how great it was. I subsequently purchased it and found installing it tobe extremely difﬁcult. The product was supposed to be easily installed, es-pecially  for  a  computer-literate  person  like  myself.  I  contacted  the  cus-tomer support line and was put on hold for 20 minutes. I hung up out offrustration and called a second time determined to get through. After be-ing kept on hold for 45 minutes (a very expensive long-distance call), I ﬁ-nally  got  a  representative  who  knew  less  about  the  hardware  andcomputers than I did. I asked for someone else, who ended up giving meinformation that crashed my computer.
I quickly returned the product and went back to a reliable companythat I have never had any problems with—Hewlett-Packard. I ﬁgured thateveryone was having the same problems I was and that the product wouldﬂop  as  the  hype  about  the  product  ﬁzzled.  The  stock  of  this  overhypedcompany  was  trading  at  around  $50—it  had  made  a  very  fast  move  upfrom around $5 in less than a year. I immediately put on a bearish positionto make money when the shares went down. The shares fell in less thanfour months to around $15, and I smugly changed my dissatisfaction andfrustration with the company into cash.
I didn’t have to be a genius to ﬁgure this one out. All I had to do wastranslate a personal experience into what other people’s experience waslikely  to  be  and  pinpoint  a  way  to  make  money  from  this  information.You can do this on a daily basis with items you own or have purchasedand returned.
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Ask Your Children
Yes, even children can be a good source of spotting new trends. What newmovie  do  they  want  to  see?  What  new  toys  do  they  want  to  purchase?What clothes styles are all the rage? What sports are popular?
Children offer a wealth of information especially because they aregreatly inﬂuenced by what other kids are doing as well as by what theysee on television, in the movies, or anywhere. They can alert you to newtrends that can affect the bottom line of a company. These pieces of in-formation  are  valuable  to  the  establishment  of  a  winning  investmentperspective.
Look Around Where You Work
Opportunities  can  also  be  spotted  directly  from  where  you  work,  yourspouse works, or a friend works. For example, a friend of mine who wasworking at a pharmacy told me that one of her favorite customers sadlyhas AIDS. One day, he came into the pharmacy looking much better. Hecredited a new experimental drug from a company called Nexstar Phar-maceutical  with  helping  him  feel  better  than  he  had  in  years.  My  friendhad an article from the local newspaper that her customer had shown her(he  was  mentioned  in  the  article).  I  called  my  broker  to  ask  about  thestock. It was trading around $9 a share. I bought some shares in the com-pany and within a few months it was well over $20 per share. (I’ll give myfriend credit for this one.) I sold the shares for a large return, and now Ikeep asking pharmacists what they consider to be exciting products. Bygoing directly to the people who know a lot about a particular industry, Ican leverage their years of education and experience into another proﬁt-making opportunity.
Subscribe to a Data Service Provider
Data service providers can furnish you with current prices on shares, fu-tures, and options. In addition, you can receive up-to-the-minute news andmarket analyses. This information comes in a variety of ways, includingthe Internet, cable, FM radio, satellite, and wireless networks, and can re-ceive  price  quotes  that  are  real-time  (as  the  prices  change  on  the  ex-changes they are transmitted to you), delayed (typically 15 to 20 minutesafter the prices change), or end-of-day (after the markets close).
Your  service  fees  are  based  on  the  kind  of  service  you  choose  to  re-ceive.  The  faster  you  get  your  data,  the  more  costly  it  will  be  to  obtain;however,  it  will  also  be  more  accurate  for  making  your  investment  deci-sions. If you are not going to sit in front of a computer all day long, then
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you don’t really need real-time feeds; you can easily get away with delayed orend-of-day quotes. Subscribing to only what you need keeps your cost as lowas possible—you can upgrade later as your trading progresses.
Depending on the data you want and the exchanges you sign up to, datafeeds can cost you from $20 to $400 per month. There are even feeds used bythe large institutional ﬁrms (big trading ﬁrms) that can run thousands of dol-lars per month. If you want to place longer-term trades, delayed or end-of-dayquotes should be sufﬁcient for your needs. In many cases, if you sign up totrade with an online brokerage ﬁrm, they will provide real-time quotes for youat no cost or for a very small fee. Some other web sites, like www.cboe.com,have real-time quotes available for a relatively small monthly fee. Remember,if you are just starting out, keep your overhead as low as possible. Request in-formation on only the markets you initially want to trade. Too much informa-tion can be overwhelming if you don’t know how to use it. It is essential tostart small and build your proﬁts systematically. A detailed account of dataproviders can be found in Appendix A.
Watch Television with an Investor’s Eye
Television  is  one  of  the  best  sources  of  beneﬁcial  investment  ideas.Commercials can give you a greater awareness as to who is doing what,and who is competing with whom. Television is not just a source of dailyentertainment; it is an exceptional medium for distributing informationto the masses, much of which is useful for spotting investment opportu-nities.  Speciﬁcally,  you  should  watch  commercials  to  discover  whichproducts  you  see  over  and  over  again  and  which  products  have  beennewly introduced.
However,  you  can  also  use  this  powerful  medium  in  other  ways.CNBC and CNN Business are shown in many areas on cable. These are theprimary channels watched by traders and investors throughout the trad-ing day. CNBC was born from the Financial News Network (FNN), whichwas watched widely by the investment community. Before, during, and af-ter trading hours, CNBC broadcasts market information on many issues,including stocks and futures. Expert commentators and guests give mar-ket summaries and opinions throughout the day.
As a professional trader, I leave CNBC on with just enough volume tooverhear any piece of information that might have a bearing on an invest-ment decision. I typically do not watch any particular show unless some-thing  strikes  me  as  intriguing,  but  I  do  listen  to  the  commentary  all  daylong. As with any news organization, they report on stories they believe tobe interesting to their target audience—the investment community. Theytalk about what is hot and what is not. They focus on the most market-moving information they can ﬁnd, because that’s the business they are in.
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What  kind  of  information  do  I  listen  for?  Extremely  good  news  andextremely  bad  news.  This  is  where  you  can  make  explosive  proﬁts.  Forexample,  one  day  CNBC  reported  about  a  company  that  had  a  drug  usetest using a strand of hair. My broker informed me the stock was tradingaround $6 per share. I bought some shares knowing the news would getout overnight and create buying interest in the stock. As I predicted, theshares opened the next day at around $9.50. I sold my shares immediately,because  stocks  with  this  kind  of  run-up  often  come  down  quickly.  Theshares closed that day at around the same level I bought in at, leaving mewith a 50 percent proﬁt on an overnight investment.
To give you another example, CNBC reported about a stock that haddropped from around $12 per share to about $3.50 overnight due to “ac-counting irregularities.” I called my broker and found that there were op-tions available on the stock to trade. Seeing less risk in the options thanthe  shares,  I  bought  out-of-the-money  (OTM)  call  options  at  $50  each.These  I  sold  27  days  later  at  $150  apiece  for  a  200  percent  proﬁt  in  lessthan a month.
My mother used to complain that I watched too much television. Well,watching TV for me now has become a proﬁtable experience. Looking atCNBC or CNN Business, one can have a 15-minute delay of price quotesall at the touch of a remote (some prices are actually real-time). But whatdoes  this  TV  ticker  tape  tell  me?  Let’s  forget  for  the  moment  about  themen and women at the anchor desks in the ﬂashy studio, and concentrateon the bottom of the screen. This is referred to as a ticker tape.
Before  the  market  opens,  you  will  see  a  recap  of  stocks  using  theclosing prices of the previous trading day. Also, futures prices are mixedin  every  few  minutes.  At  8:30  A.M.,  after  a  government  or  economic  re-port, bond prices are shown in the lower right-hand corner for 10 min-utes  or  so.  Beginning  at  9:30  A.M. and  until  9:45  A.M. Eastern  standardtime (EST), the market averages run real-time across your screen. Thetop line usually represents the NYSE stocks, and from time to time fu-tures will appear. The bottom line represents the AMEX and OTC stocksas  well  as  real-time  market  averages  that  appear  about  every  minute.Throughout the day, from 9:45 A.M. until 4:15 P.M., stock prices are quotedon  the  screen.  These  are  displayed  as  the  ticker  symbol,  followed  byshares traded, followed by the last trade and the change in price sinceyesterday’s close (on some stations)—for example:
IBM 10000.00 88 + .50
The stock symbol is IBM, which last traded 10,000 shares at $88 each,up $.50 from yesterday. If you see only the symbol and the price, then thatwas the last quoted price of the shares and no shares having been traded.
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Averages that are quoted include the Dow Jones Industrial Average (DJIA)and  the  Standard  &  Poor’s  500  Cash  Index  (SPX),  followed  by  the  dailychange  of  the  index.  This  information  is  useful  to  anyone  who  has  thetime to watch the markets on a daily basis.
There  are  many  more  examples  of  how  I’ve  been  able  to  use  televi-sion,  especially  CNBC,  to  make  money.  You  can  do  the  same.  In  somecases, I have been able to apply the contrarian approach to accelerate myproﬁts even further.
Local  television  programming  is  certainly  not  as  concise  as  CNBC;however,  you  can  pick  up  information  on  local  companies  and  futuresmarkets that are pertinent to the local community. There are also severalnational  television  shows  that  have  segments  on  investing  and  trading,such  as  CNN  and  the  Nightly  Business  Report.  Unfortunately,  most  ofthem lack a great deal of specialized information; either they do not focuson  the  investment  community  or  they  intersperse  business  news  withgeneral news stories.
Read Newspapers Attentively
The ﬁrst task is to learn how to read a newspaper efﬁciently and intelli-gently. A successful investor can scan a newspaper in about ﬁve minutesand spot potential opportunities. You must be able to pass by all the ﬂuffand get to the meat of the information.
You can start by picking up copies of newspapers that specialize inﬁnancial news, such as Investor’s  Business  Daily and The  Wall  StreetJournal. (See Appendix A for a breakdown of investment terms foundin these two papers.) It’s also important to keep tabs on what is happen-ing locally by scanning the local papers that highlight regional compa-nies.  This  gives  you  an  opportunity  to  get  a  better  understanding  ofthese  potential  investments.  For  example,  if  you  live  in  the  San  Fran-cisco Bay Area, you will ﬁnd a great deal of news about the Silicon Val-ley companies (e.g., Intel, Oracle, Hewlett-Packard, Yahoo!, etc.). Thesecompanies employ a great many individuals in the region, so both goodand bad news often leaks out. If you don’t live in the Bay Area, you canlocate information about Silicon Valley’s high-tech companies by usingthe  various  resources  found  on  the  Internet,  including  our  web  site(www.optionetics.com).
Since  local  newspapers  are  in  the  business  of  ﬁnding  and  reportingnews  that  has  an  impact  on  the  people  in  the  area,  they  look  for  anychance  to  report  on  developments  both  positive  and  negative  on  majorcompanies. Therefore, you can usually ﬁnd a much wider variety of perti-nent information in local papers than in a national newspaper. It is a wise
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practice to research the major employers in your area and then look fornews that can directly affect the performance of these companies’ stocks.A number of periodicals and magazines are also available to help youspot good investment opportunities and educate yourself further regardingshares, options, and futures including Futures magazine, Technical Analysisof Stocks and Commodities, and Commodity Price Charts. However, makeno mistake, both The Wall Street Journal and Investor’s Business Daily areessential  weapons  in  the  battle  to  locate  investment  opportunities.  Whenlooking at the ﬁrst page of the Journal’s Money & Investing section, you canscan the left-hand side of the page to gauge what the markets look like. Fo-cus on the interest and stock charts. See if they are moving in the same di-rection, or if interest rates are stable and stock prices are moving up, down,or sideways. See if the interrelationship follows what is expected.
In addition to reviewing the tables in The Wall Street Journal and In-vestor’s Business Daily, I like to look at the charts—graphical representa-tions of price movement—found in the IBD. These charts are almost likelooking at an electrocardiogram (EKG) of your heart. This EKG-like analy-sis  does  not  require  you  to  overstudy  the  chart.  With  a  quick  glance,  aknowledgeable investor or trader can visualize the health or weakness ofa  stock  or  a  commodity.  New  investors  can  look  at  a  chart  and  easilyascertain one of three scenarios:
1. Is the price of the security (shares or futures) going up?2. Is the price of the security going down?3. Is the price of the security going sideways?
The  best  investments  will  have  momentum.  This  momentum  shouldbe monitored over both a short and long period of time. You want to makeshort-term  investments  by  looking  at  short-term  price  momentum  (dailyor weekly) and long-term investments by looking at the investment from along-term perspective (each quarter or yearly). If a stock’s volume is low,it isn’t likely to go anywhere. Look for increasing volume in a stock to sig-nal movement. The best investments will have a reasonable price-earnings(P/E) ratio compared to the industry average. All of this information canbe  obtained  by  studying  the  investment  sections  in  The  Wall  StreetJournal or Investor’s Business Daily, or by consulting your broker orthe Optionetics.com web site.
To locate the best potential investment opportunities in a newspaper,
you should focus on the following information for stocks:
• Stocks with the greatest percentage rise in volume.• Stocks with an increase in price greater than 30 percent.
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• Stocks with a decrease in price greater than 30 percent.• Stocks  with  strong  (buying)  or  weak  (selling)  earnings  per  share
(EPS) growth.
• Stocks with strong (buying) or weak (selling) relative strength.• Stocks making a new 52-week high or new 52-week low.
Many  people  think  that  it  takes  years  of  practice  to  become  a  goodchart  reader.  Some  experts  on  technical  analysis—the  study  of  pricemovement  through  numerical  analysis—tend  to  make  the  process  lookmore  difﬁcult  than  it  really  is,  so  that  many  individuals  give  up  in  theirquest to be good investors or traders before they have given themselves achance  to  succeed.  Many  times,  information  from  traders  and  analystswith  accurate  knowledge  often  gets  lost  in  the  abundance  of  useless investing debris.
I  have  often  mentioned  that  sometimes  the  best  investment  ap-proach  is  to  become  a  contrarian  and  do  the  opposite  of  what  thecrowd does. You may ﬁnd local newspapers (depending on where youlive) reporting on a number of issues that can affect commodity prices.For example, if you live in the farm belt of the United States, you willread  many  articles  on  the  weather,  crop  expectations,  and  livestockoutlooks.  These  tidbits  of  information  get  ﬁltered  to  the  investmentcommunity.  Investors  and  traders  then  make  investment  decisionsbased on their perceptions of the impact of these tidbits of informationon the prices of the various commodities.
For example, on a trip to the farm belt, I noticed that everyone wastalking about the skyrocketing prices of wheat and soybeans. I heard thisin stores and restaurants, and it was front-page news in the local papers. Icould tell—even though I wasn’t from the area—that there was a feelingof  frenzy.  No  one  thought  prices  could  fall.  When  people  who  probablydon’t  monitor  investment  prices  make  them  a  topic  of  conversation,  Isense a frenzy. That’s when I know the end is near for that movement. Isold both contracts, knowing that on a very fast move up in prices, on anysign of weakness all those who thought the markets were shooting up tothe  moon  will  realize  the  party  is  over  and  have  to  sell  in  a  panic.  Thesame  holds  true  for  markets  that  move  quickly  to  the  downside.  Sellerswill become panic buyers.
One of the most successful trading techniques is to look for marketsthat have made very fast moves to the upside or downside and watch forthe momentum to change. You can then place a trade that beneﬁts from areversal. This accelerates proﬁts, as a frenzied movement in one directionwill move even faster (in many cases) in the opposite direction when themove is over.
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Look for Good and Bad News Concerning Speciﬁc Companies
Explosive  opportunities  can  often  be  found  when  speciﬁc  companiesare the subject of extremely good or bad news. There is tremendous ﬁ-nancial loss for millions of shareholders when stocks drop like a rock.When such a stock dropped to around $4 per share overnight from $12(not to mention a previous high of $35 about nine months earlier), thissignaled a buying opportunity. With the shares this low, I bought call op-tions  that  would  make  money  when  the  stock  moved  back  up.  Theycost only $25 apiece, and they doubled in value in a day. I sold my posi-tion  a  few  days  later  for  a  proﬁt  of  over  400  percent.  You  can  ﬁnd  ex-treme  examples  almost  daily  and  super  investment  opportunities  atleast twice a week. If you wait for these opportunities, you can becomemuch more successful.
For example, keep an eye out for bad earnings reports or news from acompany  that  the  earnings  will  not  be  as  had  been  expected.  As  men-tioned earlier, the value of a company’s shares is determined by many fac-tors. However, the most signiﬁcant factor is expected future earnings asforecast  by  brokerage  company  analysts.  If  a  company  begins  to  givethese analysts any information that is viewed as hurting a company’s nextearnings  release,  then  they  will  quickly  downgrade  their  forecasts.  Thisturn of events can trigger a major selling frenzy.
Back in August of 1996, the Medaphis Corporation, a leading providerof management services to physicians and hospitals, let out that there wasa signiﬁcant underperformance of the quarterly results compared to ana-lysts’  expectations.  The  share  price,  which  had  been  steadily  advancingover  the  previous  year  and  was  trading  at  around  $36  the  day  before,dropped overnight to around $12. That was a $24 drop—representing two-thirds of the value—lost overnight. If you owned the shares, how wouldyou feel? Devastated. I would feel the same way. If I had invested $1,000 inthis supposedly safe stock, I would have only $333 the next day. I wouldjump ship just like the other owners that day. However, after a fast movedown like this there is usually a bounce back in price (which happened)for a short period of time. Then the shares usually continue down until anew support level is reached.
After many years of trading, you learn that reactions are very similarin extreme situations. A good trader and investor will immediately reactto  this  situation  and  place  a  trade  that  will  beneﬁt  from  this  situation.What would I do? I’d buy out-of-the-money (OTM) calls and OTM puts—aspread—at  a  cheap  enough  price  so  that  I  would  risk  very  little,  withenough time for me to be proven right (three months or so).
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Watch for New Product Developments
There  can  be  numerous  investment  opportunities  when  pharmaceuticalcompanies  and  biotech  research  and  development  companies  announcesuccessful trials of new drugs and approvals from the Food and Drug Ad-ministration (FDA). If you ask your broker to notify you of these types ofsituations, this alone can present tremendous opportunities.
Bet on Smart People
This  is  an  easy  one  that  many  people  overlook.  Why  not  invest  yourmoney with smart, successful people? My theory is that someone who hasbeen  successful  in  the  past  will  be  successful  in  the  future.  There  aremany examples of this around you. Why not let a billionaire invest yourmoney for you? Billionaires do not become billionaires without investingtheir money very wisely. Jump on the bandwagon and join them. Let BillGates of Microsoft invest for you. How do you do this? Just invest moneyin Microsoft shares.
Many of you may not know his name yet, but let me tell you, he canmake you wealthy. I am referring to Wayne Huzienga. Perhaps you haveheard of two companies—Waste Management and Blockbuster—he builtand sold successfully. I am sure you have spent a few nights in front of atelevision set after visiting one of his stores. There are a number of otherindividuals you might want to follow. Guess where I put my longer-terminvestment dollars? I just ride the wave with other successful people.
Look for Low-Priced Shares
I deﬁne low-priced shares as those trading at $20 or less. It’s a lot easier tomake a high return on low-priced shares than high-priced shares. If I buy astock that is trading at $100 per share, how long will it take to double mymoney? Although anything can happen in this business, most likely high-priced  shares  like  this  could  take  years  to  double  in  value.  In  addition,there is a greater chance of losing a lot of money. If I take a stock that is$10  per  share,  how  long  might  it  take  for  this  stock  to  double  in  value?Many  times  I  have  seen  it  happen  in  a  day.  Also,  if  the  shares  becomeworthless, I lose only $10. Bottom line: Placing a low-priced stock tradegives you the following beneﬁts:
• You can make a high return faster.• You have less money invested to lose.• You can play more stocks with $100 (10 different stocks if they aver-
age $10 each).
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This  last  point  is  very  important.  If  I  have  $100  to  invest,  I  will—inmany cases—pick a few stocks that allow me to average my risk. This isreferred to as a portfolio. A broad portfolio is the basis of a mutual fund.The basic theory is that a larger group of stocks will even out the chancesof winning in the long run. This, in turn, reduces your risk.
If I put my $100 into one stock, there is a 50 percent chance of theseshares losing money (50 percent up, 50 percent down). If I buy 10 stocks(average price of $10), then if one stock loses 100 percent of its value, Ihave nine stocks to carry the portfolio and can still make money. A mu-tual  fund  may  have  hundreds  of  stocks.  Some  may  be  terrible  invest-ments, but overall the fund may still do very well as it diversiﬁes its risk.Let’s  take  another  example:  If  I  feel  that  a  particular  $100  stock  maymake a large move up in price, instead of buying the stock, I would buy a$4 OTM call option giving me control of 100 shares for $400. If the sharesnow move up from $100 to $105 (a 5 percent price increase), these op-tions may go up 50 percent in price to $600