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In November 2002 and again in 2003； I was。guest speaker at the annual traders' conference run in Sydney by Hubb Limited； a trading software developer who was。granted a license to sell my courses。after I retired in 2001。 At these seminars； I mentioned the date of May 17； 2004； as。a major pressure point on the stock。market and referred to this。and the previous。pressure points。I'd mentioned as。“war dates”。 This。took place years。after I had pleted my final Safety in the Market trading seminar； and the dates。were based on the research I wasnducting on the history of the twentieth century。
The first week。of August has。often been a critical day in world history—and so it has been a significant week。for the stock market。 On July 31； 1914； the London and New York stock。exchanges。closed to avoid panic。trading。 That was。almost the case again in 2001； when an immediate security clampdown occurred in New York。and Washington on August 2； 2004。 The buildings。affected were the New York。Stock。Exchange and Citigroup Center in New York。as。well as。the World Bank。and the International Monetary Fund in Washington。 Britain declared war on Germany on Tuesday； August 4； 1914。 The United States dropped the first atomic。bomb on Japan on August 6； 1945。 （It had been scheduled to be dropped on August 3。） On August 1； 1941； President Roosevelt stopped the export of oil and aviation fuel from the United States。to Japan。 Japan had the choice of either changing its。foreign policy or gaining access。to the East Indies。oil by force。 On August 2 and 5； 1964； two U。S。 destroyers。were attacked in the Gulf of Tonkin； and they in turn sank。two North Vietnamese patrol boats—leading the United States。into the Vietnam War。
To fully illustrate the scope of the pattern； I would need to trace early…August events。through the whole century and give you the time frames； but I think。I've made the point。 Here is。the main thrust： Britain entered World War I
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CHAPTER 7
Options…Based Technical。Indicators for Stock Trading
BERNIE SCHAEFFER
Equity options。have e a long way since they were first listed on exchanges。in 1973。 Beyond the explosive growth in the volume of options。trading during this。period； which speaks。for itself； options。have bee a risk…management tool as。well as。a tool for speculation for a broad spectrum of market players； from modestly capitalized individual investors。to hedge funds。
In basic。terms； the world of listed optionsnsists。of call options。and put options。 The buyer of an equity call option has。the right but not the obligation to buy shares。of a pany； referred to as。the underlying stork； at a specified price （called the strike price） for a specific。period of time； at the end of which the option “expires”。 The call option buyers。are bullish—they're hoping to profit from a rise in the stock。price over the life of the option。
Why Options？
Why would a bullish investor choose to pay for a call option with a limited life instead of buying the underlying stock？ The short answer is。leverage—the ability to participate in the upside movement in the underlying stock。for a relatively small initial investment。 The price of a call option is。most dependent on the price of the underlying stock。relative to the strike price； the stock's。volatility； and the amount of time remaining until the option expires。 But in all cases； the call option price will be a fraction of the stock。price； and in many cases； this fraction will be very small indeed。
To illustrate； lets。assume Stock A； which does。not pay a dividend； is。currently trading for 50 and an investor is。expecting the stock。to move to 60 during the next three months。 If the annualized volatility of the stock is。25 percent—typical of many of the blue chips—a three…month call option with a strike price of 50 will trade for about 5 percent of the share price； or 2。50 in this。case。 If the stock。should in fact reach 60 by the time this。call option expires。in three months； the 50…strike call option will have a value of 10 in the listed options。market。
So； in this。case； the call option will have quadrupled from 2。50 to 10 on a move by。the underlying from 50 to 60； and thus。a gain of 300 percent could have been realized by the option buyer on just a 20 percent gain in the stock。 And the leverage in this。case would have been 15 to 1 （300 percent/20 percent）。 Put another way； the option holder achieved a profit of 7。50 with an investment of just 2。50； whereas。the 10 gain realized by the stock。holder required a 50 investment。
Needless。to say； the scenario described above was。on the best…case end of the spectrum for the call option buyer。 Note； for example； that if the stock。does。not rise above 50 during the life of the option and the position is。held until expiration； the call buyer will lose 100 percent of his。investment。 And in the case of the on…the…money option—when the stock。price is。equal to the strike price—such total losses。can be expected to occur 50 percent of the time。
Based on this。quick。risk…reward profile； one can reasonably conclude that call option buyers。（those who are said to have long call…option positions） are rather aggressively bullish in the pursuit of leveraged profits—bullish enough to be risking a total loss。of their investment if they're wrong。
The buyer of an equity put option； however； has。the right but not the obligation to sell a stock。at a specified price （the strike price） for a specific。period （at the end of which the option expires）。 The put option buyer is。as。aggressively bearish as。the call option buyer is。aggressively bullish。
So in its。purest form； the options。world consists。of two constituencies： the aggressively。bullish call option buyer and the aggressively。bearish put option buyer。 In addition； the listed options。market provides。a treasure trove of information about the activity of call and put buyers。in each of the thousands。of underlying stocks。on which options。are traded。 Trading volume data are available for calls。and for puts； as。well as。option open interest； which represents。the number of option contracts。open at any time。
Gauging。Investor Sentiment
It should be