Two weeks ago, January 27, 2006, I wrote about "Two Good Indicators," i.e., the January Barometer and the Presidential Cycle. The former indicator signaled that the stock market would go up in 2006 and the latter suggests that the market will form a bottom in October; then take-off like a bird.

There is a third indicator, the Super Bowl Indicator, which was quite popular several years ago, but has recently lost much of its luster. This indicator says that the stock market will go up when a team from the old National Football League wins the Super Bowl. The Pittsburgh Steelers won last Sunday's Super Bowl, so it says we should expect stock prices to go up this year. Or should we?

Although this indicator had a phenomenal 90% success rate over its first 31 years of existence, it has been wrong more often than not over the last nine years. Even so, some proponents argue that it still has a much better track record than most analysts. Indeed it does. But I wouldn't pay any attention to it because it's totally nonsensical. So why am I writing about it?

Simply because it illustrates a phenomenon we should be aware of, i.e., the correlation of unrelated events. The media likes to publicize these artifacts because they attract attention, but they are less than useless. Unfortunately, it's not always easy to identify a contrived correlation of unrelated events. Take the January Barometer, for example. What does January's performance have to do with the stock market's performance for the whole year? I don't really know, but it could be investor psychology. That's just a guess.

The Presidential Cycle is the indicator I like the most of the three we've discussed here. It is based upon logical cause and effect relationships and has a good track record. In my book, it is by far The Best Indicator.

THE RIMM STRADDLE/STRANGLE SWAP.
Take a look at a 1-Year, Daily graph of Research in Motion, RIMM. Is that ugly, or what? Its price action has been up, down and totally unpredictable. And well it should be.

RIMM has been locked in a legal dispute with an outfit called NTP over patents covering the technology it uses in its popular BlackBerry PDA's. If RIMM loses, it may well be forced to shut down its U.S. wireless e-mail service. This event would probably cause RIMM's stock price to plunge. On the other hand, a victory would probably cause its price to soar. This is a perfect set-up for buying a Long Straddle Option position.

But there's a small problem. The court decision is scheduled to be made on February 24th while the next option expiration date is February 18th. Therefore one is forced to trade the March options to be in the game on February 24th, and this could get expensive. So what to do?

Consider selling the February Straddle and buying a March Strangle. In this fashion, one would receive about $3,550 for selling 10 Feb 70 Call and 10 Feb 70 Put contracts, the Straddle, and pay $2,700 for 10 Mar 75 Call contracts and $3,000 for 10 Mar 65 Put contracts, the Strangle. Their net cost would be $2,150 not counting commissions.

In this fashion, one could make a pot of dough if RIMM explodes upward, above $75/share, or plunges downward, below $65/share. Beautiful. This illustrates The RIMM Straddle/Strangle Swap.

WARNINGS:
(A). PLACE THIS TRADE AS ONE COMBO ORDER.
(B). DON'T MAKE THIS AT ALL UNLESS YOU ARE AN EXPERIENCED OPTION TRADER.