One of the first things an options trader should do when assessing a possible trade is to properly determine its downside consequences. I didn't do that last week when I exampled the Google Call Ratio Back Spread. I'm embarrassed by the stupid mistake I made and I apologize for it.

The example I showed last week said the old man could have shorted 20 GOOG Dec 400 Calls @ $37.80 and purchased long 30 GOOG Dec 430 Calls @ $20.90. I said the maximum loss for the trade would occur at an expiration stock price of $410 per share. This was not correct and it was a stupid mistake to make because I know that the maximum loss on Call Ratio Back Spreads always occurs at the Strike Price of the long Calls. Moreover, I could have and should have figured out the maximum loss in my head. I know that the long 430 Calls would expire worthless if GOOG closed at or below $430 on 12/15/06. This would result in a loss of $62,700. If GOOG did close at $430 at expiration, the short Calls would have a value of $30.00 per share for a gain of $15,600. So the net loss would be $47,100 and not the $6,750 cited in the example. So what looked like a good trade really wasn't very good at all.

I can go into great detail on how I botched last week's example, but your time would be better spent if we showed you that Call Ratio Back Spreads are really worthy of your consideration. So I've asked the good people at the VectorVest University to demonstrate a Call Ratio Back Spread strategy as this week's "Strategy of the Week." They will be using the VectorVest Options Analyzer in this demonstration, and it is a wonderful tool. But it will only do what you instruct it to do. It can't think for you. It will present the risk profile to you for any trade you construct...even if you make a mistake. So don't be lazy like I was. Always use your head to Check The Numbers.

DOUBLECROSSERS.
Income tax rates were confiscatory here in the U.S., back in 60's and 70's, so buying tax shelters became the thing to do. The politicians passed laws to encourage high wage earners to invest in socially desirable areas with so-called "tax advantaged" investments. So what was there to worry about? Then Mr. Reagan became President and he wanted to cut income tax rates. In order to do so, he made a deal with Congress and agreed to change the law on tax shelters. Yes, we got the lower tax rates Mr. Reagan promised, but a lot of people with tax shelters got shafted. Even worse than losing their original investments, they also were faced with the obligation of paying taxes on phantom income. I, for one, felt betrayed.

Now the Canadian government seems to be doing the same thing. They passed laws about five years ago to create the so-called income trusts to encourage investors to purchase Canadian stocks. Companies operating as trusts pay very little income taxes, but pay most or all of their operating income to their unit holders as dividends. These trusts became very popular since they paid high dividend yields and still offered the potential of substantial price appreciation.

According to Thursday's Financial Times, 255 trusts listed on the Toronto Stock Exchange lost a tenth to a fifth of their value when news was released that the government had decided to revise the rules so that income trusts would begin paying the conventional corporate tax rate. A four-year transition period would apply to existing trusts. Big deal. The damage has been done. Doublecrossers.

P.S. Even with this low blow, I still like a lot of Canadian stocks. One of our current top ranked VST stocks, PineTree Capital, continued to soar in price. It hit the top five VST stocks on October 13th at $10.49 per share and closed today at $15.89.

Special Note: The information cited in the above overview, "Doublecrossers," was taken from VectorVest Canada.