Even with a crystal ball it would be tough to make money trading options on such popular vehicles as the Diamonds and QQQQs. That's because, when you are buying puts and calls on these securities, you are trading mainly against very smart machines, not people. If you were to monitor price fluctuations in QQQQ and Diamond (DIA) puts and calls very closely for a day, you might come away with the impression that they were being jockeyed around by traders who could see a minute or two into the future. In fact, a computer algorithm is doing the work, and it can run circles around most human traders. (Click on chart to enlarge) To take an example, let's suppose you are trading DIA options on your desktop PC and notice there are a bunch of November 138 calls offered at 2.96 with the underlying trading at 138.27. Let's also assume there's trendline resistance at exactly 138.27, and that if the Diamonds exceed that price by even a penny, you are planning to 'buy the breakout' by pouncing on the Nov 138 calls. The breakout occurs, and you react with lightning speed, hitting the 'buy call options' button on your computer a split second after the 138.28 print. Alas, the options are no longer offered at 2.96, but for 3.01 ' too pricey to offer any edge. How Smart Art They? Actually, the neural network program that removed the 2.96 offer from harm's way (harm for the seller, that is) is far more sophisticated, even, than that. Consider another scenario: You were planning to jump on the Nov 138 calls if there was bullish news on the tape concerning some speech Treasury Secretary Paulson was giving at that moment at a Kiwanis luncheon in Los Angeles. But even if you had
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