It's Sentiment Analysis In Schaeffer City
by Jayanthi Gopalakrishnan
Bernie Schaeffer, chairman of Schaeffer's Investment Research, is also the editor of Bernie Schaeffer's Option Advisor. The Market Technicians Association awarded him its Best of the Best award in sentiment and psychological analysis in 1997, and he has written on the subject, The Option Advisor: Wealth-Building Techniques Using Equity And Index Options, published by John Wiley & Sons. What's he got to say about the market these days?
STOCKS & COMMODITIES Editor Jayanthi Gopalakrishnan spoke to Schaeffer via telephone on August 12, 2002.
Given the scope of this bear market, we might need to see a VIX in triple digits to get the kind of fear-based bottom that's really needed.
Bernie, how did you get interested in trading options?
I got interested in the stock market when I was a boy. My father was interested in the market, and living in New York City afforded us the opportunity to see the New York Stock Exchange (NYSE) from time to time. One day when we were there, the post where United Fruit stock was traded was going crazy, and that just fascinated me.
What was happening?
Apparently there was some kind of political turmoil in Central America where they produced their bananas - the company's known as Chiquita Brands these days. That caused the stock to sell off tremendously. I was able to see on the tape that the stock was actively traded, and actually saw the human element of trading. Ironically, I later went to work in the mid-1970s as an actuary for Great American Insurance, a subsidiary of a company called American Financial Corp. At one point, American Financial acquired Chiquita. So United Fruit got me interested in the market, and then I ended up working for a company that owned it - but only briefly.
How did you move from actuarial work to options?
I have a mathematics degree, a necessity for the actuarial career, but I was also interested in other mathematical-type endeavors, including listed options when they started trading in 1973. Boy, I used to follow those prices. I didn't have any real-time prices, so I would look at the prices in the newspaper, which was a fantasy because they just show the last sale, whenever that might have occurred. I would find myself noticing that if you bought this one and sold that one, you would lock in a profit. I knew somebody at the insurance company who was interested in this stuff as well. We ended up founding the company that later became Schaeffer's Investment Research. We started out before the Internet, before fax machines, publishing the Option Advisor newsletter that is still around today.
What inspired you to start the newsletter?
I was getting bored with insurance. We said, "Well, let's do something that we really like for a change" - options. Joe Granville and Jim Dines both had newsletters back then, as did some of the pioneers such as Stan Weinstein, who had a newsletter called The Professional Tape Reader. We actually went to an event held by the Newsletter Publishers Association on how to start a newsletter. Believe it or not, at one point we were talking about starting a newsletter on insurance. Fortunately, that idea died quickly.
...Continued in the October 2002 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the October 2002 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.
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