Dear Bottarelli Research Member,
I’ve received some questions about why I have yet to add calls on DryShips (DRYS – NASDAQ) or Excel Maritime Carriers (EXM – NYSE). After all, we know that both companies have exhibited extremely bullish tendencies — which promoted me to implement the trading tactic of buying calls on any dip. Just check out each chart and you’ll see what I mean:
To be honest, I have yet to recommend a new call play on either company because I wanted to be careful not to catch a falling knife. In other words, I wanted to be sure that the near-term weakness (promoted by last week’s market sell-off) was over before establishing new calls. As you can see from the charts above, both stocks have made big moves — both up and down. The $15.00 price swing in DRYS over the last few trading sessions is a clear illustration of this volatility. But now it appears that each stock has absorbed this selling pressure and looks poised to make new runs at both of their 52-week highs. The time could be drawing near for an upside call play. And comparing the options string on each company, EXM looks to offer the most attractive opportunity.
Consider This: The DRYS November 125 Calls (DQR KU) are currently $1.50 out of the money, yet they trade for $10.50 per contract. On the other hand, the EXM November 75 Calls (EXM KO) are $4.51 in the money yet they’re trading for $9.00. So basically, buying the EXM calls means you’re paying $1.50 less to receive an option that’s $4.51 in the money — which is a much better risk/reward scenario.
Having laid out this scenario, I’ll continue to closely monitor each position and tell you the moment it’s time to act. But for now, let’s lay low and see if the markets can establish a support level. So far today, we haven’t seen a clear illustration of yesterday’s nice intra-day recovery gaining any traction, so let’s continue to wait before jumping on this play.
In terms of our current positions, I’m choosing to stick with FWLT (over other engineering plays like MDR, FLR, OII) because it trades on the NASDAQ — and my thinking is that strength today from the likes of GOOG, AAPL, GRMN, and MICC could help the NASDAQ out-perform the other major market averages.
Also, metals remain a strong safe-haven play in times to market choppiness, and FCX is the best metals company you can buy in these situations. And I still think the U.S. Steel (X – NYSE) is due to move lower by at least $5.00, so maintain your X November 105 Puts (X WA). Therefore, let’s continue to hold these positions. Until then…
Lock and load!