PLAY: Sell your FAZ April 9 Calls (O:FAZ 11D9.00) at market, good for the day. Then, buy the SDS June 22 Calls (O:SDS 11F22.00) at market, good for the day.
Dear Bottarelli Research Member,
A breakdown has hit the markets. As you can see below, the Dow looks to be headed for the 12,000 support test. In the past, these one-day pullbacks have been bought. It’s the standard dip-buying that we’ve seen over and over again. Will the same pattern hold true yet again? We’ll get more answers tomorrow. But until then, I don’t want to overreact. Let’s see how the markets address this move tomorrow, especially if we get close to the 12,000 level. Hold all of our current positions.
Looking specially at DECK, the market maker shakeout continues (helped by today’s market weakness). As you can see, this selling pressure took DECK right down to its 50-day moving average. This might be the spot where the bulls step back in. Therefore, I don’t want to sell at a low. Let’s see how tomorrow plays out, and then we’ll make our decision.
But just to protect against further weakness, it’s smart to reload our protective positions. As you know, we were holding the FAZ April 9 Calls (O:FAZ 11D9.00). But last week, the Direxion Daily Financial Bear 3X Shares did a 1-for-5 reverse split. As a result, each outstanding share of FAZ will automatically be converted into one-twentieth of a share of “new” FAZ.
According to the OCC rules, all outstanding FAZ options as of Thursday, February 24th will be adjusted to reflect this 1-for-5 reverse. That’s why our current FAZ July 9.00 Calls are now listed under the symbol FAZ1. Premiums for these adjusted FAZ1 options will continue to be calculated. But at the same time, to reflect the new pricing, FAZ will begin a new series with the adjusted strike prices. These were introduced on Friday, February 25th. It’s always confusing when we witness reverse splits, so that’s why I’d like to start with a fresh protective play. This time, we’ll take a broader-market perspective and use the ProShares UltraShort S&P500 (SDS – NYSE). To remain protected going forward, close your FAZ calls now. Then, use the proceeds to “roll” into the new protective position.
PLAY: Sell your FAZ April 9 Calls (O:FAZ 11D9.00) at market, good for the day. Then, buy the SDS June 22 Calls (O:SDS 11F22.00) at market, good for the day.
Clearly, downside protection continues to be essential, especially on a day like today. Therefore, we’ll keep our ledger insulated against further weakness by using this maneuver.
And as always…
Lock and load!
Sincerely,
