“One of the Greatest Business Models of the Modern Era”

Add MTB Puts & NYX Calls

PLAY: Buy the MTB July 30 Puts (MTB SU) at market, good for the day. Place a protective stop limit at $2.65 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

PLAY: Buy the NYX January 2010 15 Calls (YVX AC) at market, good for the day. Place a protective stop limit at $2.15 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

Dear Bottarelli Research Member,

First and foremost, congratulations on your recent LEAPS winners.

As you know, we locked in 60.78% on the remainder of our IAM Gold Corp September 5 Calls (IAG IA). Prior to that, we locked in 89.33% on the remainder of your Tesoro January 2011 5 Calls (ZGC AA).

Both companies will remain on my watch list going forward — and if the time comes to once again jump into upside LEAPS calls, you’ll be the first to know. In fact, IAM continues to look very strong. On Friday, for example, there were 435 stocks hitting new 52-week lows versus only 1 stock hitting a new 52-week high. And guess what? The single stock to hit a new 52-week high was none other than IAM Gold! Therefore, I’ll carefully watch for a pullback, which could offer us another strong entry opportunity. But until then, today’s alert contains two powerful new plays.

The first play is a financial put. The second is an exchange call. Taken together, both positions allow you to profit off continued market volatility by making money on both upside and downside markets. Right now, this is the only strategy that makes any sense. So on that note, let’s get started!

The financial put comes in the form of M&T Bank Corp. (MTB – NYSE).

Like any other bank, M&T Bank offers business loans, credit cards, savings deposits, cash management, residential real estate loans, commercial real estate loans, and various investment services. As of December, MTB operated 704 banking offices primarily on the East Coast, including New York, Pennsylvania, Maryland, Delaware, New Jersey, Virginia, West Virginia, and the District of Columbia.

For the most part, MTB did business in a very traditional manner. For the most part, they never got involved with any complex or risky areas of lending/investing. This has allowed them to avoid the devastating losses that we’ve seen in some other banking stocks, notably Citigroup (C – NYSE) and Bank of America (BAC – NYSE). In fact, a comparison of these three financial institutions clearly shows the difference in banking activities. BAC and C are currently trading for less than $4.00 apiece, yet MTB is still hovering around $35.00 per share. See for yourself below:

Now, MTB certainly isn’t bulletproof. Despite being semi-insulated from the devastating selling pressure in the financial sector, MTB still has problems with their real estate loans and commercial lending. Their current balance sheet, for example, shows $2.26 billion in cash versus $15.08 billion in debt. Plus, you might think that their forward P/E ratio of 7.67 looks cheap, but when you consider that Bank of America currently trades at a P/E ratio of 2.35, it’s clear that MTB still has plenty of room to move lower. And that’s the downside trigger on this particular play.

You see, if the global recession continues to linger on, I feel that every bank — from the risky to the conservative and everything in between — will continue to drift lower. From an investment side, there’s really no reason to own MTB right now. It’s just too risky. That’s why MTB could easily break below their 52-week low of $33.52 and eventually end up below $20.00. Based on this move, let’s add LEAPS puts on MTB now!

PLAY: Buy the MTB July 30 Puts (MTB SU) at market, good for the day. Place a protective stop limit at $2.65 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

The second LEAPS play is an upside call on NYSE Euronext (NYX – NYSE).

Now here’s what I find interesting on this play. NYX is categorized as a “financial” stock, which means that Wall Street has been punishing it in a manner similar to Citigroup and Bank of America (shown above). But when you look at NYX’s business model, you’ll see that it’s nothing like a banking/financial stock. In fact, nothing can be further from the truth. You see, NYSE Euronext provides securities listing, trading, and market data. Specifically, NYX operates two securities exchanges: The New York Stock Exchange (NYSE) and NYSE Arca, Inc. A brief description of each is listed below:

• The NYSE is an equities exchange and provides an orderly, liquid marketplace where investors buy and sell common stock and other securities.
• The NYSE Arca is an all-electronic stock exchange in the United States which trades exchange-traded funds, exchange-listed securities, and equity options. It also facilitates international cash markets in Belgium, France, the United Kingdom, the Netherlands, and Portugal.

In my opinion, the NYX owns one of the greatest business models of the modern era. As a publicly traded exchange, they make money off trading volumes. That means increased market volatility equates into increased transactions. That’s why NYX currently has very strong cash flow and very little debt. In fact, their income statement shows $4.47 billion in revenues, which amounts to $16.88 in revenue per share. Considering that NYX currently trades around $18.00 per share, you’re basically buying the company at parity with their current revenue stream.

What’s more, NYX carries a huge dividend, which is currently at 6.20%. This should attract a lot of investors looking for a cheap stock with strong internals — combined with a powerful element of safety. With a book value of $24.83, it’s clear that NYX is a victim of a frightened market that incorrectly lumped them into the financial sector.

They have no bad debt, no toxic assets, and no cash flow problems. In fact, their business looks even stronger in volatile markets. In a way, NYX’s transaction model is similar to Visa or Mastercard, except that NYX doesn’t face the challenges of dealing with a global consumer recession. But nevertheless, NYX is down over 73% over the last 52 weeks, compared to a 41% loss on the S&P 500. In my view, this is a buying opportunity that we cannot pass up. Let’s capitalize on this situation by adding longer-dated calls on the NYX now.

PLAY: Buy the NYX January 2010 15 Calls (YVX AC) at market, good for the day. Place a protective stop limit at $2.15 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

UPDATES

FCX August 35 Calls (FCX HG): Gold is moving towards $1,000 per ounce. Copper is stabilizing. This is all good news for Freeport-McMoRan Copper & Gold. Hold.

AET July 30 Puts (AET SF): A breakdown under the 50-day moving average could spark a substantial sell-off. In fact, AET looks like it could fall off a cliff at anytime. Our puts are already up 33% from last week’s entry price, and more gains are on the horizon. Hold.

United States Oil Fund January 2010 30 Calls (KWW AD): I firmly believe that another “oil shock” is coming. The price of oil has drifted far too low, and the thugs at OPEC and Russia are dead set on bringing prices back up. It almost looks as if the current oil market thinks that we have enough oil to sustain the world’s needs for years on end. But as you know, that’s not the case. Even if global oil demand has indeed ticked down recently, this is only a short term event. After all, the world’s population is still growing, yet we’re not producing (or discovering) anywhere near the amount of oil that’s needed to sustain our global population. Let’s use this price dip to lower our cost basis and add to our position now.

PLAY: Buy more United States Oil Fund January 2010 30 Calls (KWW AD) at market, good for the day.

DIA April 70 Puts (DIJ PR) & VIX May 60 Calls (VIX EN): Remain protected! The new 52-week lows that were set on the Dow last week signal that we could be in for a lot more selling pressure. Be sure to “CYA” in these nervous and volatile times. Hold.

CELG July 55 Calls (LQH GK): This week, Oppenheimer initiated coverage on CELG with an “outperform” rating and $73 price target. That’s a nice 37% gain from current levels around $53.00 per share. Things continue to look good for our calls. Hold.

TEVA January 2010 45 Calls (WTX AI): In the midst of a market sell-off, shares of TEVA flexed their muscle and blasted higher. Fueling the move was adjusted earnings that beat estimates by three cents — combined with news that their recent acquisition of Barr Pharmaceuticals could yield cost savings of $400 million (way up from the $100 million that they originally expected). With the U.S. government struggling to address the problem of rising health care costs, generic drug leaders like TEVA have never looked better. The decision to add to our position looks right on the money. Hold.

GERN January 2010 7.5 Calls (WNM AU): Skittish investors sold GERN on continued concerns about the company’s new offer of 7 million shares. But let’s not lose sight of the big picture. Stem cell research could spark the next wave of breakthrough health care discoveries, and over a longer-term horizon, owning a leader in this sector could result in a powerful upside winner. Hold.

DNA March 80 Calls (DWN CP): Similar to CELG and TEVA, the DNA chart looks strong in the midst of a weak market. Maintain your calls for more out-performance. Hold.

Verizon April 30 Puts (VZ PF): The bearish thesis remains in tact, as VZ looks ready to move into the low $20s. Hold your puts for more gains. Hold.

ADM January 2010 20 Calls (WRA AD): Get ready to buy into this dip. I read a report that said 2009 could be the first year that China is unable to feed their entire population, which means that they’ll come to companies like ADM to help fill the void. This could ignite the next upside push. When it’s time to lower our cost basis and add to the position, you’ll be the first to know. Hold.

Yellow Roadway January 2011 2.5 Calls (VYX AZ), AK Steel January 2010 15 Calls (YDF AC), & Southern Peru Copper January 2010 25 Calls (YPV AE): Our longer-term recovery plays have all drifted lower this week, but that’s why we bought plenty of time. It might behoove us to “roll” our AKS and PCU positions from 2010 to 2011, just to give us one additional year of time to account for a recovery. If the time comes to make this move, you’ll be the first to know. Until then, maintain these plays. Hold.

Sincerely,