Maintain $10.50 Sell Price on CMI

Plus, Your Wednesday Update

By Bryan Bottarelli
Wednesday, February 22, 2006 9:20 AM EST
Wed, 22 Feb 2006 14:20:00 GMT

Dear Bottarelli Research Member,

Yesterday morning, we tried to take profits on our CMI June 100 Calls (CMI FT), but the calls never triggered our $10.50 sell price. So this morning, I’d like to try it once again.

As you can see by the chart, Cummins (CMI – NYSE) is shooting to the upside and hitting fresh 52-week highs along the day. If we can get any sort of morning pop, I think we’ll get filled for $10.50. That would be a 19.38% gainer and run our opening record to 5 for 5.

CMI

PLAY: Sell your CMI June 100 Calls (CMI FT) at or above $10.50 per contract, good for the day.

Also coming back to us is our downside position in MDC. As I noted last week, it finally appears like the bulls have run out of gas — which means that MDC could soon be setting a fresh 52-week low.

MDC

Yesterday, the MDC June 65 Puts (MDC RM) you bought for $7.10 traded as high as $6.60, so they’re mounting a nice little comeback. Hold.

For all your speculators, your “lottery ticket” play on Google (GOOG – NASDAQ) continues to tread water. GOOG tried to mount a comeback, but that only lasted one day. The speculative calls you bought for $4.50 trade for $2.40.

What we’re looking for is an eye-popping sell-off that blasts volatility on these options to the moon. That combination of a stock sell-off (thus increasing the value of your puts) and the added volatility assigned to such a large sell-off is what could give you the big-time winner associated with such a speculative play. Hold your Google June 240 Put (GOU RH) with a protective stop loss at $2.00.

UPCOMING TRADES: Currently, we’re holding a balanced portfolio of CMI calls, MDC puts, and a speculative put on Google. If CMI should trigger today, I’ll be looking to add more calls to the trading ledger. In fact, I may even add a speculative upside call to balance out the speculative downside call in Google. Let’s see what the trading day brings, because after all, that is what dictates our next action.

CLOSED POSITION UPDATE: I don’t normally do this, but I’ve been watching the movements of RAIL after we closed off the position. If you recall, we sold the RAIL March 60 calls for $7.10. They currently trade for $6.70, which represents a very nice comeback after RAIL’s one-day sell-off (which occurred immediately after we sold the position). If you’re still holding these calls, and they’re trading at least 10% above your entry price, I’d look to take the profits.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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