Markets Mount Strong Recovery (Then Give it All Back)

Plus, Your Intel Put Sale Was Timed Perfectly

Dear Bottarelli Research Member,

I received a series of notes from new Charter Members who were concerned about holding our series of call positions when it looked like the overall markets were set to plunge into the fiery pits of despair.

My response to them was more of a reassurance, saying that carefully positioning yourself on each side of the markets using both calls and puts allows you to take quick gainers no matter what the markets throw at you. This week has been a prime example of that thesis in action.

Playing off the downside markets, we were able to take gains of 27.78% in five calendar days on the Lear April 25 Puts (LEA PE) followed up with gains of 15.56% in eight calendar days on the Intel April 22.5 Puts (NQ PX). Making the situation even sweeter was that the Intel sell advice was timed perfectly — we were selling the put play right at its highest levels of the day. These two winners made our trading tally 7 winners out of 8 plays since 13^th of February.

The one loss was the so-called “lottery-ticket” play on Google. But even so, I’ve received notes from super-speculative members who actually held onto the GOOG June 240 Puts (GOU RH) and used this week’s $50 drop to take a profit on the play. So the correct positioning was indeed there, but it turned out to be just a few days too short.

After taking two put winners off the table, that leaves us with four open call positions and three open put positions. Speaking broadly about each set, the upside call companies seem to be all experiencing a slight retracement after breaking to new highs. Combine that with a weaker market environment, and this action is to be expected. Using an extended time horizon and playing alongside the trends should ultimately make each play an eventual winner.

Over on the put side, each play is sitting at either a slight gain or a break-even proposition — making the case to hold each downside play an easy decision.

To be as specific as possible, here’s a thumbnail recap of each play…

Eaton Vance August 25 Calls (EV HE): Entered for an average price of $5.25, Eaton Vance has continued to drift lower since their big drop on February 28^th. I still think the down-move was overblown — and the next support point on the stock looks to be right above the $27.00 level. The August time frame will certainly help us out as the upside trend fight to re-establish itself, which I feel it will.

Moody’s May 65 Calls (MCO EM): Despite the market weakness, this position has remained delightfully at our $4.70 entry price — confirming that the stock is strong and the play is good to go. We’ve teetered back and forth between break-even and 15% gains on this play. One solid market up-move could really give this play some meat.

BDX June 60 Calls (BDX FL): Entered for $6.90, these calls currently trade for $6.10, well within striking distance of a gain on the next up-stroke. After setting a new high, the stock has encountered resistance at $66.00, a level which it should be able to beat given the upward trend and establishment of new subsequent new highs.

CHE April 55 Calls (CHE DK): This has been the most troublesome of the call plays, as the floor traders have made trading the option more difficult than it should be. Entered for a basket price of $3.75, the stock is experiencing a typical new-high retracement which has pushed the calls down to $2.90. Similar to EV and MCO, re-joining the uptrend can quickly turn the play into a winner.

MDC June 65 Puts (MDC RM): Entered for $7.10 on the weakness of the housing sector, it looks like the stock has finally run out of upside strength and finally looks poised to establish a new low. Currently trading for $6.80, one downside push would be enough to put us in the profit zone.

AFFX May 35 Puts (FIQ QG): Entered for $2.75 and currently trading for $3.00, AFFX continues to push lower on the threats of dwindling spending in the biotech sector. Setting another new low could warrant a “take profits” alert next week.

APOL May 50 Puts (OAQ QJ): Entered for $3.80 and currently trading for $3.70, the stock is showing no serious signs of bouncing back from its recent downside move — setting the table for more losses in coming weeks.

Until next week,

Lock and load!

Sincerely,