MDC Close to Profit Mark

Use Weakness – Again – To Take Profits

PLAY: Sell your MDC June 65 Puts (MDC RM) at or above $8.00, good for the day.

Dear Bottarelli Research Member,

As if the markets needed another reason to be scared, the market’s mood was further threatened today with news that Iran has threatened the USA with “Harm and Pain.” This news has pushed the major market indices down today, making 8 out of the last 12 trading days bearish.

As the major markets continue to be stuck in a sea of red, all the top media outlets are buzzing about the 213-year old NYSE going IPO under the symbol (NYX – NYSE).

This is big news for the NYSE, as other competing indices like the CBOT Holdings (BOT – NYSE) and Chicago Mercantile Exchange Holdings (CME – NYSE) have each provided outstanding one-year returns of 50% and 125% respectively. I’ve been watching the NYX options pit today so see if any opportunities arise, and from what I see, the premiums are quite high. I’m hoping they’ll settle down once the euphoria over the IPO wears down — which could present a good upside call play.

While all that IPO hoopla is going on, there is a good chance we could get filled on our MDC June 65 Puts (MDC RM).At the open of trading today, MDC stock dipped once again to $58.50 which triggered an $8.00 price tick on your puts. This is a mere $0.10 away from our profit zone, which leads me to believe we may get filled today. The current bid/ask spread is $7.70 to $7.80, so let’s keep trying to take profits on the play. Just to be safe, let’s use the high of the day as our new marker and set our sell orders accordingly.

PLAY: Sell your MDC June 65 Puts (MDC RM) at or above $8.00, good for the day. Just like yesterday, if prices do not trigger we’ll re-evaluate the position again tomorrow.

Also using the market downside to your advantage is Apollo (APOL – NASDAQ), which is currently giving back all the gains the stock received on the takeover news of Education Management (EDMC – NASDAQ). As I write, APOL is dipping back below the $50.00 mark looking to set a fresh low. This down-move has helped put your May 50 Puts (OAQ QJ) back in the game at $3.00 per contract. Hold.

Switching gears, in my daily market study, I came across an interesting research note concerning the biggest investment banks on Wall Street. When it comes time for them to report Q1 revenues, their numbers could set all-time records — which tells me that the markets (despite this month’s weakness) are still in good shape to continue their rally.

Next week, guys like Goldman Sachs Group Inc. (GS), Lehman Brothers Holdings (LEH), Bear Stearns (BSC) and Morgan Stanley (MS) are all expected to report revenue increases around the 12% mark, spurred by increased trading and increased mergers and acquisitions. This trend can clearly be seen in the AMEX Broker-Dealer Index (XBD – AMEX), which has soared 70% over the last two years and is already up another 11% this year.

These numbers — and performance — clearly show that the financial markets are strong. A continuance of this trend will be a welcome sign to help the markets break out of the stagnation pattern we’ve witnessed recently.

It’s this very “stagnation” that’s prompted me to speak openly about the trading you’ve recently witnessed in Bottarelli Research. In terms of a “trading environment,” the last month has been less than ideal. For example, the NASDAQ 100 (QQQQ) is right around the same levels it was at 23 days ago. This inability to establish a direction — either up or down – means the markets have been seemingly devoid of what’s called a “tradeable trend” for the last month. This trading action is why I’ve been taking very quick-hit winners on our plays.

You see, I’ve learned (the hard way) that in a directionless market, a gain one day can turn into a loss the next day in the blink of an eye. That’s the very reason I’ve been issuing super-fast sell recommendations whenever our plays are hitting the 15% to 25% profit mark. Rest assured, when the markets break out of this tight range, we’ll be able to hold our positions longer and make higher returns on both our calls and our puts. But until then, the most prudent tactical action is to keep nailing quick and consistent winners.

Don’t forget, even in this less than ideal environment, the system is still 16 for 21 on closed positions in calendar year 2006, so it is indeed maintaining this consistent level of accuracy. This quick-hit style is echoed by Bottarelli Research Member Mark B. in a note he wrote this morning which reads, “With the sure fire 20%-50% returns like this, it just does not make a bit of sense to swing for the fences like most option traders do. Anyone whom has not joined in is sure missing something here. Buckle up and get ready to constant returns, that will smoke about any service I’ve tried in my last 15 years”

Don’t get me wrong, I’m always after those 100% winners. In fact, each trade I bring to you has that type of potential. But the time to gun for those types of winners is not right now. Being stubborn about homerun winners is how most option traders blow themselves out — as Mark B. noted above. You and I know better, and that means we take what the market gives us. I have no doubt that those types of 100% winners will certainly come in due time, and when they do, we’ll take full advantage.

Lock and load!

Sincerely,