Three New Trades

A Call, a Put, and a Speculation

PLAY: Buy the FRO May 35 Puts (FRO QG) at or under $2.00, good for the day.

PLAY:Buy the DRS April 50 Calls (DRS DJ) at or under $6.00, good for the day.

SPECULATIVE PLAY: Buy the ICE April 70 Calls (ICE DN) at or under $5.70, good for the day.

Dear Bottarelli Research Member,

I’d like to begin the week with three new trades – a call, a put, and a speculative upside call for those “swing for the fence” type of traders. Then, update your current positions before signing off with the one and only secret you need to win your NCAA pool.

So let’s begin with today’s downside play on a company called Frontline (FRO – NYSE).

The company owns and operates oil tankers ranging in size between 200,000 and 320,000 DWT (deadweight tons) and 120,000 and 170,000 DWT. It transports oil from the Middle East Gulf to the Far East, northern Europe, the Caribbean, and the Louisiana offshore oil port with 35 smaller-sized tankers and 42 larger tankers.

Given today’s oil environment, you would think the company would be prospering. But that’s certainly not the case. The company is approaching a new 52-week low today as it trades for $34.82. The failure of the stock to break the January 24^th high at $38.74 or the March 3^rd high of $37.76 establishes a series of lower-highs, which displays extreme stock weakness.

This weakness was displayed on February 27^th when FRO lowered their yearly EPS statement from $3.84 to $3.62. Next year’s EPS statement is expected at $2.90. Based on this news, I’d look for the stock to re-establish prices down near their November 2005 lows under $34.00.

PLAY: Buy the FRO May 35 Puts (FRO QG) at or under $2.00, good for the day. Current bid/ask spread is $1.75 to $1.90. Place a protective stop loss at $1.15.

Today’s upside play is a company called DRS Technologies (DRS – NYSE), a pure play on our nation’s excessive defense spending.

The company operates two segments: Command, Control, Communications, Computers, and Intelligence (C4I) and Surveillance and Reconnaissance (SR).

The products found in each segment are quite extensive: naval displays, ship communications, radars, secure voice and data communications, naval and industrial power generation, propulsion, peripherals, targeting and weapon sensors, digital imaging, aircraft weapons alignment, mission and flight recorders, night vision, combat identification, and laser illuminators.

On February 26^th, Barron’s noted that shares of companies that do business with the U.S. Army are likely to rise due to billions in supplemental appropriations given to the Army to fight the wars in Iraq and Afghanistan.

On February 15^th and 16^th, DRS Technologies received $33 million in new orders for their U.S. Army Helicopter Sighting System and $54 million to produce Infrared Sighting Systems for U.S. Army Combat Vehicles. Based on these orders, it’s no surprise that the company upped their next fiscal year EPS estimate on February 22^nd from $3.10 to $3.11 and the stock hit a series of new 52-week highs.

PLAY: Buy the DRS April 50 Calls (DRS DJ) at or under $6.00, good for the day. Current bid/ask spread is $5.40 to $5.70. Place a protective stop loss at $3.70.

The speculative upside play comes in the form of Intercontinental Exchange (ICE – NYSE).

ICE is the leading global electronic energy marketplace for the trading of energy commodity futures – including oil, natural gas, and power.

After a rough start, the stock has been really coming on. The company IPO’ed on November 16^th 2005 at $39.00 a share, and closed on November 29^th at $31.97 a share. Since that low water mark, the stock has been on a major rally, spurred on by ICE setting a new exchange-wide record in trading contracts on March 10^th.

Last week, ICE announced they experienced their second consecutive day of record volume in its futures business – trading 391,016 contracts on March 9^th and 385,505 contracts March 8^th. As a result, the stock has been moving aggressively higher on heavy volume.

What I like about this play is that ICE is so new, traders don’t really have a way to value their business model. Therefore, all they can do is compare ICE to similar trading exchanges – all of which have been rocketing higher. If you think that commodity trading will only get hotter, then this is a pure play that’ll profit no matter if oil, power, or natural gas goes up or down. Be warned: volatility is high, which means you’re paying more for premium than you typically would, but that’s why this is a speculative play.

PLAY: Buy the ICE April 70 Calls (ICE DN) at or under $5.70, good for the day. Current bid/ask spread is $5.10 to $5.40. Place a protective stop loss at $3.70.

MDC UPDATE: Two things are happening today on your downside play on MDC. First of all, analyst William Mack on March 9^th cut his rating on MDC from hold to sell, citing a lowered 2006 EPS estimate of $11.10 from $12.75 based on the opinion that new home buying has significantly eroded since the start of this year.

He also notes that MDC suffers from a shortage of land, lowering his12-month target price to $50 from $77. Of course this is bad news – so why is the stock up today? This morning, Banc of American Securities upgraded MDC from “Sell” to “Neutral,” making this the only reason shares are moving higher. Despite the tepid upgrade, I still remain bearish on the stock.

SPECULATIVE UPDATE: Those speculators still holding your Intel April 22.5 Puts (NQ PX) are looking good today, as the stock is down to $19.74 and your puts traded as high as $2.80. That’s a 24% gain from your $2.25 entry price.

STILL ON THE WATCH LIST: St. Joe (JOE – NYSE) is still showing bearish qualities, but I’m hesitant to issue another downside play indexed to housing. On the bullish side, Dun & Bradstreet (DNB – NYSE) looks like it’s participating in the big broker/dealer rally I noted in a previous alert. Both JOE and DNB remain on the watch list as potential future plays.

MARCH MADNESS TIP: Now that we’re in the week of the NCAA basketball tournament, I’ll give you a secret tip for winning your office pool. If you want to pick an upset, be sure to choose the upset teams that rank among the best free throw and three-point shooting teams in the country. As a convenience to all you basketball fans, I have each noted below:

Best free throw shooting teams in the country:

#1 Duke #2 Gonzaga #6 Memphis #8 Florida #9 San Diego State #11 UConn #13 Kent State #14: Boston College #15: Michigan State #21 Northwestern State and #23: Iowa.

Best 3-point shooting teams in the country:

#2 West Virginia #5 NC State #11 Villanova #12 Air Force #17 Syracuse and #22 Indiana

Lock and load!

Sincerely,