Dow Rallies Again

Moody’s Highlights Upside List

By Bryan Bottarelli
Tuesday, March 14, 2006 4:15 PM EST
Tue, 14 Mar 2006 21:15:00 GMT

Dear Bottarelli Research Member,

A mixed bag of news highlighted today’s trading. First off, Treasury Secretary John Snow urged Congress to raise the U.S. national debt ceiling or face a disastrous cash crunch for the federal government. That does not sound good. Not at all.

At the same time, the markets mounted a strong rally on weak retail news (which was welcomed as a positive news event to combat inflationary pressures) plus a blockbuster earnings announcement from Goldman Sach’s Group. If you recall, this was the move I spoke about in your March 8th update.

With that backdrop, here’s a quick update on your positions, starting with the speculative trade on ICE. Charter Member Alan G. writes in to ask…

“Hi Bryan, (I) would appreciate your views on this, was not able to get out of the ICE trade at 6.60 before the market retraced, would you advise on trades such as this to get out after you have indicated taking profits i.e. is your view, that the option has moved as far as it might and will only go backwards or is it just capitalizing on a good profit opportunity? Currently I am still in the trade but would appreciate your thoughts.”

I suspect this is the case with mostly all traders in the ICE April 70 Calls (ICE DN). I didn’t call it a speculative trade for nothing!

At the open of trading, I noticed that ICE jumped higher, giving you a 30% gain on the calls you bought yesterday. As a pure opportunistic play, I issued a quick “take profits” alert, but prices had already moved back down by the time the alert hit your box. I’ll continue to monitor the play with updates and sell alerts. With less than 30 minutes left in the trading day, the calls were trading for your entry price of $5.30. Then, a quick down-stroke pushed them to $4.70.

Both your FRO May 35 Puts (FRO QG) and your DRS April 50 Calls (DRS DJ) are trading at parity or slightly above your entry price. Each position remains a hold.

The two biggest gainers today were your Moody’s May 65 Calls (MCO EM) which jumped to $5.60 and the BDX June 60 Calls (BDX FL) which rallied to $5.70. Each stock looks poised to continue assaulting their 52-week highs. In fact, Moody’s did register a new high at $69.15, giving you a 19% gain on the position.

Your MDC June 65 Puts (MDC RM) are trading lower today thanks Credit Suisse who downgraded Pulte (PHM – NYSE) while upgrading D.R. Horton (DHI – NYSE) and M/I Homes (MHO – NYSE). This net-positive upgrade is pushing most of the housing stocks up, including MDC.

Despite the upgrade, their research note doesn’t sound too positive to me. They noted slowing housing starts, selective price increases, and a double-digit jump in land costs. They also noted that “earnings could come under greater pressure than we presently anticipate with too much product chasing a dwindling pie of buyers.” I can’t help but remain bearish on MDC.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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Other Options Alerts From March 2006