Three New Plays

Plus, Critical Items to Watch

PLAY: Buy the ATW May 52.5 Calls (ATW EX) at or under $5.00.

PLAY: Buy the SWN May 30 Calls (SWN EF) at or under $4.80.

PLAY: Buy the OXM May 50 Puts (OXM QJ) at or under $5.50.

PLAY: Sell your SMG June 45 Calls (SMG FI) at or above $2.00.

Dear Bottarelli Research Member,

The markets are closed for Good Friday this week, which means we have a shortened trading week with limited economic reports. As a result, I think we may experience some “soft” market action — which translates to low-volume market days that don’t necessarily make too much of an impact on the prevailing trends. Having said that, we have a few opportunities that propped up today, and I want to take full advantage.

Last Monday, I told you that I felt the markets were over-extended, and we entered into put options on Bausch & Lomb (BOL — NYSE) and the S&P SPDRs (SPY).Our thesis proved to be correct and we made both on both trades, especially on Friday when the markets made a big down-move. Not only that, but we avoided entering into our next round of calls ahead of Friday’s sell-off, which saved us money on our potential entry prices.

This afternoon, all three major market averages have been mixed — with the Dow showing a slight gain and the NASDAQ showing a slight loss. Although I’m not entirely convinced that the markets are set to move higher, I am ready to enter two new call plays and one new put play. All three stocks have been on my radar for a while — and I think these three could move in our forecasted direction regardless of the major market averages.

The first upside play is an oil and gas drilling and exploration company called Atwood Oceanics (ATW – NYSE). ATW is an international offshore drilling company based out of Houston. They have a fleet of seven offshore mobile drilling units with operations in Southeast Asia, Australia, the Mediterranean Sea, and the U.S. Gulf of Mexico.

Just today, the stock split its shares 2 for 1, which if you read my research reports, is always a bullish sign. A stock split means there is buy-side interest in the stock, but it simply got too expensive for most investors to own. Splitting the stock makes more shares available to trade at a lower price — which is a win-win situation for everyone. With a backlog of drilling commitments and dryrates continuing to rise, I wouldn’t be surprised of ATW rallied back up to $100 even after splitting today. So let’s get positioned in some upside calls.

PLAY: Buy the ATW May 52.5 Calls (ATW EX) at or under $5.00, good for the day. Current bid/ask spread is a wide $4.20 to $5.10, so if you place your bids in between that spread you should be able to enter somewhere around the $4.90. Make the floor traders come down and hit your price. Place a stop loss that triggers only if these calls trade for $3.00.

The second upside call comes in a company called Southwestern Energy (SWN – NYSE). Also based out of Houston, SWN is a natural gas and oil play with operations in Arkansas, Texas, Louisiana, New Mexico, and Oklahoma. They currently distribute natural gas to148,000 retail customers. They’re included in a special group of stocks that sport a market cap over $5 billion — and that gained more than 100% in 2005. That’s quite impressive.

As you can see by the chart, they’ve recently moved down due to profit-taking — then found support right around $30.00 — and are now looking to move higher. Let’s play SWN to the upside.

PLAY: Buy the SWN May 30 Calls (SWN EF) at or under $4.80, good for the day. Current bid/ask spread is $4.60 to $4.70. Place a stop loss that triggers only if these calls hit $3.00.

The downside play is a company called Oxford Industries (OXM – NYSE). Based out of Atlanta, they’re a maker of branded and private label apparel for men, women, and children with 53 retail stores in the United States. Their most successful and popular brand is their Tommy Bahama line, with is showing strong sales that have beaten analyst estimates. Their problem comes in their Ben Sherman clothing brand, which single-handedly forced the company to reduce their forth-quarter guidance.

These depressed sales cannot account for the Tommy Bahama strength, which has forced OXM to expect a quarterly profit of $1.10 to $1.15 per share, down from $1.21 to $1.26 per share. Let’s play OXM to the downside.

PLAY: Buy the OXM May 50 Puts (OXM QJ) at or under $5.50, good for the day. Current bid/ask spread is $5.00 to $5.40. Place a stop loss that triggers only if these calls trade for $3.40.

UPDATE: A big news story that nobody is talking about is the fact that Target stores are now carrying Smith & Hawken goods. I noticed this firsthand this weekend when my wife dragged me to Super Target and I noticed a sharp-looking display of garden products. I would’ve thought this to be huge news for Scotts Miracle-Gro (SMG – NYSE), the owner of Smith & Hawken, but the Street is not even batting an eye. To me, this is very disappointing. After a very impressive upside move, SMG has now reverted back to test the $45.00 level for yet another time. Based on the company’s failure to break out of this trading range, I’d like to cut bait on this one and move onto bigger and better things.

PLAY: Sell your SMG June 45 Calls (SMG FI) at our stop-out price, at or above $2.00, good for the day.

TWO ISSUES ON THE RADAR: One stock that’s absolutely defying gravity is the ethanol play I hinted to last week. The company is called Pacific Ethanol (PEIX – NASDAQ), and the chart is simply amazing.

I have been waiting for a pullback before playing this one because the stock cannot sustain this upside trajectory. The big news is that Cascade Investment LLC, an investment firm that includes Gill Gates, was planning to buy $84 million in preferred stock. But the deal was delayed — and the purchase did not go through — because the company delayed its annual report until April 17^th. So let’s keep this one on the watch list and look to jump in on any weakness.

Also on the radar screen is the continued news out of Iran. In a story that’s getting scarier and scarier by the day, Iran brushed off what they’re calling “psychological war” by the US in regards to their nuclear development initiatives.

The New Yorker magazine cited that Washington is considering using tactical nuclear weapons to destroy Iran’s underground uranium enrichment facilities at Natanz. Now please understand, the last thing I want to do here in Bottarelli Research is get political, but this escalating situation cannot be ignored. I’m adding the full line of defense stocks back onto the daily watch list for potential upside moves.

Lock and load!

Sincerely,