Playing the Aftermath

The Strategy After Yesterday’s 190-Point Rally

By Bryan Bottarelli
Wednesday, April 19, 2006 10:46 AM EST
Wed, 19 Apr 2006 15:46:00 GMT

Dear Bottarelli Research Member,

On April 11th, we bought call options on Atwood Oceanics (ATW — NYSE) based off a bullish chart, continued gains in oil and oil-service stocks, and most importantly, the fact that the company split their shares 2 for 1. All three of these factors pointed to continued upside gains for ATW, so we entered the ATW May 52.5 Calls (ATW EX) for $5.00.

As I write today, ATW is slowly inching upwards and the stock hit a new 52-week high at $57.73. This has pushed your calls up to a high of $5.90, and they’re currently trading at $5.60.

While this slight gain is nice, I would’ve though we’d have more profits. The ATW options seem to be discounted in value, perhaps marked down as we move closer to the company’s Q2 earnings conference call on April 28th. But honestly, I’m not sure why they’re showing muted price premiums.

ATW041906

While I still like the chart and the company’s future growth potential, I’m a little concerned about the inability of the options to make a substantial move higher. So I’d like to take the move conservative and cautions approach and take the profits off the table today.

PLAY: Sell the ATW May 52.5 Calls (ATW EX) at or above $5.80, good for the day.

I also received a few notes from Charter Members saying that you were unable to exit the

OXM May 50 Puts (OXM QJ) yesterday for $5.90. Hopefully, you’ll get a second opportunity today.

OXM041906

As I write, the stock is down $0.36 and the puts are once again up to you entry price at $5.50. Since the position is closed, my advice at this point is to exit the position for as little damage as possible. If that means breaking even or taking a slight gain, then that’s what you should do.

PLAYING THE AFTERMATH: In terms of adding new plays, I’d like to see how the markets react to yesterday’s freakish 190-point rally before initiating anything new. I read that yesterday’s rally was one of the biggest single-day gains since January of 2000, so it’s not everyday that we see a move of such magnitude. To play the aftermath, I feel the smart thing to do is wait a day or two for the markets to shake themselves out. So for now, I’ll keep monitoring upside and downside plays, but I will probably wait until next Monday or Tuesday to jump into anything significant. After all, I’d rather be safe than sorry!

INCORRECT ATW EXECUTION: On another note, I received a few messages from members who said that the trading floor automatically executed their ATW calls this morning right at their stop-out price. There is NO WAY this should have happened, as the price of ATW never dropped enough to warrant this price fill. If your ATW calls were sold this morning for this low price, call the exchange or your broker right away and have them review the situation and adjust your price.

Lock and load,

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From April 2006