Shopping for Puts

First Up, UNH

By Bryan Bottarelli
Wednesday, May 24, 2006 11:10 AM EST
Wed, 24 May 2006 16:10:00 GMT

PLAY: Buy the UNH July 45 Puts (UHB SI) at or under $4.60, good for the day. Place a protective stop loss at $2.60.

Dear Bottarelli Research Member,

Although I’m still watching JOE and SMH for a good downside entry point, it looks like it’s time to get positioned to the downside right now in Unitedhealth Group (UNH – NYSE).

As I mentioned yesterday, their recent attempt to rally past $48.00 was rejected, which signals a quick move down to the mid $30’s. Not only that, but they just reported earnings that didn’t impress anyone: revenue dropped another 7%, their operating cash flow was negative for the quarter, and their adjusted EBITDA was down by about one-third. Here’s today’s UNH chart. As you can see, the stock is unable to mount any sort of rally even as the major markets averages are showing signs of upside strength:

UNH

As a way to balance out our upside cal plays from the “Aftermath Report,” I’d like to get positioned in UNH July puts. Here’s the trade.

PLAY: Buy the UNH July 45 Puts (UHB SI) at or under $4.60, good for the day. Place a protective stop loss at $2.60.

In other news, we’re hearing a lot of barking from Iran’s hardline President Mahmoud Ahmadinejad — who is now boasting that the Islamic republic has mastered the entire nuclear fuel cycle.

Speaking about any enemies of Iran, he said “if they do the slightest damage to the Iranian people, if they commit the slightest aggression, they will receive an historic slap." Quite frankly, this is scary stuff. And that’s why I continue to rate defensive plays very highly on my list.

In yesterday’s “Aftermath Report,” I recommended November 80 Calls (ATK KP) on mid-cap defense company Alliant Techsystems (ATK – NYSE). These calls are trading between $4.50 and $4.70 today, which I rate as a strong entry point — especially considering today’s Iran news. If you have yet to enter these calls, today may be the day to act.

Thus far, Caterpillar (CAT – NYSE) has been the best performing “Aftermath” play, as the stock is up $1.00 today and your November 75 calls (CAT KO) just traded for $6.50. Today’s other big mover is Barrick Gold (ABX – NYSE). Although gold is down huge today, ABX is showing only a loss of $0.73, thus doing a good job of limiting your total level of risk. Once gold bounces back (and it will), ABX will be moving higher once again. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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