Thursday Position Update

Markets Rebound, Finally

Dear Bottarelli Research Member,

I’m not sure if you realize this or not, but today’s market action accomplished something that hasn’t happened in quite a while: The markets opened higher — and actually maintained those gains throughout the entire trading day!

This upside action has brought the biggest gain to Genentech (DNA – NYSE), as the stock closed up $2.65 on the news that their superstar cancer drug Avastin could now be effective in fighting breast cancer, a disease that kills 41,000 women in the U.S. each year.

Avastin is one of DNA’s drugs that I feel could be the next “wonder drug.” Already approved to treat colorectal cancer, doctors have been prescribing Avastin to treat other types of cancer even though the drug hasn’t yet been approved yet for these treatments.

A recent study conducted on 722 patients with previously untreated breast cancer showed that Avastin delivered a 52% reduction in the risk of disease progression or death compared with patients who only got the chemotherapy. Based on these impressive findings, Genentech wants Avastin to not only be colorectal cancer drug — but also be a drug for patients with locally recurring breast cancer. Hold your DNA December 80 Calls (DWN LP)

Another upside play making news today is Gen-Probe (GPRO – NASDAQ), as the company was named to BusinessWeek’s “Hot Growth 100” list. BusinessWeek chose GPRO based on their strong three-year run, during which profits grew an average 62.6% annually on sales growth of 25.8% a year. Earlier this month, GPRO announced that their first-quarter sales grew 25% to $86.3 million and profits jumped 27% to $17.5 million. These recent numbers show that their 3-year run is still moving along at a solid clip.

Hold your GPRO November 55 Calls (PSU KK).

Although it was down over $1.00 at one point today, shares of Caterpillar (CAT – NYSE) staged a solid intra-day rebound and closed up $0.37. The upside thesis on CAT is pretty simple. No matter if you’re in a bullish or a bearish market, companies in guaranteed growth sectors always find themselves in strong positions. In terms of CAT, half of their sales occur in emerging markets outside the United States, which gives you a natural hedge against any U.S market weakness or a U.S. dollar implosion. Add to the fact that CAT has booked sales two years in advance and trades at a more-than-reasonable price-to-earnings ratio of 16, Caterpillar looks like a solid upside play into November. Hold your CAT November 75 Calls (CAT KO).

Over on the put side, UnitedHealth (UNH — NYSE) is dealing with a story that could cause a lot of investor alarm. The Securities and Exchanges Commission is now looking into stock options backdating by UNH, which could escalate into further selling pressure on the stock. The stock chart certainly didn’t use today’s 93-point Dow rally to its advantage. Hold your UNH July 45 Puts (UHB SI).

Also, our real-estate play on St. Joe (JOE – NYSE) also had a minimal upside gain today on news that existing-home sales fell 2% in April — pushing unsold home inventories to their highest level since January 1998. That’s an 8-year high! Not only that, but sales are down 5.7% from a year ago, which is certainly not a good sign for any real estate plays. Hold your JOE July 50 Puts (JOE SJ).

For tomorrow, I expect a muted trading day as we head into a long three-day market holiday. That means I don’t expect to issue any new trades tomorrow. But of course, I’ll keep you fully updated on everything we currently have open if any new situations develop. Until then…

Lock and load!

Sincerely,