Playing Around the Fed

Two Days of Tactical Planning

Dear Bottarelli Research Member,

On the eve of tomorrow’s Fed meeting, its’ time we take a breather and stand pat for the next two days. In fact, I specifically booked travel plans for tomorrow because I anticipated making no significant trades in front — or preceding — the upcoming Fed meeting.

In today’s alert, I’d like to simply reiterate our positions — highlighting both our protective stop losses and also adding a “busy man” sell target. The “busy man” sell target is exactly the opposite of a stop loss in the sense that it sets a pre-determined sell order at a level that’s profitable to you. That way, you can use any volatility to trigger a profitable trade no matter if you’re at your desk or not. So let’s get right into it!

Without question, today’s big mover is Las Vegas Sands (LVS — NYSE). As you can see by the chart, the stock is up over $2.00 based on positive comments from Lehman Brothers analyst Felicia Kantor Hendrix. In a note to clients, Hendrix said that the Singapore license that LVS was just granted (which promoted me to add to our call position) could add $7 to its valuation, which is why she lifted her price target from $73 up to $78.

Your LVS July 70 Calls (LVS GN) were bought for an average price of $2.60, and they’ve traded as high as $2.40 today. Hold them while maintaining your protective stop loss at $1.15. If you’re like to set a pre-determined sell target, I’d conservatively set a “busy man” sell at $3.30.

Our newest play on medical device maker Medtronic (MDT — NYSE) is also one that’s been getting a lot of action. Yesterday, MDT said their implantable heart devices used different components than Boston Scientific, which would lead investors to believe that MDT’s devices are still safe. Steve Mahle, president of Medtronic’s cardiac rhythm disease management said "We know that the capacitors in question are different than the ones used in our products."

To me, this seems like nothing more than damage control. For one, Boston Scientific never made public the name of the defective product. In fact, the faulty capacitor is made by an unnamed supplier that provides components to others in the industry.

What’s more, a Medtronic spokesman declined to identify his company’s capacitor supplier, which further questions the validity of MDT’s release. That’s why I feel that more recalls could be coming. Heck, just a safety recall could spook investors and push MDT even lower. Maintain your $3.10 buy orders on the MDT August 50 Puts (MDT TJ). If you already own these contracts, keep your $2.00 stop loss — and if you’d like to place a “busy man” sell, I’d conservatively take a 29% profit at $4.00. Current bid/ask is $3.30 to $3.40.

Our other put play is the AVID August 35 Puts (AQI TG). In terms of news items, there’s nothing really noteworthy to report — other than the fact that AVID remains stuck in a solid down-trend.

The last two days of slight upside are once again being rejected today, which points to more weakness. The AVID August 35 Puts you entered for $2.90 currently trade for $2.80, so you’re right at break-even. Maintain your $1.95 protective stop loss, and if you’d like to place a “busy man” sell, I’d conservatively take a 27% profit at $3.70.

Our conservative play on Pepsi (PEP – NYSE) has decided to test the 50-day moving average once again. The last time PEP touched the 50-DMA, we added to our PEP October 60 Calls (PEP JL) and enjoyed a subsequent jump in PEP stock. Now, the stock has once again drifted back down to these levels. We’re in the October 60 Calls for an average price of $2.45 and they currently trade for $1.70. Hold the position while maintaining your protective stop loss to $1.20.

And finally, we have our dual position in FedEx (FDX – NYSE). As you recall, we paid a total of $1.32 to own the basket of FDX July 120 Calls (FDXGD) & FDX July 100 Puts (FDXST).The basis for this purchase was an upcoming earnings announcement from FDX, which I hypothesized would push the stock much higher or lower. When FDX announced strong earnings, the stock did rally over $5.00, but the July 120 calls failed to participate in the up-move.

Earlier this week, the calls have traded as high as $1.00 but have since fallen back to $0.45. While I still feel this basket should easily be trading for $1.80, I’d like to set a sell price on the calls for $1.00. That way, we can make the most out of this basket and perhaps use any gains in the puts to trade our way into a winner. Let’s set a pre-determined sell on the FDX July 120 Calls (FDXGD) at or above $1.00, good until cancelled.Hold the FDX July 100 Puts (FDXST).

To review, I will be traveling tomorrow and Friday, which is why I’m giving you a full position review with protective stop loss and conservative sell orders today. Since I do not plan to make any trades into the Fed meeting tomorrow or Friday, your current positions are indeed set. Since the market is closed for the 4^th of July holiday on Tuesday, I’d suspect next Monday will be a very muted trading day. That means barring any more updates, we’ll get back to more trading a week from today. Until then…

Lock and load!

Sincerely,