A Quiet Day

Add One New AIRM Call

By Bryan Bottarelli
Monday, August 21, 2006 2:06 PM EST
Mon, 21 Aug 2006 19:06:00 GMT

Dear Bottarelli Research Member,

You can tell its late August.

Although the major market averages are giving back a little of last week’s gains, today’s market action has been extremely nondescript — with virtually every stock I follow not making any significant up or down move. Therefore, we’re stuck in a slight holding pattern before entering into the next lot of trades.

So while we have a moment, I’ll give you my quick input on your two open put positions, the WFC October 35 Puts (WFC VG) and the CRDN September 45 Puts (AUE UI).

Starting with Wells Fargo (WFC – NYSE), the stock is engaged in a tight battle right at the $35.00 level. The fact that we’re holding puts reveals my take on the stock — as I feel the rupturing of $35.00 would mean a move down to the 50-day moving average at $34.50, with a subsequent move down to possibly $33.50. Over the last few trading days, nothing has come about to change this position one way or another, so let’s hold the October 35 Puts (WFC VG) until further notice.

WFC

Next up is Ceradyne (CRDN – NASDAQ). After a brief three-day up-stroke, the stock now looks posited to reverse course and move back down to $42.00, as the bullishness caused by last week’s market rally has appeared to have petered out. Let’s maintain our downside bias and hold the CRDN September 45 Puts (AUE UI).

CRDN

Like I mentioned last week, one thing I’d like to do early in the week is to balance out our two puts with one upside call. One company giving off a bullish signal today is Public Storage (PSA – NYSE), the real estate investment trust that operates 1,501 month-to-month self-storage facilities in the United States. As you can see from the chart, PSA has been in a massive up-trend, highlighted by today’s new 52-week high at $88.00.

PSA

While I like the looks of PSA, I’d like to hold off on issuing a call recommendation — simply because the stock has moved up so quickly. If we see a pullback, that would be the time to enter into some longer-dated calls. In the meantime, I’d like to find a cheaper stock exhibiting similar chart characteristics, and that’s where Air Methods Corporation (AIRM – NASDAQ) comes into play.

AIRM

AIRM is the largest provider of air medical transport services for hospitals — boasting approximately 200 helicopters and fixed wing aircraft. As you can see by the chart, the stock has been engaged in a very consistent up-trend — highlighted by good earnings, good forward projections, and a business not necessarily dependent on the fluctuations of the economy to prosper.

Based on these conditions, I’d like to take a small position in AIRM to the upside using the AIRM September 25 Calls (UDU IE). Currently trading between $0.80 and $1.05, these calls represent a cheap way for you to balance out your current ledger of two puts. If AIRM’s trend continues — or the market suddenly turns higher again — these calls could offer you a nice, cheap way to participate in the move without committing a lot of up-front capital. So let’s take enter into this position today.

PLAY: Buy the AIRM September 25 Calls (UDU IE) at or under $1.10, good for the day. Place a protective stop loss at $0.40.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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