A Quick Trade

Time to Play OIH Puts

By Bryan Bottarelli
Wednesday, August 30, 2006 11:45 AM EST
Wed, 30 Aug 2006 16:45:00 GMT

Dear Bottarelli Research Member,

I think we have a quick trading opportunity on the Oil Services HOLDRs (OIH – AMEX), which is a collection of the top oil service stocks like Halliburton, Schlumberger, and Transocean.

What’s happening is that these stocks have been on an incredible two-year run. Many of them doubled…and then doubled again. But now, investors are starting to slowly take their profits off the table. You can clearly see this in the OIH chart, which has been stuck in a very discernable down-trend since May.

OIH

Combine that profit-taking with the hurricane premiums being sucked out of nearly every oil and energy company, and it looks like we’ll have near-term bearishness across the sector that could begin to compound on itself. I’d guess that the OIH moves down to re-test the $130 level, which is a $4.55 drop from current levels. To play this down-move, let’s get positioned on the OIH September 135 Puts (OIH UG).

PLAY: Buy the OIH September 135 Puts (OIH UG) at or under $4.00, good for the day. Current bid/ask spread is $3.40 to $3.70. Place a protective stop loss at $2.00.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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