A Mid-Week Update

WFC, MMM, GIS, and FDC

Dear Bottarelli Research Member,

I’d like to start off by addressing the trading action of Wells Fargo (WFC – NYSE), because the stock is really starting to annoy me. In fact, I’m decided the stock is a “dead money” situation because no matter if you’re long or short, you’re not making any money. You have is a stock that’s bouncing up and down at the $35.00 — without making any sizable move either way. In dead money situations like this, options traders like us have to face the constant threat of time decay, which is always a losing battle. To be honest with you, if I was given the choice of watching WFC trade or watching paint dry, I’d have to seriously consider watching the paint.

I find this troubling because news wise, everything I read continues to carry a bearish overtone. Today’s latest headline reads, “Weekly mortgage applications up 3.2%” but when you dig further into the report, you’ll find that ARM spreads have narrowed to five-year lows, application volumes are down 22.8% compared with the same week a year ago, and adjustable-rate loans accounted for just 25.5% of loans (the lowest ARM share in nearly three years). Without question, the high-risk mortgage sector continues to be weak as ever before, and WFC is square in the middle of it!

This isn’t just a domestic problem. New figures released today in Britain show that 770,000 people have missed one or more home loan repayments in the past 12 months. All told, two million people said they were concerned that their finances may not stretch to cover their monthly debts — a finding that I’m sure is even more severe here in the U.S.

Chart-wise, WFC has probed lower on an intra-day basis, but for some reason, it has failed to hold onto these losses by the end of the trading day. If you look at the chart, you’ll notice that last Friday and Monday were prime examples of this odd trading behavior. Had those levels held — and sparked more selling pressure — we’d be taking profits on our puts. But as it stands, WFC somehow finds a way to rally despite a weak technical overtone in an increasingly bearish market sector. With “dead money” situations like this, I feel there’s a lot better ways to make our money work for us, so let’s go ahead and take our manageable $0.40 loss and close off our WFC October 35 Puts (WFC VG) at market. Don’t get me wrong, I’m still bearish on WFC. But I feel it’s time to cut bait and look for better opportunities.

For a more uplifting story, take a look at 3M Co. (MMM – NYSE).

As predicted, the stock is now finding a support point to rally off — which has been a nice lift for your MMM January 80 Calls (MMM AP). We entered these calls for $0.90 and they’ve traded as high as $1.30 today. That’s good for a 44.44% gainer, and I say we take the profits off the table now! We can always re-enter these calls on any dips — but let’s use today’s opportunity to lock in a nice winner.

PLAY: Sell your MMM January 80 Calls (MMM AP) at or above $1.30, good for the day.

I’m also ready to act on General Mills (GIS – NYSE). Yesterday’s down-grade pushed the stock too low too fast. When you look at the stock’s history, it doesn’t make big moves. Rather, it gradually inches higher and higher, and any down-turns are proven buying opportunities over a 3-month timeframe. In fact, the last time GIS probed under its 50-day moving average in mid-June, that proved to be the catalyst for a new 3-month uptrend that broke new 52-week highs. I’d suspect that the recent down-move will offer a similar pattern as we head into January. So let’s go ahead and add more GIS January 60 Calls (GIS AL) to our position now.

PLAY: Buy more GIS January 60 Calls (GIS AL) at or under $0.40, good for the day.

Finally, we have First Data (FDC – NYSE) taking a little breather today after a strong upside rally. This is nothing to worry about, as I see no reason to sell the stock prior to the September 22^nd disbursement of their Western Union spin-off. I’d think that investors will use any sell-off to add to their stock positions. In fact, that’s what I’m doing! In the matter of full disclosure, I plan to personally buy some FDC stock to capitalize on the WU deal. It’s just another example of me putting my money where my mouth is.

In terms of our calls, your FDC October 42.5 Calls (FDC JV) are trading slightly above our $3.20 entry price, so hold them for more gains.

Lock and load!

Sincerely,