Two Potential Home Runs

Start Off the Week with DNA and MON

Dear Bottarelli Research Member,

I’m back from Boston ready to bring you some serious lock and load trading action. But first some old business.

On Friday, I noticed that Nike (NKE – NYSE) was down $1.50 around mid-day, which triggered a sell on your NKE November 90 Puts (NKE WR) for $3.60. If you missed it, don’t worry. Nike is once again trading down this morning and these puts are up to $3.50. Maintain your $3.60 sell price to lock in a 22% gainer.

Now the important news: Every Sunday morning, I spend a few morning hours prepping for the upcoming week of trading. This Sunday was no different — except that I was doing my due-diligence in Harvard Square. Surrounded by some of the most brilliant minds in the world, I was secretly hoping some of their unbridled genius would seep its way into this week’s trade recommendations. And guess what? I think it did.

Today, I’m going to be offering you two speculative call plays that could experience explosive results as early as tomorrow. Both plays are on companies that I’m long-term bullish on, Genentech (DNA – NYSE) and Monsanto (MON — NYSE). Each company reports key earnings this week and I have reason to believe that each announcement could send both stocks higher.

Starting with Genentech, they’re expected to report blockbuster earnings tomorrow based on strong sales of Lucentis, their treatment for the leading cause of blindness in the elderly. Sales of Rituxan (non-Hodgkin’s lymphoma) and Herceptin (breast cancer) are also rumored to come in above expectations. That would allow DNA to post, on average, a profit of $0.50 a share vs. $0.35 a share in the same quarter last year. This would equate to revenues rising 32% to $2.31 billion.

DNA has recently experienced weakness when the Food and Drug Administration asked for “substantial” safety and efficacy update from the company’s E2100 trial. And that’s the kicker. The day after DNA reports Q3 results tomorrow, the FDA is scheduled to decide whether or not to approve Avastin as a first-line treatment for advanced non-small cell lung cancer. Based on these two major events, I think we’ll see incredible volatility in DNA over the next week — and this could give us an opportunity to take some quick profits playing DNA October calls. Here’s speculative play #1:

PLAY: Buy the DNA October 85 Calls (DWN JQ) at or under $2.30, good for the day. Current bid/ask spread is $2.15 to $2.20. Place a protective stop loss at $1.20.

The second upside play comes in the form of Monsanto (MON – NYSE). Although the back-story is not as “juicy” as DNA, Monsanto has an earnings call scheduled to begin Wendneday October 11^th at 9:00 am EST. The consensus estimate is that MON will earn -$0.21 versus -$0.25 a year ago. Any improvement, in my eyes, could send shares a lot higher.

As you probably know, MON is the world’s leading agricultural products company — a pure play on the ever-increasing rise in our world’s population. MON produces seeds with special biotechnology traits that assist farmers in controlling insects and weeds — as well as seeds with special genetic traits that help plants grow quicker, larger, and with less water and maintenance. Categories include canola seed, corn and soybean seed, vegetable and fruit seed, cotton seed, sunflower seed, and sorghum seed. Once again, the idea here is to use any upside momentum leading into MON’s announcement to take a quick profit on October calls. As a pure play on MON’s earnings, here’s speculative play #2:

PLAY: Buy the MON October 47.50 Calls (MON JW) at or under $1.40, good for the day. Current bid/ask spread is $1.20 to $1.30. Place a protective stop loss at $0.65.

Remember, both of these plays are deemed “speculative” because they’re based on earnings and the FDA, which are always “hit or miss” situations. If you’re uncomfortable making trades like this, either play them lightly (meaning less contracts) or sit them out altogether. To balance out these two new calls, I’ll also be looking to add a put to our ledger, but that’ll come in a subsequent trading alert. Until then…

Lock and load!

Sincerely,