The Importance of Puts

Dow Drops, Yet You’re Protected

By Bryan Bottarelli
Tuesday, October 17, 2006 11:44 AM EST
Tue, 17 Oct 2006 16:44:00 GMT

Dear Bottarelli Research Member,

I hope today’s action clearly exhibits why I’ve been steadfast (perhaps even stubborn) in maintaining our downside positions on MNST November 40 Puts (BSQ WH), SBUX November 37.5 Puts (SQX WU), and OSTK November 20 Puts (QKT WD). All it takes is one or two days of strong downside action for every one of these positions to hand you a nice gain. In fact, Monster has now broken into profitability, Overstock is about to break into profitability, and Starbucks is on the verge of breaking into profitability.

I also hope today’s action illustrates the importance of the DIA November 120 Put Hedges (DAW WP) that I recommended yesterday for $1.45 per contract. With the Dow dropping 90 points in today’s action, these puts have traded as high as $2.00, handing you an overnight gain of 37.93%, and counting.

As of this morning, the CBOE Volatility Index (VIX) has jumped 7.39% up to 11.90, a telling sign that fear, doubt, and insecurity is now creeping back into the markets. Following the VIX as closely as I do (which is the first thing they teach you on the CBOE) clearly illustrates the significance of adding our DIA puts right at the 11 level. When you consider that the VIX jumped from 11 up to 23 during the last market downturn, it’s plain to see that we could have a lot more downside action in the cards. That’s why I’d like to maintain all of our downside put positions for more gains. If this morning’s sell-off forces the bulls to step aside, the bears could come in and really put a hurt on the market — and I want you to take full advantage by handsomely profiting off this downside pressure.

VIX

One move that I’d like to make is to take profits on our PPH November 75 Calls (PPH KO).As I scan the markets, the one and only sector group showing strength today is Big Pharma stocks, which you can see by the PPH hitting a new 52-week high at $79.22. As I told you in prior alerts, this is a HUGE week for the Big Pharma sector, as literally every stock included in the PPH basket is reporting earnings. And so far, the numbers are coming in very strong. The fact that the PPH is hitting new highs on a big market down-day shows the strength in this group, and I’d like to take full advantage by taking our profits off the table!

PPH

PLAY: Sell your PPH November 75 Calls (PPH KO) at or above $3.80, good for the day.

As a final note, I don’t want you to get overly concerned about the weakness in SWN December 30 Calls (SWN LF) and PCU December 50 Calls (LCU LJ). These two are longer-term positions to be maintained into November and possibly December. If they keep dropping, we’ll add to them and expect a near-term payoff. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From October 2006