PVX Update

Revisiting a Past Winner

Dear Bottarelli Research Member,

First off, I hope that you were able to take great gains on both Toll Brothers (TOL – NYSE) and Titanium Metals (TIE – NYSE) today.

Looking at each chart, we should have plenty of opportunities to play each stock on a more frequent basis in the future, as the rebound in the housing sector combined with the bullishness among the small collection of titanium stocks could hand us a very high frequency of profitable trading opportunities in the near future.

As I look at our current ledger, I really like the diverse allocation of calls and puts spread out thought various market sectors. First off, our more conservative play on PCU January 52.5 Calls (PCU AX) looks very good, especially with gold up $11 in today’s trading. In addition, we’ve seen a very nice rebound in the PEIX January 17.5 Calls (PFQ AW), which should turn a profit soon. I’m also bullish on the Charles Schwab January 17.5 Calls (SHQ AW), as the markets’ historic highs bring more and more retail investors off the sidelines and trading once again. On the speculative call side, our BOT January 165 Calls (BOT AV) are quite a wild ride, and I’d like to maintain the upside bias.

Looking at our puts, we’re seeing weakness today in ATK, which is helping our ATK January 75 Puts (ATK MO) get back to break-even. We’re also seeing a weak Dow, which is helping our protective DIA December 120 Put Hedges (DAW XP). Monsanto is the one stock that’s up today, which is dropping the value of our MON January 50 Puts (MON MJ).But I’m not worried — I expect MON to rejoin its newly-formed down-trend by next week. Maintain all current call and put positions.

While I have a quick moment, I’d like to quickly re-visit a play that I closed back on November 15^th, which was March 10 Call options (PVX CB) on Provident Energy Trust (PVX).

If you recall, Provident Energy Trust is an open-ended energy income trust that engages in the acquisition and production of crude oil and natural gas in Alberta, Saskatchewan, California, and Wyoming. With proved plus probable oil and gas reserves of 134 million barrels, PVX was a nice way to play a continued bull market in oil and energy going into the winter months. But what really got my attention was that PVX fell very hard, alongside most of the other Canadian energy trusts, when a proposal to alter the tax structure of such trusts pushed the entire sector down very, very hard. You can see this sell-off on the PVX chart.

Based on this knee-jerk reaction, I issued March calls on PVX on two different occasions, which I sold for gains of 19.05% and 31.58%.The reason I bring this up is because I received a handful of notes from Charter Members who said that they did not sell their PVX March 10 calls, so I said that I’d continue to monitor the position. As I write today, these calls are trading between $1.25 and $1.30 per contract. That’s a gain anywhere between 23% and 36% from our original entry price — so if you’re still holding these calls, take your profits now!

And as always…

Lock and load

Sincerely,