STP Double Top

Add Cheap Puts

By Bryan Bottarelli
Monday, December 11, 2006 11:41 AM EST
Mon, 11 Dec 2006 16:41:00 GMT

Dear Bottarelli Research Member,

Last week I highlighted Suntech Power Holdings (STP — NYSE) as one company that could be a potential trading opportunity this week. At the time, STP was engaged in a very strong up-trend, but today we’re getting reversal signals which could equate into a month of downside selling pressure.

STP

As you can see by the chart, STP has just formed a massive double-top. The last time the stock approached the $33 level, it failed and sold off all the way down to $23. All told, it was a $10 drop from mid-August to mid-September. Now it appears like we could be in for the same pattern, as STP has once again traded up to a high of $32.87 and failed. As a result, let’s even out our call to put ledger by entering some cheap STP January puts forecasting a move under $30 by Christmas. Here’s the play:

PLAY: Buy the STP January 30 Puts (STP MF) at or under $1.20, good for the day. Current bid/ask spread is $1.10 to $1.20. Place a protective stop loss at $0.50.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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