Play it Again!

Add More FDX Puts, Plus ATI Calls

By Bryan Bottarelli
Tuesday, December 19, 2006 12:46 PM EST
Tue, 19 Dec 2006 17:46:00 GMT

Dear Bottarelli Research Member,

On December 13th, we bought FedEx January 115 Puts (FDX MC) for $3.90 and sold them the next day for $4.50, good for a nice 15.38% hit. Since making that trade, I’ve continued to monitor the daily movements of FDX, and it now appears like the stock is ready to make yet another fall.

FDX

As you can see by the chart, FDX’s initial breakdown below the 50-day moving average was the catalyst that promoted me to make the first downside play. The very next day, FDX tried to recover and trade above the 50-day moving average, but that upside momentum completely stalled over the following two trading days. This signifies that the bullish effort has been completely exhausted, which means the next move on FDX will be a fall down to the $110 level. To play this bearish formation, let’s once again enter into January puts. Here’s the trade:

PLAY: Buy the FDX January 115 Puts (FDX MC) at or under $4.20, good for the day. Current bid/ask spread is $4.00 to $4.10. Place a protective stop loss at $2.50.

Another stock I’d like to play is Allegheny Technologies (ATI – NYSE).

ATI

As you can see by the chart, the stock has just peeled off nearly $10 and is now finding support right at the 50-day moving average. I’d expect to see a quick pop at these levels, especially on a day like today where gold is showing signs of life, trading up $6.00. This could spark the entire metals sector into a rebound rally, and ATI is positioned (chart-wise) to participate in any upside momentum. So let’s balance out our FDX puts my adding ATI calls. Here’s the trade:

PLAY: Buy the ATI January 90 Calls (ATI AR) at or under $3.40, good for the day. Current bid/ask spread is $3.10 to $3.30. Place a protective stop loss at $2.00.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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