Add STP Puts

Stock Set to Fall $3 in Near Term

By Bryan Bottarelli
Thursday, January 04, 2007 10:33 AM EST
Thu, 4 Jan 2007 15:33:00 GMT

Dear Bottarelli Research Member,

After yesterday’s incredible 100-point reversal on the Dow — followed up by today’s 60-point opening fall — I hope you recognize the importance of our DIA February 120 Puts (DAW NP). If this market continues to fall, these puts will act as a great buffer — or insurance policy — to all of our longer-dated positions. If you don’t own them yet, I’d recommend establishing a small position now.

DIA

At the same time, I’d also like to initiate a new downside position in Suntech Power Holdings (STP – NYSE).As you know, we’ve played STP to the downside with a high level of success, making 45.83% on the STP January 30 Puts (STP MF) back in early December. Now it looks like the ideal time to re-enter STP puts, as the stock has ran way past the 50-day and the 200-day moving averages, as you can see below. It’s due for a cool-down, which could equate to a $3.00 move down to the $30 support level. Let’s get positioned to profit off this move:

STP

PLAY: Buy the STP February 35 Puts (STP NG) at or under $3.70, good for the day. Current bid/ask spread is $3.40 to $3.50. Place a protective stop loss at $2.10.

Also, continue to hold your TIE February 30 Calls (TIE BF) and your CTRP February 65 Calls (QCT BM).Although TIE has fallen since our original entry price yesterday, I blame the softening on the Fed’s Minutes — which spooked the entire market and cause the mid-afternoon sell-off. If the markets continue to experience weakness, the metals could receive investor rotation benefits — as a flight to quality could cause them to begin another upside run. Let’s use our February expiration to our advantage and hold the TIE February 30 Calls. Same deal with the CTRP February 65 Calls — the longer expiration time offers us the change to participate in a nice up-move, and CTRP has the ability to make very big jumps. Maintain that position as well.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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