Two Long-Term Doublers

BBI and CHINA Make the Grade

Dear Bottarelli Research Member,

I received an interesting question from a Charter Member S.G yesterday. He asked, “I noticed that you take profits on some plays very quickly – which is fine with me – but how do you go about getting the 100% winners?”

My response to S.G, which I’ll share with you now, was as follows…

“Thus far in 2007, the market has been very choppy – with lots of intra-day movement with little directional trending. When you have environments like that, the game of the game is taking quick profits, which is what I’ve been doing. Once a trend forms up, then we can hold positions longer and maximize our profit percentages.”

Having said that, I ran a market scan that searched for stocks that exhibit all my upside characteristics – but I added one additional guideline: The stocks had to be under $10 and contain an option string.

Armed with this market study, the idea is to buy a very cheap – and very long-dated option that allows us to profit off the continued rise in these small stocks over a 12-month period. That’s how we’ll generate an even higher percentage of double-digit winners. So today, allow me to introduce two new long-term plays – each designed to hand you a clean 100% gainer. Perhaps even more.

The first play comes in the form of Blockbuster (BBI – NYSE).

As you can see by the chart, the stock has just hit a new 52-week high at $6.45. The reason for the BBI’s rally is their brilliant rebuttal to Netfix’s competitive business plan. You see, now that Netflix offers unlimited video rentals delivered through the mail, many considered Blockbuster dead in the water. But in a stroke of genius, Blockbuster has actually transformed their bricks and mortar stores to a competitive advantage. They’re now offering an online video rental service just like Netflix, but Blockbuster’s model also gives you the advantage of trading your movies for new ones at their thousands of locations across the country. That way, if you don’t want to wait for the movies to come in the mail, you can simply drive down to a Blockbuster location and make a switch!

This savvy move by Blockbuster puts them right back in business – making the $6.43 stock a remarkable turnaround candidate. Not long ago, the stock was in the $10 and $11 range – and their new business plan could help them regain those levels once again. Let’s get posited to ride this up-swing by using the super-cheap BBI January 2008 10 Calls (YCQ AB). Currently trading between $0.35 and $0.45, these calls offer a great opportunity to double as BBI continues to gain momentum. You’ll own a full year of expiration time for very cheap levels, so let’s add this position to our ledger now.

PLAY: Buy the BBI January 2008 10 Calls (YCQ AB) at or under $0.45, good for the day. Since this contract is good until January of 2008, do not place a stop loss at this time.

The second name comes in the form of CDC Corp. (CHINA – NASDAQ)

Based out of Beijing, the People’s Republic of China, CHINA offers all the special telecom features that any tech-savvy customer craves. From online games, instant messaging, entertainment, or Internet access, CHINA’s wireless services are undoubtedly supporting an exploding market segment. With the stock breaking up to new 52-week highs, it’s also a good idea to add some longer-dated and cheap calls to our ledger. Here’s the trade:

PLAY: Buy the CHINA Janary 2008 7.5 Calls (WRW AU) at or under $4.10, good for the day. Current bid/ask spread is $3.70 to $3.90. Since this call is a little more expensive than the BBI play, go ahead and place a protective stop loss at $1.90.

Also handing you a profit this morning is your LAMR April 70 Calls (LJQ DN).

As you can see from the chart, the stock has continued to move higher, pushing your calls up to a high of $3.10 per contract. Although this one will be book-kept as a $2.75 sell in our model portfolio, I’m sure there are some Charter Members getting even better sell prices today. So if you haven’t already done so, take your profits now!

And finally, although we came within $0.10 of selling our STP February 35 Puts (STP NG) for profits, the stock found support and rallied – thus forcing us to close off our downside put position. If you haven’t already done so, exit the trade.

That leaves us with SNDK April 47.5 calls (SWF DW), which are down a little today as SanDisk is take a breather after yesterday’s strong run-up, and TIE February 30 Calls (TIE BF), which are once again scratching and clawing their way back towards profitability. Maintain each position — and as always…

Lock and load!

Sincerely,