On the Eve of GOOG

Plus TIE, LFC, and BA

Dear Bottarelli Research Member,

We’re taking some nice profits on our call positions today, as our Liberty Media March 105 Calls (NLD CA) and our HES March 55 Calls (IGG CK) have both triggered for gains.

Let’s look to keep the profits rolling — and that’s why I’d like to address today’s move in Boeing (BA – NYSE).

As you can see from today’s chart, BA is off to the races after reporting that Q4 earnings more than doubled — thanks to robust commercial airplane and defense system business. Net income came in at $1.29 per share versus $0.58 per share a year earlier, which is why the stock is up 5% on today’s action.

Now I bring this up because today’s BA news could be the one upside trigger that we’ve been desperately waiting for in Titanium Metals (TIE – NYSE). After all, TIE’s titanium melted and mill products are becoming increasingly popular among aerospace outfits like Boeing, and a strong Q4 could mean good things for TIE looking forward.

As you know, we’re holding the TIE February 30 Calls (TIE BF) with an average cost basis of $2.00. In today’s action, these calls have traded as high as $1.40, and any further upside breakout could finally put us into the black. Like I mentioned earlier, I’m giving this play a short leash — but let’s see if today’s momentum can carry forward into week’s end.

Another position to address is our China Life Insurance February 50 calls (LFC BJ).As I’ve noted in prior alerts, LFC has been experiencing large intra-day price swings which has brought the stock back down to a solid support level at $45. And here’s the thing: these large swings are primarily due to rumors and speculation as opposed to any solid business-related issues.

For example, the initial selling pressure came on a rumor that LFC chairman Yang Chao could soon be leaving the company. LFC shareholders consider Mr. Chao as the company’s #1 asset — holding him on a pedestal similar to how we consider Cisco’s John Chambers, Exxon Mobil’s Lee Raymond, or Apple’s Steve Jobs. So precious is Mr Chao to LFC shareholders that the stock lost $1.6 billion in value in three days following reports that he could be leaving for another insurance company.

But on Monday, it was reported that Yang Chao was staying put at LFC — and that and his deputy, Wu Yan, was the one leaving. This news helped the stock recoup some if its earlier losses.

But then today, another “outside” factor is hurting virtually every China-related stock, as Cheng Siwei, who is the vice-chairman of the standing committee of the National People’s Congress, told the Financial Times his view of the Shanghai Composite by saying “There is a bubble growing. Investors should be concerned about the risks."

On this news, the Shanghai Composite lost 144 points — good for a 4.9% decline. And in today’s US-based trading, this weakness is being seen in every China-play, as LFC is down $1.60 as I write. But get this: Mr. Cheng has no formal control over China’s financial policy — so his comments are nothing more than his personal assessment of the markets. To my eye, the combination of rumors surrounding LFC chairman Yang Chao combined with today’s knee-jerk reaction to outside bubble comments has continued to push LFC down to attractive levels. Technically-speaking, our super-cheap China Life Insurance February 50 calls (LFC BJ) have been stopped at $0.30, so I must honor our stop loss pricing. But there is a very good chance we’ll be getting back into LFC calls, perhaps with a March expiration date very soon.

And finally let’s dig into Google (GOOG – NASDAQ) — as the company gets ready to report their earnings after the close of trading today.

As you know, we entered a strangle position that’s biased to the upside using the GOOG March 570 Calls (GOP CQ) and the GOOG March 390 Puts (GOP OR). The theory behind the trade was that if GOOG moves up $30, you make 40%, and if GOOG moves down $30, you break even. So in a way, it was an opportunity to play another blowout quarter from GOOG without the downside risk associated with simply betting on one directional move.

Yesterday we paid a total of $4.85 to own this basket of calls and puts — and today (as GOOG is trading $8 higher in advance of this evening’s report) this same basked is valued at $5.45, good for a quick and easy 12.3% gainer. Although one part of me wants to take the easy money off the table, the other half wants to hold into the upcoming earnings report. If you want to take your gains, I won’t blame you. But I’ll continue to monitor this basket as we head into another exciting earnings report from GOOG. Until then…

Lock and load!

Sincerely,