One New Put, One New Call

NYX Looks to Fall, but FMCN Still Popping

Dear Bottarelli Research Member,

I’m back from the Orlando Money Show — where all anyone could talk about was the coming market correction.

One attendee told me “I just want the market to fall 10% so I can buy back in again,” and that was the general consensus with everyone I had the pleasure of speaking with. And trust me, everyone had a supporting statistic on the tip of their tongue. For example:

Stocks have gone up for eight straight months, the market has not had a 2% down in 144 trading days, more than half of the S&P 500 stocks are within 5% of their 52-week highs — and that’s an overbought condition that has preceded corrections in year’s past, implied volatility on the S&P 500 is are multi-year lows — and volatility tends to spike every 6-8 months (and we’re going on 8 months since the last spike), ext, ext, ext.

In my view, the more people that talk about the coming correction, the more quickly we’ll witness it happening. And with coverage in the likes of Barron’s, The Wall Street Journal, and even USA Today, it seems like no media outlet is passing up the opportunity to bring this statistic to your attention. That’s why we’re currently holding our DIA March 126 Puts (DAW OV). As you can see, the DIA could soon be embarking on a fall anywhere between 2% and 10%, and I want us all to be positioned to profit off the down-move.

At the same time, I also want to own a downside position in stocks I consider extremely over-valued — which is why we also have puts on WebMD Health (WBMD – NASDAQ). As you can see by the chart, WBMD is putting in a nice red candlestick formation today — and perhaps this is the start of an extended downward move. Maintain your WBMD March 50 Puts (QWB OJ).

I’d also like to add a new downside put play to the mix — and it comes in the form of NYSE Group (NYX – NYSE). As you can see by the chart, NYX is now in a place that I consider “no-man’s land.” In other words, it just broke below its 50-day moving average, and the next support point isn’t until $15 lower at the 200-day moving average. Sine this stock tends to make big directional moves, let’s go ahead and add some NYX puts to our trading ledger:

PLAY: Buy the NYX March 90 Puts (NYX OR) at or under $5.70, good for the day. Place a protective stop loss at $3.70.

At the same time, I’d also like to add a shorter-term upside call play to our ledger in the form of Focus Media Holding (FMCN — NASDAQ). As you know, the bulls won’t go down without a fight, and we’ve had great success playing FMCN before. It now looks like FMCN wants to make yet another upside push to break its recent 52-week high just under $90.00, so let’s get positioned to ride this upside pop:

PLAY: Buy the FMCN March 90 Calls (QOH CR) at or under $4.00, good for the day. Place a protective stop loss at $2.90.

And finally, despite all the threats of a pending sell-off, I’d still like to maintain our two March upside plays in RIG March 80 Calls (RIG CP) and CELG March 55 Calls (LQH CK). I noticed that our RIG calls traded as high as $2.90 on Friday, which was a nice 28.8% gainer from our entry price — but have since come down off those highs. This shows you that the volatility is certainly there in the oil services sector, so let’s maintain the RIG play for more upside potential. At the same time, we’re still waiting for CELG to get some upside momentum as well — which could come at any time. Maintain your CELG calls.

In terms of the longer-dated plays that I spoke about last week, I think it’s smart to let any downside selling pressure take hold of the markets — which will then hand us a prime opportunity to get established in our next series of longer-dated winners. I’ll keep you fully informed, as always. And until t then…

Lock and load!

Sincerely,