Strong April Positioning

A Handful of New Trades

Dear Bottarelli Research Member,

I’d like to take some action today. The first priority would be to position ourselves to capitalize on any upside momentum here in April, which is historically the best month of the year to be long. We’ll do that by adding to our longer-dated positions and also by taking some new upside positions as well.

The second priority would be to “hedge” against any further upward spikes in the price of oil. In other words, the movements of oil (and oil related stocks) are currently based solely on geo-political news flow, which means that we could see wide intra-day volatility swings all week long.

One the one hand, we’re already positioned for any downside movement via our Weatherford International WFT May 45 Puts (WFT QI), but I also think it’s a good idea to tempter this position by adding a call option on a strong company like Valero Energy (VLO – NYSE).

As you know from past alerts, we’ve had great success playing VLO calls — so I’d like to keep riding this house as long as it continues to hand us profits. VLO owns 18 refineries in the United States, Canada, and Aruba which produce both conventional and reformulated gasoline, diesel fuel, low-sulfur diesel fuel, jet fuel, asphalt, petrochemicals, and lubricants. They also operate 967 retail sites in the United States — and the chart has been nothing but a strong upside gainer. Check it out:

If oil prices continue to rise amid international tensions, VLO will defiantly continue its upside run. And even if the standoff is resolved amicably, VLO is in prime position to benefit as gasoline prices increase into the summer driving season. So as a way to counter-act the downside put position we have in WFT, let’s play the intra-day volatility in the oil sector by adding the VLO May 65 Calls (VLO EM). The trading thesis here is to use any near-term moves (whether its’ up or down) to take quick profits on VLO or WFT. Here’s the play:

PLAY: Buy the VLO May 65 Calls (VLO EM) at or under $3.10, good for the day. Current bid/ask spread is $2.90 to $3.00. Place a protective stop loss at $1.90.

I’d also like to add to our longer-dated positions in both the LMT June 100 Calls (LMT FT) and the NDAQ June 30 Calls (NQD FF). If you recall, we entered the LMT June 100 calls on 3/12/2007 for $4.00. Since then the stock has drifted lower, but I see no reason why a strong April wont’ break the stock out of its recent trading range — especially considering the strength of the defense and aerospace sector on the heels of a new multi-billion defense spending increase. Now that the stock dipped under the 50-day moving average, the LMT June 100 Calls currently trade for $2.60. I think this is a temporary event, so let’s lower our cost basis and add to the position at current levels.

PLAY: Buy more LMT June 100 Calls (LMT FT) at or under $2.70, good for the day. Lower your stop loss to $1.30.

The same goes for our NDAQ June 30 Calls (NQD FF). We entered these calls on 3/8/2007 for $2.25 and they currently trade for $1.95. Let’s use our longer-dated June expiration to add to this position and capitalize on any further upside movement — as I continue to think that the stock could pop $3.00 to $4.00 in the near term.

PLAY: Buy more NDAQ June 30 Calls (NQD FF) at or under $2.05, good for the day. Maintain your $0.90 stop loss.

And like I noted last week, I’d also like to ‘roll’ our AGN April 115 Calls (AGN DC) into a longer-dated expiration month. This entails selling our April position and using the proceeds to buy a new position with a July expiration date. This gives you plenty of time to witness the upside move that I expect will soon come to pass, so if you’re still holding the AGN April 115 calls let’s execute the roll play now:

PLAY: Sell your AGN April 115 Calls (AGN DC) at market. Then simultaneously buy the AGN July 115 Calls (AGN GC) at or under $4.40, good for the day.

I’d like to also add a new speculative upside play on MEMC Electronic Materials (WFR – NYSE). The company produces wafers for the worldwide semiconductor industry — which are the “guts” used in microprocessors, memory, logic, and power devices. The stock will keep increasing in value because the relentless pursuit of increased memory capacity will drive wafer demand, and I think the demand for their solar chips is just in its infancy stages. Based on the stock’s continued upside momentum, let’s add WFR calls to our ledger now.

PLAY: Buy the WFR May 65 Calls (WFR EM) at or under $2.30, good for the day. Place a protective stop loss at $1.20.

And finally, the upside momentum on America Movil S.A.B. de C.V. (AMX — NYSE) continues to rocket forward with no signs of slowing down. The stock just hit a new 52-week high today at $49.45, and all signs point to the stock easily breaking into the mid-$50’s in the near term. As a more speculative position, let’s buy the AMX May 50 Calls (AMX EJ) to play a quick upside gainer.

PLAY: Buy the AMX May 50 Calls (AMX EJ) at or under $2.15, good for the day. Place a protective stop loss at $1.00.

Lock and load!

Sincerely,